R&D alliances and the effect of experience on innovation: a focus on the semiconductor industry.

Author:Rubin de Celis, Jaime C.
Position:Research and development
 
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Past success and failure shapes the future decisions of an organization. Recent research shows that experience with previous strategic alliances is an important determinant for new alliances. However, the benefits of past experience depreciate rapidly, and the total number of long-dated experiences does not appear to be a major source of success in dynamic industries. The authors extend Sampson's work to the semiconductor industry to determine the effect of experience on these firms. This article offers an interesting extension to previous studies on experience effects and shows that experience does matter in amount and recency.

Keywords: alliance; experience; innovation; R&D

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Firms can learn from experience. New processes are improved continuously as the organization learns new and better ways to deliver a product or service to its clients. Past success and failure shapes the future decisions of an organization (Levitt & March, 1988), thus, the greater the experience of the firm, the more likely it is to adapt to new conditions. The learning curve literature has shown that a firm can achieve important gains in productive efficiency as its cumulative output increases and that this can imply an important competitive advantage (Lieberman, 1987). Extending this line of thought to other organizational areas, recent research has shown that experience with previous strategic alliances is an important determinant for new alliances (Sampson, 2005). However, the benefits of past experience depreciate rapidly over time, and the total number of long-dated experiences does not appear to be a major source of success in dynamic industries. In a recent article, Sampson (2005) looked at past R&D alliances as primary determinants of future alliances success, and even though she found support for this hypothesis, she also reported, "Further work is necessary to link experience, differences in alliance management practices between firms and performance" (p. 1028), and the reasons for the rapid depreciation of this experience are still unclear.

The primary purpose of this article is to extend Sampson's (2005) study. First, we replicate this study to contribute to the validation of research conducted on the learning effects of past alliances (Anand & Tarun, 2000). Second, we will also extend these findings by looking at a different industry, namely, semiconductors. By analyzing a different environment in a different period of time, a stronger case can be built for generalizing Sampson's results.

The primary research questions that this study tries to answer are "How can firms capitalize on past experience with strategic alliances?" and "Why are only recent experiences, when compared to experiences that occurred long ago, the most important determinants of future success?" Answering these questions has important implications from both a researcher's and a practitioner's perspective. Corporate strategy research can benefit from new insights provided by research on organizational learning, particularly by enhancing the ability to learn from past alliances (e.g., by selecting few relevant issues to which devote attention). This is a process with interesting questions but blurred answers.

On the other hand, from a practitioner's perspective, if only recent experiences are more important when subscribing to new alliances, managers can disregard distant history and look more carefully to the recent past. Furthermore, by understanding the specific reason for the depreciation of past experiences, managers can choose among competing governance structures, or they can even select the number of new alliances that are advisable given the organization's history.

Sampson's (2005) results are expected to be validated with this study. The underlying theory and her results support the hypotheses presented; however, the present study can contribute to the generalizability of these findings. Our study looks at a different industry and at a different period of time. (1)

Learning From Experience

There is a fair amount of literature that discusses learning by doing and the experience curve. This learning process has been mainly studied in manufacturing settings, and the variable of interest has been production cost. As a firm's cumulative output increases, it learns how productive processes impact the cost of final output, and this experience allows for the development of new and improved processes. Thus, a firm's history of past success and failure will shape its ability to learn (Levitt & March, 1988). Consequently, a firm that has been exposed to more experiences will probably be better prepared to face new challenges in a more effective way, for example, by exploiting scale economies for repetitive processes.

Levitt and March's (1988) arguments for cost reductions due to cumulative output and experience are widely accepted, and there are enough subsequent research findings that support their views. For instance, Lieberman (1984) studied the learning curve in the chemical industry and found that cost reductions cannot be attributed exclusively to time. This conclusion provides supporting evidence of the importance of experience effects, as is also the case with similar studies in the shipbuilding industry (Argote, Beckman, & Epple, 1990). In summary, there is sufficient evidence to support the benefits of experience in the manufacturing environment. However, there is also compelling evidence showing the impact of experience effects on other industries. Service industries have been studied by Darr, Argote, and Epple (1995); Dutton and Thomas (1984); and Dutton, Thomas, and Butler (1984), and their research constitutes irrefutable evidence that experience is major determinant of cost reductions in different environments.

Experience has been also tied to success in innovation and new product development because firms that have developed an extensive knowledge base from their technological and market-related experiences are more likely to succeed in new product introductions (Barnett & Hansen, 1996; Nerkar & Roberts, 2004). These studies however do not explicitly address recurrent managerial processes through which a firm gains experience. These processes usually involve complex managerial practices, and the experience a firm gains over time might not only be associated with the number of successfully introduced new products but also with how a firm handles the learning from experience process itself.

Thus, experience effects need to be extended to more general activities such as management in organizations. Managers observe the outcomes of their decisions in activities such as development of new divisions, changing product lines, and research and development of new products or processes (Sampson, 2005). Furthermore, Baum and Ingram (1988) showed in their analysis of the hotel industry that experience is an important factor when it comes to anticipating consumer preferences in a dynamic environment. In a similar fashion, other studies have analyzed managerial practices and learning in acquisitions (Haspeslagh & Jemison, 1991), cross-border entry (Chang, 1995), and alliances (Harbison & Pekar, 1998). Even though these studies do not explicitly address experience effects, the findings are suggestive of this phenomenon.

R&D Alliances

Alliances are recurrent activities that organizations undertake and they are particularly difficult to manage because of the very nature of this managerial practice. It involves two parties with very different characteristics, cultures, and goals trying to coordinate activities that are complicated even within a hierarchical structure. A firm that is involved in an alliance must align its internal processes and routines with those of a partner that may have a completely different approach to dealing with similar issues. Other complications arise, for example, in the communication and coordination when one firm has difficulties observing the partner's activity. If this is added to conflicting interests, potential problems are evident between the allies.

Previous research suggests that many allies report low levels of satisfaction with the alliance. As much as 40% of incumbents expressed their dissatisfaction with the collaboration (Bleeke & Ernst, 1993). Moreover, another body of literature provides evidence of the difficulties in managing alliances. In this line, empirical studies report a significant termination rate among joint ventures where precarious governance structures were the origin of the early termination (Harrigan, 1985). We do not have enough evidence for these two affecting issues about alliances, but it has been suggested that inherent activities in managing the alliance have at least some responsibility. Thus, learning from past experience can provide an organization with significant insight on how to conduct new alliances.

If a firm has engaged in many different alliances, the experience drawn from the processes that led to successful collaboration should provide a foundation for facing a new alliance. Similarly, a firm that has experienced failures in the past will try to avoid those activities that were at least in part responsible for the negative outcomes. For instance, the selection of the appropriate governance structure or contractual relationship, which has been linked to performance, can be improved by experience.

Moreover, the greater the repertoire in terms of experiences from which a firm can draw to make decisions, the more accurate the judgment of an environment characterized by high levels of uncertainty. Alliances are managerial practices that usually involve judgmental and idiosyncratic calls, where previous processes will shape many of the future decisions, particularly when a firm is stepping into new territories. Generally, managerial experience has the greatest potential to affect performance in situations that are characterized by greater complexity and/or where...

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