Articles from Cass Knowledge

Why firms change their alliance portfolio configuration - evidence from Biotech

A study of the US biotech industry identifies the important role of performance targets in influencing alliance portfolio decisions.

In contemporary business practice it is now less common for a firm to rely on single partner alliances. Instead, many firms seek to form alliance portfolios. These are comprised of multiple, simultaneous strategic alliances with different partners, put together in order that a broad range of resources may be accessed.

They can be very effective. Some take the view that the benefits firms derive from their alliance portfolios can exceed the sum of those benefits obtained from each individual alliance.

There has been little research however on why firms decide to change the configuration, or “reconfigure”, their alliance portfolios over time, as indeed they do, or how they implement such decisions.

The study, A behavioural theory of alliance portfolio reconfiguration: Evidence from pharmaceutical biotechnology seeks to identify reasons behind such reconfigurations.

The authors tested their hypotheses in an empirical study of U.S.-listed dedicated biotechnology firms (DBFs) engaged in alliances during 1985–2000. DBFs were deemed ideal subjects for this study as they actively engage in alliances within their sector and with other players, such as large pharmaceutical firms, to share the costs and reduce the risks of drug development. Such alliances play an important role in their innovation performance and evidence implies that DBFs care deeply about the value creation and appropriation potential of their alliance portfolios.

The study found that actual performance relative to performance objectives is a significant factor when firms consider reconfiguring their alliance portfolios.

Put simply, the more firms fail to meet their performance objectives, the more likely they are to form alliances with novel partners focusing on areas in which they already have one or more alliances with other partners. 

The more firms exceed their performance objectives, the greater the inclination to form alliances with their existing partners in areas in which they do not yet have alliances.

One implication of this evidence is that behavioural drivers may explain why firms deviate from longer-term portfolio strategies, which can lead their portfolios construction to appear incoherent. Awareness that behavioural factors can drive portfolio configuration could assist managers and investors interpret the portfolio-reconfiguration choices of partners, competitors, and investees.

This study introduces a comprehensive behavioural perspective to research on alliance portfolio reconfiguration. Assuming that managers are boundedly rational and reliant on behavioural heuristics, it focuses on the internal factors of performance feedback and organisational slack as drivers of alliance portfolio reconfiguration, and offers evidence of some contingencies affecting the behavioural mechanisms.

The accepted version of the paper can be downloaded at the link below. The final paper was published in Strategic Management Journal.

Attachment(s)

{A behavioral theory of alliance portfolio reconfiguration: Evidence from pharmaceutical biotechnology}{https://www.cass.city.ac.uk/__data/assets/pdf_file/0009/518355/behavioural-theory-of-alliance-portfolio-reconfiguration-pharmaceutical-biotechnology.pdf}