Strategic interaction in alliances

• Published date: 01 August 2017
• Author: Claudio Panico
• DOI: http://doi.org/10.1002/smj.2610
• Date: 01 August 2017

Strategic Management Journal

Strat. Mgmt. J.,38: 1646–1667 (2017)

Published online EarlyView 19 December 2016 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2610

Received 19 March 2014;Final revisionreceived 13 October 2016

STRATEGIC INTERACTION IN ALLIANCES

CLAUDIO PANICO*

Department of Management and Technology, and ICRIOS, Bocconi University, Milan,

Italy

Research summary: This article studies strategic interactions between rms that form alliances

to exploit synergistic benets. Firms cooperate to create value, but they can also compete to

capture value. Fundamental questions rarely addressed by strategy scholars relate to how the

conguration of control over resources inuences rms’ strategies, the potential for termination,

and the emergence of cooperation and trust. The formal results reveal crucial aspects of

the interorganizational rent-generating process and yield testable implications. With greater

synergistic benets, rms invest more, but they also compete more intensively to capture more

value. With symmetric control,more value gets created, which limits the potential for termination,

but also exacerbates the competition for value; from a relationalperspective, this form of control

augments the calculative rationale of cooperation and trust.

Managerial summary: When forming an alliance to exploit synergies, rms engage in a

complicated strategic interaction that is part cooperation and part competition. What happens

when partner rms cooperate and invest to create value while competing and using costly

adversarial tactics to capture value? The analysis reveals that with greater synergistic benets,

rms invest more in value creation, but the fear of opportunism pushes them to waste more

resourceson value capture tactics. The balance between value creation and value capture, and the

possibility that the alliance is terminated depend on the conguration of control over resources.

The analysis further reveals under what conditions there can be trust between the partners,

such that they focus on value creation and avoid wasting resources in the competition for value.

Copyright © 2016 John Wiley & Sons, Ltd.

INTRODUCTION

Interorganizational resource linkages can be an

important source of competitive advantages, and on

the basis of complementarities that might lead to

value creation, rms often form alliances to expand

their resource bases, knowledge bases, and capa-

bilities across organizational boundaries. Strategic

alliances thus have become a crucial device, used

by both large incumbents and small entrants to pool

their complementary resources and exploit syner-

gistic benets. But in addition to complementarities

Keywords: strategic alliances; conguration of control;

cooperation and competition; value creation and value

capture; termination

*Correspondance to: Claudio Panico, Bocconi University, Via

Roentgen 1, 20136 Milan, Italy. E-mail: claudio.panico@

unibocconi.it

Copyright © 2016 John Wiley & Sons, Ltd.

and value creation, when they enter into an alliance,

rms must devote considerable attention to the rela-

tive extent of their control overthe resources and the

resulting dependence (a)symmetry. As highlighted

by diverse research streams, including sociological

perspectives (e.g., Gulati and Sytch, 2007; Pfeffer

and Salancik, 1978) and organizational economics

(e.g., Grossman and Hart, 1986), the logic of power

that underlies dependence asymmetries might help

explain rms’ ability to claim the value created in

an alliance.

Forming an alliance means engaging in a com-

plicated strategic interaction and participating in an

interorganizational relationship that is part cooper-

ation and part competition. On the one hand, having

identied complementarities and estimated the syn-

ergistic benets, the rms must make value-creating

investments and be willing to cooperate in a

situation of mutual interdependence. On the other

Strategic Alliances 1647

hand, the fear of opportunism can make partners

“frenemies” that also compete for value, possibly

transforming the alliance into a “co-opetitive”

relation (Brandenburger and Nalebuff, 1996). To

outmaneuver dependence asymmetries and amelio-

rate their power position, partners may be tempted

to rely on value capture tactics that increase their

own bargaining power (Hamel, 1991). These adver-

sarial tactics are unnecessary in the presence of

reciprocal trust, but the development of such trust

takes time (e.g., Baker,Gibbons, and Murphy, 2002;

Gulati, 1998; Pharke, 1993; Poppo, Zhou, and Ryu,

2008) and cannot be assumed at the outset. Finally,

alliances are fragile because their inherent destiny

often is to be terminated (Kale, Dyer, and Singh,

2002; Lunnan and Haugland, 2008). Although

they have an important role to create and sustain

a competitive advantage, alliances can create

signicant tensions and raise important questions:

•How do partners manage the balance between

value creation and value capture?

•How does the conguration of control over

resources and the resulting dependence

(a)symmetry inuence partners’ strategies?

•Does control affect the conditions for termina-

tion?

•Does control affect the conditions for the emer-

gence of mutual trust?

Although literature on alliances and interor-

ganizational relations in general has spawned

several theoretical perspectives, these questions

are under-researched, in stark contrast with the

powerful need to explicate the economic mech-

anisms that underlie alliance functions, and their

remarkable frequency and importance as strategic

devices. To start answering these questions, this

article offers an analytical model of alliances,

whose building blocks include the conguration

of control, partners’ strategic choices for value

creation and value capture, and the potential of

termination due to initial uncertainty about the

synergistic benets of alliancing.

Broadly speaking, this effort is consistent

with an emergent trend in strategy literature to

study value creation and value capture (e.g.,

Hoffmann et al., 2014; Nickerson, Silverman,

and Zenger, 2007), relying on formal analyses of

rms’ strategies (e.g., Brandenburger and Stuart,

2007; Casadesus-Masanell and Yofe, 2007). Our

analysis also is consistent with growing interest

in postformation alliance dynamics (e.g., Bakker,

2016; Greve et al., 2010; Zollo, Reuer, and Singh,

2002). The focus for this study is on strategic

alliances, and particularly, on those cases in which

the partners cannot govern their relationship con-

tractually because it is unclear what specic tasks,

processes, and decisions are needed to exploit the

synergies fully, and because it is not possible to

establish an allocation of the resulting benets,

which cannot be determined clearly until the parties

have invested in the alliance anyway. This setting

is familiar to organizational economics scholars

who use the lens of incomplete contracts theory;

we extend the traditional analysis by allowing

for termination. We conceive of termination as

a consensual decision, such that after the initial

uncertainty is resolved, the partners may prefer to

dissolve the alliance if the synergies are lower than

expected initially. Maintaining a dyadic perspec-

tive, this analysis takes a transactional view to start,

to analyze rms that pool resources in a one-time

(co-opetitive) alliance that could be terminated;

then it embraces a relational view to examine the

emergence of mutual trust with repeated (coopera-

tive) alliances. The formal analysis then offers sev-

eral new insights and novel, testable implications.

Starting with the results of the transactional view,

this study shows that rms invest more in valuecre-

ation if greater synergistic benets are expected, but

the fear of opportunism and competition for value

pushes them to waste more resources on value cap-

ture tactics. Thus, partners aim to outpower each

other, without succeeding, which is a manifestation

of the classical prisoner’s dilemma in an alliance

context. Furthermore, the mere possibility that the

synergy will be too low can trigger reduced commit-

ment of specic investments, ultimately exposing

the alliance to potential termination. To reveal the

role of the conguration of control and the resulting

dependence (a)symmetries, the analysis compares

two cases, when partners have symmetric or asym-

metric control over the complementary resources.

With symmetric control, the partners’ incentives to

invest in value creation are more balanced, which

results in greater value being created, and the

alliance is ultimately less exposed to the potential of

termination. Yet,more resources are wasted in value

capture relative to the case of asymmetric control

because the parties compete for a greater value.

Passing from a transactional to a relational per-

spective, the prisoner’s dilemma that underlies a

single alliance can be resolved if the partners trust

Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 1646–1667 (2017)

DOI: 10.1002/smj