The Effect of General and Partner-Specific Alliance Experience on Joint R&D Project Performance

Abstract

Drawing on the organizational learning literature, we posited that both general, diverse-partner experience and partner-specific experience contribute to alliance performance, but at a declining rate. We tested hypotheses in unique data on the objective performance of projects between large pharmaceutical firms and biotechnology partners. The general alliance experience of the biotechnology partners, but not of the pharmaceutical firms, positively affected joint project performance. This relationship exhibited diminishing marginal returns. Contrary to predictions, partner-specific experience had a negative, marginally significant effect on joint project performance. Strategic alliances are voluntary arrangements between firms to exchange and share knowledge as well as resources with the intent of developing processes, products, or services (Gulati, 1998: 293). As evidenced by their ubiquitous use in many different industries (Hagedoorn, 1993), alliances have become an important strategic tool. 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 (Kogut, 1989). Understanding the performance of individual alliances is an important, yet underresearched, topic in strategic management. Herein, we seek to make a theoretical as well as a methodological contribution to the understanding of alliance performance. Building on recent conceptual work that proposed the existence of an alliance management capability (Dyer & Singh, 1998; Ireland, Hitt, & Vaidyanath, 2002), we apply an organizational learning lens to outline a theory of alliance experience accumulation obtained from allying across a diverse set of partners, and from repeatedly allying with the same partner over time. Allying across a portfolio of partners leads to general alliance experience obtained from the breadth of a firm’s alliance activity, while allying within the same dyad deepens partner-specific learning. We suggest that the relationship between alliance experience and alliance performance follows an experience curve, and is therefore positive, but characterized by diminishing marginal returns. Empirical work investigating the performance of