Elsevier

Research Policy

Volume 40, Issue 2, March 2011, Pages 287-296
Research Policy

Exploration versus exploitation in alliance portfolio: Performance implications of organizational, strategic, and environmental fit

https://doi.org/10.1016/j.respol.2010.10.006Get rights and content

Abstract

How does the nature of firms’ alliance portfolio in terms of exploration versus exploitation affect performance? Building on prior research grounded in the resource-based view and the relational perspective, we expand firms’ boundary to include their inter-firm relationships and their immediate environment, and develop an extended resource-based framework centering on the concept of fit. Specifically, we propose that whether the exploration versus exploitation orientation of an alliance portfolio may benefit firm performance depends on how such an orientation fits the firm's internal organizational characteristics, strategic orientations, and the industry environment. Data from five U.S. industries over eight years largely support our thesis. Overall, our study calls for a holistic approach to consider the importance of organizational, strategic, and environmental fit in understanding the performance implications of alliance-formation choices.

Research highlights

▶ Organizational fit (alliance choices—firm age) allows greater immediate returns. ▶ Strategic fit (alliance choices—competitive strategy) allows greater immediate returns. ▶ Environmental fit (alliance choices—industry context) allows greater immediate returns.

Introduction

While strategic alliances often carry positive implications for firm performance (Das et al., 1998, Schreiner et al., 2009), how and when such impact may manifest have not yet been systematically examined, in particular when a firm can have multiple alliances with different purposes (Lin et al., 2009). Under what conditions does a firm's alliance portfolio lead to superior performance? To address the research question we extend the resource-based view with a relational perspective, and argue that the performance implications of a firm's alliance portfolio need to be considered in terms of its fit with organizational, strategic, and environmental factors.

According to the resource-based view, firm behaviors are resource-driven (Barney, 1991, Dierickx and Cool, 1989). Yet, such a traditional view tends to treat firms with closed boundaries within which resources reside. Meanwhile, more scholars have started to recognize the relational nature of a firm and the broad social and economic environment that a firm is embedded in. For example, Dyer and Singh (1998), Lavie (2006), and Arya and Lin (2007) have proposed an extended resource-based view to bridge the traditional resource-based view and the relational perspective. In line with this direction, we build on the more recent and extended resource-based view, which expands firms’ boundaries to their inter-firm alliance relationships and the alignment with their external environment (Dyer and Singh, 1998, Lavie, 2006). From such a perspective, we view firms’ alliance portfolio (in terms of exploration and exploitation) as their capabilities of accessing and deploying different resources in inter-firm relations, and further emphasize how important these capabilities need to fit with firm characteristics, strategic orientations, and industry conditions.

Our study intends to contribute to the literature in four important aspects. First, while the purpose of a strategic alliance may be for mutual benefits, the benefit of an individual alliance may not always be transferable to the parent firm (Baum et al., 2000, Gulati, 1998). In this study we thus move beyond individual alliances to examine the impact of a firm's alliance portfolio. Specifically, we ask how alliance-formation choices between exploration and exploitation in a firm's alliance portfolio affect firm performance. By viewing alliance formations as firms’ strategic choices in terms of exploration and exploitation, we attempt to explore the mechanism through which rents are created from such alliance-formation choices. In this sense, our study also contributes to the burgeoning literature that delineates the boundary of the exploration–exploitation paradigm.

Second, we clarify the relationships among firms’ alliance purpose, competitive strategy, and performance. This study builds on the recent stream of research (e.g., Ruiz-Ortega and Garcia-Villaverde, 2008, Vorhies et al., 2009) that extends the resource-based view through meshing it with other perspectives (e.g., competitive strategy, relational perspective). We further advance the extended resource-based view (Dyer and Singh, 1998, Lavie, 2006) by applying it to the study of strategic alliances while considering firms as having open boundaries with inter-firm alliance relations.

Third, in implementing the extended resource-based view, we highlight the importance of fit – organizational, strategic, and environmental fit that affects firm performance – as suggested in other studies (e.g., Kratzer et al., 2008). Specifically, we explore whether a firm's alliance portfolio leads to superior performance when its resources are combined effectively with appropriate organizational characteristics, strategic orientations and environmental circumstances (Dickson and Weaver, 1997). Our approach not only addresses endogeneity issues commonly confronted by prior studies in this area, but also examines the impact of fit among internal and external boundary conditions that affect firm performance. To truly understand strategic alliances it is as important as exploring the antecedents to examine the consequences of a firm's alliance-formation choices and its boundary conditions (Lin et al., 2009).

Fourth, we attempt to make a contribution to the literature by empirically testing our model in a multi-industry setting. While prior research has generally focused on one industry (Park et al., 2002, Rothaermel, 2001a), we employ a multi-industry context to increase heterogeneity within our sample. Overall, our study extends the resource-based framework to include not only firm characteristics but also their inter-firm relations and their immediate environment when investigating the role of a firm's alliance portfolio on firm performance (Lavie, 2006, Rothaermel, 2001b).

Section snippets

Theory and hypotheses

As behavioral players, firms are embedded in the broad social and economic environments and must rely on their past experience for future actions (Cyert and March, 1963, March and Simon, 1958). To deal with the uncertainty and ambiguity of the external environment, managerial discretion is often reflected through the choices of flexibility and stability (Burgelman, 1991, Burgelman, 2002) or in the words of March (1991), “exploration and exploitation.” Exploration is associated with terms like

Sample

Our main financial data source is Standard and Poor's COMPUSTAT (SPC), which we further complemented with Moody's FIS Online. We focused on 95 firms from five industries (pharmaceutical, computer, food, steel, and paper) over eight years (1988–1995 inclusive) given that these industries have distinctive resource growth conditions and alliance activities over this time period, which can offer useful contrast and variance, but less alternative explanations for our analysis such as dotcom bubble

Results

Table 1 presents the means, standard deviations, and correlations for the variables in our models. Table 2 reports the results of the hierarchical regression models.

To assess the potential threat of multicollinearity problems associated with high correlation, we estimated the variance inflation factors (VIFs) and condition indexes for our hierarchical regression model. The highest VIF was 2.23, and the average VIF was 1.35, which are well below the recommended ceiling of 10 (Kleinbaum et al.,

Discussion

This study has adopted an extended resource-based view and examined the performance consequences of a firm's alliance portfolio in terms of exploration and exploitation (March, 1991) while considering its fit with firm characteristics, strategic orientation, and industry condition. Our findings show that it is not only important to consider alliances as expansions of firms’ boundaries but also fruitful to understand the relationships among firms, their alliances, the external environment, and

Conclusion

Our study has highlighted the importance of using an extended resource-based view to examine the relationship between a firm's alliance-formation choices and its performance. Our findings suggest that performance implications of a firm's alliance portfolio depend on organizational, strategic, and environmental fit. Specifically, it is critical to consider the level of fit among alliance formation (exploration/exploitation), firm age, firm strategy (cost leadership/differentiation), and industry

References (91)

  • P. Anderson et al.

    Organizational environments and industry exit: the effects of uncertainty, munificence and complexity

    Industrial Corporate Change

    (2001)
  • C.R. Anderson et al.

    Stage of the product life cycle, business strategy, and business performance

    Academy of Management Journal

    (1984)
  • B. Arya et al.

    Understanding collaboration outcomes from an extended resource-based view perspective: the roles of organizational characteristics, partner attributes, and network structures

    Journal of Management

    (2007)
  • J.A.C. Baum et al.

    Don’t go it alone: alliance networks and startup performance in Canadian biotechnology

    Strategic Management Journal

    (2000)
  • J.B. Barney

    Firm resources and sustained competitive advantage

    Journal of Management

    (1991)
  • C.M. Beckman et al.

    Friends or strangers? Firm-specific uncertainty, market uncertainty, and network partner selection

    Organization Science

    (2004)
  • S.L. Berman et al.

    Does stakeholder orientation matter? The relationship between stakeholder management models

    Academy of Management Journal

    (1999)
  • R.A. Bettis et al.

    Diversification strategy, accounting determined risk, and accounting determined return

    Academy of Management Journal

    (1982)
  • R.A. Burgelman

    Intraorganizational ecology of strategy making and organizational adaptation: theory and filed research

    Organization Science

    (1991)
  • R.A. Burgelman

    Strategy as vector and the inertia of coevolutionary lock-in

    Administrative Science Quarterly

    (2002)
  • G.J. Castrogiovanni

    Environmental munificence: a theoretical assessment

    Academy of Management Review

    (1991)
  • R.N. Cyert et al.

    A Behavioral Theory of the Firm

    (1963)
  • E. Danneels

    The dynamics of product innovation and firm competencies

    Strategic Management Journal

    (2002)
  • S. Das et al.

    Impact of strategic alliances on firm valuation

    Academy of Management Journal

    (1998)
  • J.S. David et al.

    The performance effects of congruence between product competitive strategies and purchasing management design

    Management Science

    (2002)
  • G.G. Dess et al.

    Dimensions of organizational task environment

    Administrative Science Quarterly

    (1984)
  • G.G. Dess et al.

    Porter's generic strategies as determinants of strategic group membership and organizational performance

    Academy of Management Journal

    (1984)
  • I. Dierickx et al.

    Asset stock accumulation and sustainability of competitive advantage

    Management Science

    (1989)
  • P.H. Dickson et al.

    Environmental determinants and individual-level moderators of alliance use

    Academy of Management Journal

    (1997)
  • J.H. Dyer et al.

    The relational view: corporate strategy and sources of interorganizational competitive advantage

    Academy of Management Review

    (1998)
  • K.M. Eisenhardt

    Making fast strategic decisions in high velocity environments

    Academy of Management Journal

    (1989)
  • K.M. Eisenhardt et al.

    Resource-based view of strategic alliance formation: strategic and social effects in entrepreneurial firms

    Organization Science

    (1996)
  • J. Freeman et al.

    The liability of newness: age dependence in organizational death rates

    American Sociology Review

    (1983)
  • C.B. Gibson et al.

    The antecedents, consequences, and mediating role of organizational ambidexterity

    Academy of Management Journal

    (2004)
  • R. Gulati

    Alliances and networks

    Strategic Management Journal

    (1998)
  • J. Hagedoorn et al.

    The effect of strategic technology alliances on company performance

    Strategic Management Journal

    (1994)
  • D.C. Hambrick

    High profit strategies in mature capital goods industries: a contingency approach

    Academy of Management Journal

    (1983)
  • M.T. Hannan et al.

    Structural inertia and organizational change

    American Sociology Review

    (1984)
  • Z. He et al.

    Exploration vs. exploitation: an empirical test of the ambidexterity hypothesis

    Organization Science

    (2004)
  • J. Heckman

    Sample selection bias as a specification error

    Econometrica

    (1979)
  • C.W.L. Hill

    Differentiation versus low cost or differentiation and low cost: a contingency framework

    Academy of Management Review

    (1988)
  • C.W. Hill et al.

    The performance of incumbent firms in the face of radical technological innovation

    Academy of Management Review

    (2003)
  • R.J. Jiang et al.

    Alliance portfolio diversity and firm performance

    Strategic Management Journal

    (2010)
  • D.R. King et al.

    Meta-analyses of post-acquisition performance: indications of unidentified moderators

    Strategic Management Journal

    (2004)
  • D.G. Kleinbaum et al.

    Applied Regression Analysis and Other Multivariate Methods

    (1988)
  • Cited by (159)

    • Antecedents of radical innovation speed from a knowledge network perspective

      2024, International Journal of Production Economics
    • Configuring alliance portfolios for digital innovation

      2024, Journal of Strategic Information Systems
    View all citing articles on Scopus

    All authors have contributed equally. We thank David Deeds for collaboration on earlier related work, Irem Demirkan for her research assistance, Gregory Dess, Jane Salk, Seung-Hyun Lee, and Sebahattin Demirkan for their constructive comments, and Dung Hua for her editorial help. We also thank Editor Ben Martin and two anonymous reviewers of Research Policy for their helpful suggestions. An earlier version of the paper was presented at the 2006 Academy of Management Annual Meeting, Atlanta, Georgia.

    1

    Tel.: +852 3442 7857; fax: +852 3442 0309.

    2

    Tel.: +1 972 883 2753; fax: +1 972 883 6029.

    View full text