The interplay between product development failures and alliance portfolio properties in the formation of exploration versus exploitation alliances

Abstract

We investigate the role of product development failure as an important behavioral driver of explorative (vs. exploitative) search in interfirm collaborations. We also suggest that the effect of product development failure on the level of exploration in subsequent alliances hinges on the properties of the firm’s existing alliance portfolio. We suggest and show that the positive association between a firm’s product development failures and the level of exploration alliances is mitigated when the firm faces a high level of relational embeddedness. We also demonstrate that the positive association is amplified when the firm has a low level of technological diversity in its current alliance portfolio. We test our hypotheses using established firms’ alliances in the biopharmaceutical industry and find evidence that supports our arguments.