Increasing Innovation through Alliance Portfolio Management: Coordinating Partners, Accommodating Diversity, and Aligning Objectives

Abstract

With the increasing importance of innovation outcomes, alliances have become important strategic instruments allowing firms to take advantage of new knowledge for realizing innovation. For example, in some high-tech industries such as computer software and hardware, biotechnology, and telecommunications, forming alliances to support growth and innovativeness is a ubiquitous phenomenon. Firms becoming engaged in multiple simultaneous alliances face new management tasks beyond simply managing the individual alliances. Alliance and innovation literature has expanded the point of view from individual alliances and their resulting performance to also consider the alliance portfolio – all the alliances conducted by a firm – and how to manage and use it to generate performance. Considering the interests in the extant literature and the significance of tasks relating to alliance portfolios, this dissertation includes three different components of alliance portfolio management, namely, coordinating partners, accommodating diversity, and aligning objectives. It is important to realize that these components both individually and collectively contribute to the firms innovation outcome. Each component, however, requires a different portfolio management strategy to obtain the best outcome: In terms of coordinating partners, as firms increase the size of their alliance portfolios, the innovation outcome is largely depending on partners relationships. In terms of accommodating diversity, firms need to increase their alliance experience and proximity to their partners to accommodate diverse knowledge from their alliance portfolios. In terms of aligning objectives, for more effective innovation, firms should embrace the ambidexterity in their alliance portfolios and support their alliances with an appropriate innovation intent. This dissertation empirically examines the effects of the constituents of each component on innovation outcome to research the influence of alliance portfolio management on realizing innovation. When firms build up their alliance portfolios, they have to coordinate the relationships among their partners as well as the size of their alliance portfolios. The relationships, which include cooperative as well as competitive ties among the focal firms partners, affect the flow of knowledge within the focal firms alliance portfolio and thus influence the amount of benefits the focal firm gains from its alliance resources. Employing the resource-based view and a social network perspective, Chapter 3 examines the impact of network resources in alliance portfolios on the focal firms innovation performance and how structural and competitive embeddedness in alliance portfolios positively or negatively moderates this impact. Results verify that a larger alliance portfolio leads to an improved innovation performance of the focal firm, but, at the same time, relationships among the focal firms partners are found to affect the link between alliance portfolio size and focal firm performance. Specifically, in terms of structural embeddedness, a cooperative and densely tied portfolio strengthens the positive impact of alliance portfolio size on the focal firms innovation performance. In terms of competitive embeddedness, a portfolio with severe competition among the partners weakens the positive impact and leads to a reduced innovation performance. These findings suggest firms to increase their alliance portfolio size and, at the same time, to keep an eye on their portfolios two-sided network characteristics, i.e., the connectivity and competition among their partners. Firms also need to be able to accommodate the diverse knowledge within their alliance portfolios. While an alliance portfolio which consists of diverse partners is usually beneficial to the focal firm, the maximum level of diversity that a firm can handle is determined by its extensive absorptive capacity. Chapter 4 examines the relationship between alliance portfolio diversity and innovation performance and how the absorptive capacity, developed by the focal firms alliance experience and the proximity of knowledge between the focal firm and its alliance portfolio, moderates this relationship. Empirical results verify an inverted u-shape relation between alliance portfolio diversity and focal firms innovation performance. However, with accumulated alliance experience and higher proximity to partners, focal firms can accommodate more diversity in their alliance portfolios, which contributes to an improved innovation performance. These findings suggest that the maximum level of alliance portfolio diversity which contributes to innovation performance is limited, however, firms can learn to take advantage of higher diversity by building up their alliance experience and placing relatively proximate partners in their alliance portfolios. Finally, firms should align the goals of their alliance portfolios so that they can enhance the effectiveness of their innovation outcomes. Collaborative decision making through alliances contributes to a profound understanding toward market needs and market adaptation. The evaluation of the collaborative output by collaborators with different backgrounds also increases the practicality and marketability of the resulting innovations. Thus, alliance portfolios do not only contribute to immediate innovation outcomes but can also serve to increase innovation effectiveness as well. Chapter 5 investigates the influence of alliances which aim to obtain new knowledge, i.e. exploratory alliances, on firms innovation effectiveness. Moreover, this chapter examines some external and internal conditions which strengthen the influence of such alliances on innovation effectiveness. The results of the empirical study verify a positive relationship between the commitment to exploratory alliances and innovation effectiveness as measured by the percentage of revenue from new products. It is also confirmed that exploitative alliances and internal innovation intent positively moderate this relationship. These findings suggest that firms alliance portfolios can be aligned for more effective innovation outcomes through external and internal efforts. Externally, firms should organize ambidextrous alliance portfolios, and, internally, firms need to support their alliance objectives with relevant innovation intents. In conclusion, this dissertation highlights major building blocks of alliance portfolio management that contribute to the focal firms innovation outcome. This dissertation provides a number of important findings and implications corresponding to each component of alliance portfolio management: First, this dissertation confirms the moderation effect of partners relationships on the link between alliance portfolio size and innovation performance and thus suggests firms to pay attention to coordinating their partners. Next, this dissertation investigates the role of alliance experience and proximity in accommodating diversity. This integrative approach to accommodating diversity shows how firms can learn to benefit from diversity in their alliance portfolios. Finally, this dissertation confirms the role of ambidextrous alliances and internal innovation intent in aligning alliance portfolios. This finding suggests firms to balance different types of alliances, i.e., exploratory and exploitative alliances, and to support alliances by integrating them into the companywide strategy. Overall, this dissertation shows that with proper alliance portfolio management, a firms alliance portfolio is an important strategic element which contributes to the sourcing of external knowledge and realizing innovation.