Balancing Exploration and Exploitation in Alliance Formation

Do firms balance exploration and exploitation in their alliance formation decisions and, if so, why and how? We argue that absorptive capacity and organizational inertia impose conflicting pressures for exploration and exploitation with respect to the value chain function of alliances, the attributes of partners, and partners\u27 network positions. Although path dependencies reinforce either exploration or exploitation within each of these domains, we find that firms balance their tendencies to explore and exploit over time and across domains

Balance Within and Across Domains: The Performance Implications of Exploration and Exploitation in Alliances

Organizational research advocates that firms balance exploration and exploitation, yet it acknowledges inherent challenges in reconciling these opposing activities. To overcome these challenges, such research suggests that firms establish organizational separation between exploring and exploiting units or engage in temporal separation whereby they oscillate between exploration and exploitation over time. Nevertheless, these approaches entail resource allocation trade-offs and conflicting organizational routines, which may undermine organizational performance as firms seek to balance exploration and exploitation within a discrete field of organizational activity (i.e., domain). We posit that firms can overcome such impediments and enhance their performance if they explore in one domain while exploiting in another. Studying the alliance portfolios of software firms, we demonstrate that firms do not typically benefit from balancing exploration and exploitation within the function domain (technology versus marketing and production alliances) and structure domain (new versus prior partners). Nevertheless, firms that balance exploration and exploitation across these domains by engaging in research and development alliances while collaborating with their prior partners, or alternatively, by forming marketing and production alliances while seeking new partners, gain in profits and market value. Moreover, we reveal that increases in firm size that exacerbate resource allocation trade-offs and routine rigidity reinforce the benefits of balance across domains and the costs of balance within domains. Our domain separation approach offers new insights into how firms can benefit from balancing exploration and exploitation. What matters is not simply whether firms balance exploration and exploitation in their alliance formation decisions but the means by which they achieve such balance

Big data and data science methods for management research: From the Editors

The recent advent of remote sensing, mobile technologies, novel transaction systems, and high performance computing offers opportunities to understand trends, behaviors, and actions in a manner that has not been previously possible. Researchers can thus leverage “big data” that are generated from a plurality of sources including mobile transactions, wearable technologies, social media, ambient networks, and business transactions. With the promise of big data come questions about the analytical value and thus relevance of these data for theory development—including concerns over the context-specific relevance, its reliability and its validity. In this editorial, we address both the collection and handling of big data and the analytical tools provided by data science for management scholars. This primer can guide management scholars who wish to use data science techniques to reach better answers to existing questions or explore completely new research questions

Revisiting James March (1991): Whither Exploration and Exploitation

We revisit March’s seminal 1991 article, “Exploration and exploitation in organizational learning”, and analyze the impact it has had on scholarly thinking, providing a comprehensive and structured review of the extensive and diverse research inspired by this publication. We show that although this influence has changed significantly over the years, there are still unexplored opportunities left by this seminal work. Our approach enables us to identify promising directions for future research that reinforce the themes anchored in March’s article. In particular, we call for reconnecting current research to the behavioral roots of this article and uncovering the microfoundations of exploration and exploitation. Our analysis further identifies opportunities for integrating this framework with resource-based theories and considering how exploration and exploitation can be sourced and integrated within and across organizational boundaries. Finally, our analysis reveals prospects for extending the notions of exploration and exploitation to new domains, but we caution that such domains should be clearly delineated. We conclude with a call for further research on the antecedents of exploration and exploitation and for studying their underexplored dimensions

Exploration and exploitation through alliances

The distinction between exploration alliances and exploitation alliances is useful for understanding the configuration of the firm’s alliance portfolio and realizing some of the tradeoffs that a firm encounters in managing its alliance portfolio. Exploration and exploitation can be pursued along multiple alliance domains, such as the value chain function of the alliance and the network position of the partner. Exploration and exploitation correspondingly define the firm’s efforts to seek new opportunities by generating new knowledge and fostering alliances with new partners, versus the firm’s tendencies to leverage existing knowledge and experience with repeat partners. The extent to which the firm’s alliances serve for upstream versus downstream activities of the value chain or feature new versus recurrent partners, depends on the firm’s cooperative strategy and on several organizational and environmental conditions. Although the firm should strive to balance exploration and exploitation in its alliance portfolio, it can also maintain such a balance between its alliance portfolio and its internal organization

The interconnected firm: Evolution, strategy, and performance

This dissertation focuses on the study of firms that are embedded in networks of alliances. It develops theory and provides evidence that explain how such interconnected firms evolve and how their alliance networks affect their performance. The network configuration framework is advanced, incorporating relational and structural aspects and highlighting processes of value creation and appropriation in networks. The first essay illustrates the limitations of traditional theories of the firm in explaining the interconnected firm phenomenon. It revisits the resource-based view and considers the impact of network resources on competitive advantage. Distinguishing shared resources from non-shared resources, it identifies new types of rent and illustrates how firm-specific, relation-specific, and partner-specific factors determine the contribution of network resources. It suggests that interconnected firms can benefit not only from relational rents but also from involuntary spillover rents. The conclusions suggest that the nature of relationships may matter more than the nature of resources in establishing competitive advantage in networked environments. The second essay reports a case analysis of the Unisys Corporation and its alliance network. Employing inductive methods, it sheds light on the evolution of the interconnected firm and on the alignment between corporate strategy and its network configuration. The findings indicate how Unisys reactively adjusted its network configuration in response to shifts in strategic focus, encouraging the incorporation of the network configuration in strategy formulation. The third essay fills a gap in the alliance literature, which offered limited evidence on the contribution of networks to the financial performance of firms. It reports a pooled time-series analysis of 367 software firms that engaged in more than 20,000 alliances during 1990–2001. Hypotheses about the contribution of alliance networks to market returns, Tobin\u27s q, revenue growth and ROA, are developed and tested with archival data. The findings reveal the multifaceted contribution of networks. Network size and strategic alliance status produce limited effects; network capabilities significantly enhance performance, while the relative bargaining power of partners undermines performance. Performance is also enhanced by developing balanced networks and by encouraging competition among partners. These insights indicate not only that alliance networks matter but also how they matter

The interconnected firm: Evolution, strategy, and performance

This dissertation focuses on the study of firms that are embedded in networks of alliances. It develops theory and provides evidence that explain how such interconnected firms evolve and how their alliance networks affect their performance. The network configuration framework is advanced, incorporating relational and structural aspects and highlighting processes of value creation and appropriation in networks. The first essay illustrates the limitations of traditional theories of the firm in explaining the interconnected firm phenomenon. It revisits the resource-based view and considers the impact of network resources on competitive advantage. Distinguishing shared resources from non-shared resources, it identifies new types of rent and illustrates how firm-specific, relation-specific, and partner-specific factors determine the contribution of network resources. It suggests that interconnected firms can benefit not only from relational rents but also from involuntary spillover rents. The conclusions suggest that the nature of relationships may matter more than the nature of resources in establishing competitive advantage in networked environments. The second essay reports a case analysis of the Unisys Corporation and its alliance network. Employing inductive methods, it sheds light on the evolution of the interconnected firm and on the alignment between corporate strategy and its network configuration. The findings indicate how Unisys reactively adjusted its network configuration in response to shifts in strategic focus, encouraging the incorporation of the network configuration in strategy formulation. The third essay fills a gap in the alliance literature, which offered limited evidence on the contribution of networks to the financial performance of firms. It reports a pooled time-series analysis of 367 software firms that engaged in more than 20,000 alliances during 1990–2001. Hypotheses about the contribution of alliance networks to market returns, Tobin\u27s q, revenue growth and ROA, are developed and tested with archival data. The findings reveal the multifaceted contribution of networks. Network size and strategic alliance status produce limited effects; network capabilities significantly enhance performance, while the relative bargaining power of partners undermines performance. Performance is also enhanced by developing balanced networks and by encouraging competition among partners. These insights indicate not only that alliance networks matter but also how they matter

Alliances and networks

Strategy research underscores the role of alliances and networks in driving cooperation and value creation across firm boundaries. This chapter discusses the relational and structural characteristics of alliance ties, centering on questions related to the formation and performance implications of alliances and networks, including multiparty alliances, alliance portfolios and ecosystems. The chapter discusses the various theoretical perspectives used in studying the formation and development of alliances, the choice of partners, value creation and capture, the governance of alliances, their portfolio configuration, and network dynamics. Besides discussing the foundations and recent work on alliances and networks, future research directions are identified. Some opportunities include examining the microfoundations of alliance relationships, analyzing the failure of relational mechanisms, disentangling value creation from value capture dynamics, studying cognitive and behavioral antecedents of network evolution, the tradeoff between routinization and flexibility in alliance management, and the unique nature of cooperation in ecosystems versus dyadic alliances