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Strategic alliances between companies are more important than ever in many industries, but large corporations don't seem to be learning from past experiences at making these partnerships work, suggests a new study by a Georgia Tech College of Management researcher.
Frank T. Rothaermel, assistant professor of strategic management, examined twenty years' worth of alliances between pharmaceutical companies and biotechnology firms, finding that the former often wind up reinventing the wheel when building these relationships, no matter how many they've had.
The success of these alliances, measured by whether new drugs made it to market, often depends on the biotechnology firms having had a significant amount of past partnership experience, according to the study "The Effect of General and Partner-Specific Experience on Joint R&D Product Performance," published in the latest issue of the Academy of Management Journal (one of the top five most influential and frequently cited management journals worldwide).
"Biotech firms are much smaller and more dependent on these alliances," says Rothaermel, who collaborated on the study with Ha Hoang, associate professor of entrepreneurship at INSEAD. "Therefore, they do a better job at leveraging their past experiences."
While small firms generally have one top-level manager take responsibility for all of their alliances, the organizational complexity of large companies makes it difficult for them to collectively share acquired know-how, notes Rothaermel, who believes the study's findings can be generalized to other alliance-heavy industries like information technology and telecommunications. Evidence suggests large companies can improve the performance of their partnerships by centralizing all of their alliance activity into a corporate-level office of alliance management as Eli Lilly did in 1999, he says.
One counterintuitive finding of the study is that the success of alliances declines if the same companies partner repeatedly, although that familiarity might be viewed as an asset. "We think that alliance partners may become complacent with the status quo of how joint projects are managed once an initial routine has been developed and put in place." Rothaermel says.
Therefore, large corporations would do best to team with a variety of firms experienced with alliances. However, too much experience can be a drawback if a small firm's management is juggling too many projects at once, Rothaermel says.
"While alliances are used extensively, researchers have produced evidence suggesting that many, if not most, alliances do not live up to expectations or even fail altogether," he and Hoang write. "Understanding the performance of individual alliances is an important, yet under-researched, topic in strategic management, with significant managerial implications."
For more information, contact Rothaermel at 404-385-5108 or frank.rothaermel@mgt.gatech.edu.
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