Managing Multiple Facets of Risk in New Product Alliances*

Abstract

ABSTRACTThe trend of forming alliances to develop new products continues; however, many of these new product alliances fail. As such we explore how key risk types intrinsic in new product alliances, performance, relational, and knowledge appropriation risks, influence alliance success. Further, we theorize that different alliance governance mechanisms can reduce the negative impact of risks on alliance success. To disentangle possible heterogeneous factors across firms that may affect the interplay of risk assessments and the use of governance mechanisms, we employ latent class regression analysis on survey data collected from 128 new product alliance firms and find support for a two‐regime solution. Longer alliance relationships and lower technological turbulence are factors for some firms (regime one), while the opposite are factors for other firms (regime two). These two regimes show different patterns in the interplay of risk assessments and governance for alliance success. Our theory and results support viewing risk as a multiple‐factor concept and by understanding the different impacts of the risk types in new product alliances and how governance mechanisms mitigate such effects, we aid managers' decision making regarding the balance of contractual versus normative governance in new product alliances. Understanding the heterogeneous factors inherent in these complex relationships enables managers to understand the conditions in which various governance mechanisms promote new product alliance success.