Confident or Competent? How to Avoid Superstitious Learning in Alliance Portfolios

Abstract

Impressive studies show that sharing alliance experience and having a dedicated alliance function lie at the foundation of repeated alliance success. However, with increasing experience, the dangers of overconfidence loom. In other words, certain learning mechanisms may well foster the adoption of inadequate cause-and-effect relationships derived from prior experience. Using such insights in other strategic alliances is likely to foster an imbalance between competence and confidence in alliance management. Hence, the challenge for today's firms seeking to improve their alliance portfolio outcomes lies in optimising the use of prior experiences by institutionalising routine activities, while also ensuring that new practices can be adopted. Using the insights of expert interviews and detailed analysis of 192 alliance portfolios containing over 3400 strategic alliances, convincing evidence shows how firms can ensure they increase their alliance capability with experience, without falling prey to the overconfidence trap. Important managerial lessons on how to avoid overconfidence in alliance portfolio management are discussed.