Improving the Progress of Research & Development (R&D) Projects by Selecting an Optimal Alliance Structure and Partner Type
| DOI | http://doi.org/10.1111/1467-8551.12267 |
| Date | 01 October 2019 |
| Author | Farok J. Contractor,Jeongho Choi |
| Published date | 01 October 2019 |
British Journal of Management, Vol. 30, 791–809 (2019)
DOI: 10.1111/1467-8551.12267
Improving the Progress of Research
& Development (R&D) Projects
by Selecting an Optimal Alliance Structure
and Partner Type
Jeongho Choi and Farok J. Contractor1
St. John Fisher College, Department of Management and Marketing, 3690 East Ave., Rochester, NY 14618,
USA 1Rutgers Business School, Rutgers University, 1 Washington Park, Newark, NJ 07102, USA
Corresponding author email: jchoi@sjfc.edu
This paper extends the study of alliance governancestructure by examining what alliance
structure, coordination mechanisms and partner type best enhance the likelihood of Re-
search and Development (R&D) progress or performance. We specially focus on the co-
ordination and interaction mechanism of alliances, through whichwe classify the alliance
governance structures in order to reflect the more complex alliance types and contracts
used in today’s R&D. Using data from 255 biopharmaceuticals between the years 2000
and 2004, we found that, ceteris paribus, a moderate degree of inter-partner interaction
and a moderately complex (non-equity-based) alliance contract contributes more to a
better R&D alliance performance than those structures that are too simple or too or-
ganizationally embedded (e.g. equity joint ventures), which possibly increase the risk of
misalignment and miscommunication between allies. In addition, due to the reduced op-
portunism and the diverse resource (e.g. technology) pooled in the alliance, allying with
diverse organizational partners such as non-profit research institutes and universities is
more likely to enhance the R&D performance. Our findings provide insightful strategic
implications to practitioners in designing an appropriate alliance governance structure
and choosing the right partner type for a successful R&D collaboration.
Introduction
In the past decade it has become common in
knowledge-intensive sectors such as telecommu-
nications or biopharmaceuticals to undertake
Research and Development (R&D) with diverse
alliance partners (Beers and Zand, 2014; Oxley
and Sampson, 2004; Sampson, 2007). In designing
such partnerships, two issues powerfully influence
the R&D project performance: (a) the selection of
alliance partners (Belderbos, Carree and Lokshin,
2004; Fey and Birkinshaw, 2005; Li et al., 2008)
and (b) designing an appropriate alliance gov-
ernance mode (Poppo and Zenger, 2002). While
alliances exhibit a ‘ .. . bewildering spectrum of gov-
ernance structures ...’witha widerangeof partner
tasks, intensity of interaction and other agree-
ment provisions (Ebers and Oerlemans, 2016),
‘surprisingly little is known about how collaborative
activities are organized and administered within
these governance structures’ (Albers, Wohlgezogen
and Zajac, 2013). However, recent research has
begun to drill down to the contractual micro-
foundations or micro-details of collaboration
agreements, to zero in on what each agreement
states regarding the degree of interaction and
joint tasks performed by each partner (Reuer and
Devarakonda, 2016).
This paper focuses specifically on the R&D
alliance governance structure using two critical
dimensions of governance mechanism: the inten-
sity of communication between partners and the
© 2017 British Academy of Management. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4
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792 J. Choi and F. J. Contractor
coordination of tasks that each has to perform,
because it is not enough to dichotomize alliances
as ‘non-equity’ or contract-based alliances versus
equity joint ventures (EJVs), where the personnel
of the partners work closely and have the greatest
mutual interaction. Even within the ‘non-equity’
group, there can be considerable inter-partner
coordination, depending on the tasks and pro-
visions specified in the agreement. Thus, it is
not a dichotomy, but a spectrum – ranging from
loose interaction between partners at one end to
intense coordination in EJVs. This argument calls
into question the previous literature on alliance
governance structure.
Previously, the knowledge-based view (KBV)
suggested that a more organizationally intense
alliance mode such as an EJV would be more eec-
tive in sharing and creating tacit/complex knowl-
edge (Kogut and Zander, 1992; Macher, 2006;
Oxley and Wada, 2009; Sampson, 2004b). Trans-
action cost economics (TCE) also suggests that
a quasi-hierarchy, as in an EJV, is a better alter-
native when transaction costs increase, because a
firm cannot easily envisage and control all future
uncertainties through a contract to safeguard their
transaction. Too loose an R&D collaboration,
with few guidelines or contractual specifications
for how the partners are to work together, would
not be productive.
Nevertheless, in EJVs the benefits of close
partner interaction leading to positive knowledge
creation can be oset by a much higher upfront
investment in finance, personnel, other resources
(i.e. higher risk) and coordination costs – so that
an EJV may not always be an optimal choice
in R&D collaborations. In complex R&D work,
throwing scientists and personnel from two or
more companies into one hierarchical organiza-
tion may greatly increase information-processing
costs, especially when the allies have dierent lev-
els of information-processing capacity (Galbraith,
1977) and when the partners come from signifi-
cantly dierent organizational and technological
backgrounds. This is what prior research has
not emphasized enough: the cost side of greater
inter-partner interaction and control/coordination
between alliance partners.
In this paper, we propose a spectrum, or index,
of alliance governance modes, tracking the degree
of inter-partner interaction and coordination (cov-
ering both contractual or ‘non-equity’ alliances as
well as EJVs). We construct this index from an
actual reading of alliance agreement provisions in
our sample. We then ask, ‘Which degree or level
of interaction and coordination is most conducive to
R&D project performance?’
In fact, in industries with high uncertainty, rad-
ically changing technology and unpredictable di-
rectionality of technology development (e.g. bio-
pharmaceuticals – the context of this study),
the share of EJV-type collaborations has already
shrunk dramatically, in favour of non-equity or
contractual alliances (Frankfort and Hagedoorn,
2016). Clearly, company negotiators and their
lawyers have learned how to substitute, instead of
EJVs with large resource commitments, moreflex-
ible and reversible non-equity arrangements which
have low sunk costs in the face of alliance failure
(Colombo, 2003; Folta, 1998). While the premise
of R&D alliances is to seek and combine comple-
mentary knowledge and capabilities, thus creating
technological value, at the same time, being flexi-
ble and reducing coordination costs is also impor-
tant. This leads to a research question on which
wefocusinthisstudy:‘What alliance governance
structure helps balance the benefits and costs of in-
teraction and coordination, and best contributes to
R&D project performance?’
The second aspect of this study is to ask
how R&D performance depends on alliances
with diverse or organizationally dissimilar part-
ners (e.g. between biotechnology firms, phar-
maceutical companies, universities and research
institutes (McCutchen and Swamidass, 2004;
Sampson, 2007). Alliance partner diversity is a po-
tential source of complementary resources, and a
driver of better collaboration performance (Jiang,
Tao and Santoro, 2010). We focus on two dierent
types of partner diversity: (1) organizational (e.g.
university, non-profit research institute or con-
tract research organization,as opposed to compet-
ing firms) and (2) technological base (how similar
or distinct their technology bases are) (Beers and
Zand, 2014; Belderbos, Carree and Lokshin, 2004;
Sampson, 2007). We then examine how the part-
ner diversity enhances, or moderates, the relation-
ship between the degree of inter-partner interac-
tion and coordination in a givenalliance m ode and
R&D performance.
As a general conclusion, we hypothesize that
allies can achieve the best R&D outcomes with
a governance specification that entails inter-
mediate (neither too low nor too high) levels
of interaction and coordination on a spectrum
© 2017 British Academy of Management.
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