Somewhere between markets and hierarchies: controlling industry university relationships for success.

Author:Betts, Stephen C.


The competitive landscape for many firms continues to be re-invented due to rapid technological change, shorter product life cycles, and intense global competition (Ali, 1994; Bettis & Hitt, 1995). In order to successfully compete and survive in this changing competitive environment, firms must continually learn and advance new technologies.

Organizational learning, and the subsequent ability to advance new technologies can be accomplished both intra- and inter-organizationally. An extensive literature continues to grow on the advantages of interorganizational collaboration (e.g., Hail, Link & Scott, 2003; Adams, Chiang & Starkey, 2001; Jarillo, 1988; Parkhe, 1993; Pisano, 1990; Shan, Walker & Kogut, 1994) since firms are finding it increasingly more difficult to rely solely on intra-organizational initiatives due to limited expertise and resources (Tether & Tajar, 2008; D'Este & Patel, 2007; Hamel & Prahalad, 1994). While much of the inter-organizational literature concentrates on alliances between two or more industrial firms, a growing trend toward industry-university (I/U) collaboration demands that more scholarly attention focus on I/U relationships (Harryson, Kliknaite & Dudkowski, 2007, 2008; Betz, 1996; Cohen, Nelson & Walsh, 2002; Fritsch, 2003; George, Zahra & Wood, 2002; Johnson, Bianco, Grucza, Crawford & Whiteley, 2003; Quetglas & Grau, 2002; Adams, Chiang & Starkey, 2001; SRI International, 1997).

The dynamic nature of I/U alliances and the uncertainties of its outcomes contribute to making the internal mechanisms of a hierarchy or the explicit contracts of a market unreliable in providing adequate governance and control. Thus, I/U relationships often resemble an intermediate form of governance somewhere between the strict boundaries of hierarchies and external markets. Prior research has not investigated the specific governance mechanisms used to insure equity in these relationships that serve to protect the interests of both parties (Gray, Linblan & Rudolph, 2001; Geisler, 1995). Moreover, few studies have explored the different developmental stages of I/U relationships and the specific factors facilitating each of these stages. This study addresses these needs in the literature and makes a contribution in two important ways. First, we focus on the understudied area of industry-university collaboration and closely examine two important stages of I/U relationships, i.e., the initial establishment stage and the continuing stage. Second, we explore the key antecedent governance factors that facilitate each of these two stages and investigate the possible linkage these key antecedent factors for each stage may have on learning and technological outcomes.


Industry-university relationships have a long history (Furman & MacGarvie, 2007). For example, the German pharmaceutical firm Bayer created relationships with universities as far back as the late 19th century (Bower, 1993). In the US, the National Research Council united scientists in the research-oriented universities with those in industry to assist the war effort during World War I (Reams, 1986). Today, industrial firms and universities work together for a number of reasons. For example, industrial firms gain access to highly trained students, professors, facilities, and new technologies (NSF, 1982a). Firms can also enhance their image and reputation when partnering with a prestigious academic institution (Fombrun, 1996). In contrast, universities primarily interact with industrial firms in order to obtain additional funds, particularly to support various research initiatives (NSB, 1996; NSF, 1982a). Research funding from industrial firms is especially appealing since it often involves less bureaucratic red tape than funds from federal or state agencies. Universities also work with firms to expose students and faculty members to practical problems, create employment and internship opportunities for university graduates and students, and to gain access to applied technological areas (Lam, 2007; Austen, 2003; NSB, 1996).

Beyond the above reasons for industrial firms and universities to interact, I/U collaboration can stimulate learning and help drive the advancement of new technologies. As an example, linkages between industry and academe have resulted in many technological advances in the area of microbiology (Pisano, 1990). Similarly, in the areas of pharmacology and chemistry pharmaceutical firms often rely upon university assisted basic research for the development of new drugs (van Rossum & Cabo, 1995). High tech sectors are not the only beneficiaries from I/U relationships. Chrysler Corporation has worked with several universities on a number of applied engineering research projects that resulted in significant knowledge and technology transfer useful in Chrysler's manufacturing value chain (Frye, 1993). With an increased emphasis by industry on working with universities, a better understanding of what is important to industry in establishing and sustaining these relationships is now needed to advance the field further (Betz, 1996; Mowery & Shane, 2002).

We recognize that inter-organizational relationships follow developmental processes (Austen, 2003; Ring & Van de Ven, 1994; Van de Ven & Poole, 1995). Therefore in teasing out what's important to industrial firms in establishing and sustaining I/U relationships, we investigate two distinct stages, i.e., the initial establishment stage and the continuing stage, and examine certain antecedent factors and the types of learning and technological outcomes generated in each of these two stages. In the following section, we present our theoretical framework and the specific hypotheses tested in this study.


Industry-university collaboration involves the commitment of considerable resources by both partners in order to create mutually beneficial outcomes that are equitably shared (Santoro, 2000). Given the uncertain nature of establishing and sustaining I/U relationships, neither the internal mechanisms of a hierarchy nor the explicit contracts of the market can be relied on to provide adequate governance and control. For example, the resources of the university are out of the hierarchical controls of their industrial partner, and similarly the firm's resources are beyond the hierarchical control of their university partner. On the other hand, if contracts alone were adequate to handle the numerous uncertainties of partnering then a market arrangement would be sufficient; an industrial firm could simply hire a university to engage in a specific research or commercialization activity. Unfortunately, the entire array of possible input and output contingencies cannot be fully anticipated, explicated, and adequately written into a contract (Santoro & Betts, 2002). Therefore, neither a hierarchical or contract governance structure can effectively deal with the many nuances and subtleties I/U relationships. As a result, I/U relationships often rely on an intermediate form of governance, such as clan control (Ouchi, 1980), relational contracting (Bolton, Malmrose & Ouchi, 1994; Fritsch, 2003; Zaheer & Venkatraman, 1995), networks (Powell, 1990) and hybrid structures (Williamson, 1991).

Clan control holds part of the key particularly when the goals of the partners and the objectives of the relationship are congruent (Ouchi, 1980; Santoro & Chakrabarti, 1999). I/U relationships can also involve relational contracting when they are long-term relationships and assets specific to the relationship are committed by each partner (Fritsch, 2003). Most often, however I/U relationships resemble hybrid governance structures, in that there can be contracts mediated by elastic control mechanisms and there are certain adaptability characteristics and incentive structures that enable the relationship to take on an intermediate form falling somewhere between the internal control of a hierarchy and the external control of the market (Williamson, 1991).

I/U relationships are volitional, goal-directed efforts where each partner's strategic choices help establish and maintain the partnership (Child, 1972; Santoro & Chakrabarti, 1999). Moreover, I/U relationships evolve over time (Santoro, 2000) and unfortunately little attention has been paid to the evolutionary processes of these relationships. Ring and Van de Ven (1994) proposed a multi-stage process for establishing and sustaining inter-organizational relationships where they identify 'negotiations' and 'commitment' stages in which expectations are explored and agreements reached, and an 'executions' stage in which partners carry out their commitments. Regarding governance, Ring and Van de Ven (1994) state that the negotiations and commitment stages establish "an initial structure of safeguards" and the executions stage is where "subsequent interactions reconstruct and embody new governance structures for the relationship" (p. 93). Following Ring and Van de Ven's (1994) treatise we adopt a two-stage model for understanding key temporal aspects of I/U relationships. Our first stage combines Ring and Van de Ven's (1994) negotiations and commitment stages into what we define as the initial stage of an I/U relationship. We follow their typology further by incorporating their execution stage into our model into what we define as the continuing stage of an I/U relationship.

Building on this two-stage model we argue that a combination of antecedent factors contribute to provide the necessary control in the initial and continuing stages of I/U partnerships that allow for mutually beneficial learning and technology outcomes. Learning and technological outcomes are important because they usually underlie the reason that industrial firms partner with universities and therefore they often serve as a key indicator for I/U relationship success (Gopalakrishnan & Santoro, 2004; Santoro &amp...

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