Cross-Function and Same-Function Alliances: How Does Alliance Structure Affect the Behavior of Partnering Firms?

Abstract

F irms collaborate to develop and deliver new products. These collaborations vary in terms of the similarity of the competencies that partnering firms bring to the alliance. In same-function alliances, partnering firms have similar competencies, whereas in cross-function alliances, partners have very different competencies. On examining managers' view of these alliances, we find that, on average, same-function alliances are expected to perform better than cross-function alliances, holding fixed the level of inputs. A game-theoretic analysis shows that this apprehension about cross-function alliances is consistent with a Pareto-inferior equilibrium. A Pareto-superior equilibrium, however, suggests that partners in cross-function alliances may invest more in their alliances than those in same-function alliances. It is also often believed that increasing the number of partnering firms is not conducive for collaborative effort. Our analysis shows that this belief is correct for same-function alliances, but not for cross-function alliances. We test these equilibrium predictions in an experiment where we exogenously vary the type of alliance and the number of partnering firms. The experimental results lend support for the Pareto-superior equilibrium. Partners in cross-function alliances invested more than their counterparts in same-function alliances, and this difference in investment levels increased with the number of partnering firms. We extend our model to consider alliances where firms have an opportunity to learn from their partners and later leverage this knowledge outside the scope of their alliance. Though such learning increases the resources committed by alliance partners in the learning phase, it decreases investment in the subsequent competition and also dampens the overall investment across the two stages. In addition, an increase in interalliance competition decreases investments in the focal alliance but increases investment in the competition outside the scope of the alliance.

The interplay of competitive and cooperative behavior and differential benefits in alliances

“…Under high levels of task interdependence, joint output requires multiple exchanges of a variety of resources, and partners become increasingly dependent on mutual cooperation for the achievement of superior outcomes (Pearce, ). The relationship between resource commitments and joint output can strengthen to the point where the withdrawal of one partner's commitments toward the alliance will yield zero output (Amaldoss & Staelin, ). In contrast, alliances with low interdependence permit one partner to produce some output alone, albeit at a lower level or with lower profitability than initially expected.…”

“…This, in turn, makes partners less likely to engage in opportunistic behavior for private benefit extraction. To the contrary, as task interdependence grows, partners gravitate towards cooperative behavior, collectively investing more resources in the joint activities (Amaldoss & Staelin, ).…”

Integration of Global Knowledge Networks

“…(This should not be conflated with the question of whether a lead firm should distribute some portion of a knowledge work project to a supplier or a retain it within its own organization, which is often termed the "make/buy" decision [Fine 1998]; there is a large literature on this topic, as described in sources including Youngdahl Who is part of the distributed network (e.g., lead users)? Brown and Utterback (1985), Ramirez (1999), Frohlich and Westbrook (2001) Von Hippel and Katz (2002), Langerak and Hultink (2005) Chesbrough and Spohrer (2006), Amaldoss and Staelin (2010) Which challenges make distributed knowledge work (DKW) more difficult? Roberts et al (2006), Novak and Stern (2008), Fitoussi and Gurbaxani (2012) How should cross-organization incentives be designed?…”

The Influence of Dimensions of Organisational Culture on the Management of Heritage Sites as Tourism Products in Zimbabwe

“…These include Amaldoss and Staeline [59], Isoraite [60], Shchipanova [61], Uddin and Akhter [62], Vogel and Pires da Cunha [63], and Zamir et al, [64]. All these authors agree that strategic alliances have advantages to organisations.…”

“…The partnerships can be with suppliers and clients. In addition, Amaldoss and Staeline [59], Isoraite [60], Kittel [65], and Zamir et al [64] all contend that firms also use cross-border alliances to transform themselves or to better use their competitive advantages in the rapidly changing global economy. For example, Kittel stated that GEC, a UK based company entered into strategic alliances in order to diversify.…”