R&D Alliances & Firm Performance: The Impact of Technological Diversity and Alliance Organization on Innovation

Abstract

In response to competitive pressures, firms increasingly use R&D alliances to complement in-house R&D efforts. However, empirical evidence to date provides little guidance on how firms can use this strategy effectively. Here, I examine why some R&D alliances contribute more than others to firm innovative performance. I suggest that technological diversity, or differences in technological capabilities between partners, determines firm benefits from such alliances. Further, I argue that how partners organize their alliance activities influences this relationship between technological diversity and firm innovation. To test these relationships, I examine firm patenting performance with a sample of 463 R&D alliances in the telecommunications equipment industry. I find that alliances contribute far more to firm innovative performance when technological diversity is moderate, rather than low or high. Some diversity is required, or firms have nothing to learn from their partners. However, when very diverse, firms have difficulty learning from their partners. While this relationship holds irrespective of alliance organization, I find that hierarchical organization, such as the equity joint venture, improves firm benefits from alliances with high levels of technological diversity. Thus, alliance organization likely influences partner ability and incentives to share information, which affects performance. Keywords: alliances, R&D, patents