Transcript The role of incentives and communication in strategic alliances: An

The role of incentives and communication in strategic alliances:
An experimental investigation.
Strategic Management Journal, 31: 413 – 437 (2010)
Rajshree Agarwal, Rachel Croson, and Joseph T Mahoney
Subtitle
Research Problem
 Formidable impediments to achieving successful alliance outcomes.
 The large gap between potential economic value creation and realized
economic value creation in strategic alliances (Anand & Khana, 2000).
 Challenges in achieving successful outcomes in strategic alliances relate to
the tension between competition and cooperation (Hamel, 19991).
 Researchers have begun to examine factors that facilitate successful
alliance outcomes within the context of alliance dynamics.
Literature : Research Problem
 Khana et al. (1998) game theory context:
 Use game theory lens and underscore that alliance partners’ economic
incentives.
 Alliance partners may benefit through non-cooperation than by pursuing a
common goal in the absence of incentive alignment.
 Assume perfect rationality and highlights structural solution.
 Zeng and Chen (2003) social psychology context.
 Communication as a potential way to increase cooperation rather than
competitive outcomes.
 Assume bounded rationality and highlights motivation solution.
Research question
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This research examines the interplay of both mechanisms (role of economic
incentives and the role of communication) and uses experimental methodology.
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Agarwal et al. (2010) examine the determinants of the deviations between
potential and realized value creation in strategic alliances.
 Strategic alliances: interorganizational form where multiple exchange
partners agree to invest resources, share knowledge , and engage in
economic value creating that build on synergies that the exchange partner
firms bring to the alliance.
Theoretical framework

As primary objective of this paper is to move beyond potential value creation and
analyze economic and strategic management issues concerning realized value
creation in alliances.
 Olson (1965) combines aspects of property rights theory (e.g., the tragedy of the
commons) with game theoretic insights (Saloner, 1991)
 Social dilemma situations can result in persistent severe under-performance of
economic value creation ( Arend & Seale, 2005).
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Key is a few researchers: examining the conflict between competition and
cooperation through the lens of game theory and social psychology  Where a strategic alliance can be represented as a public good or a social dilemma
problem ( Zeng & Chen, 2003).
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Successful strategic alliance outcomes rely on exchange partners choosing the
payoffs dominant strategy where all cooperate toward the joint goal of economic
value creation, rather than the risk of not investing in the joint alliance activity.
Theoretical framework
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Conti…
This study explores the role of economic incentives and communication among
strategic alliance partners as factors representing each dominant paradigm below.
Economic incentives
 Property rights theory emphasizes the sanctioned behavioral relations among decision
makers.
 Property rights helps to explain and predict why there can be large and persistent
economic gaps between potential and realized value creation ( Kim & Mahoney, 2005;
Mahoney , 2005).
 Khana et al.’s (1998) model based on economic reasoning relevant to property rights,
this study analyze the payoffs structure of strategic alliance in terms of their private and
common benefits.
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Theoretical framework
Communication

Previous two hypotheses related to factors influencing economic incentive
alignment and heterogeneity, and focus on what social psychologists term
structural solutions to social problems.
 Strategic alliances may also benefits from incorporation of motivational/design
solutions, predominantly communication (Ledyard, 1995) – viewed in social psychology
theory.
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Communication matters because it can help change strategic alliance partner
perceptions of the problem from competitive to cooperative in two ways
 1) Reduce coordination costs and address management issues related to bounded
rationality and decision biases.
 2) Communication can engender cooperation through moral suasion, development of
group identity and trust.
 H3 Moderating effect of communication
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M
Methodology
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Experimental methodology (Plot, 1982; Smith, 2000).
Model the strategic alliance context as an assurance game.
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Specifically, model decision making within a strategic alliance as threshold ‘take
some or give some.”
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Series of experiments: examine the behavior of participants under different
assumptions of the ratio to private economic benefits accruing as result of the
strategic alliance.
Experimental design:
 Check internal and external validity.
 Internal validity – five treatment were developed for the experiment.
Experimental procedure:
• 504 participants who participated as decision makers in strategic alliances.
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60 Executive MBA, Average experience of 12 years.
300 MBA student, Average experience of 4 years.
45 senior level undergraduate, experience ??
Implementations of Model
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Benefits treatment were implemented by differences in bonus structure across the
alliances simulations.
Five treatment such as, high treatment benefits, low and mixed common benefits, high
common benefits with communication treatment and the mixed common benefit with
communication treatment.
The main IVs in the model include the indicator variables for each of the five treatment
described above ( 1 and 0).
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Primary DV , alliance success, 2nd and third DV are ( transfer of resources and resources in alliances).
Unit of analysis is at the alliance level rather than the firm level.
Results
 All Hypotheses supported. H1 economic incentives do matter. The table show
difference between the low and high common benefits treatments.
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Hypothesis 2 supported whether there is communion or not, the homogenous high
benefit has significantly higher performance than the heterogamous mixed
common benefit.
Results
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The same effect occurs when communication is included in the mixed common
benefit treatment.
 The result is consistent with H3 and is further empirical evidences supporting
organizational theory – that is , economic incentives are not, by themselves
sufficient, and the addition of communication significantly increase the rate of
successful alliance.
Discussions and Conclusion
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Strategic Alliances are an important mode of capability development in the face of
environmental changes and increases in competitive intensity.
 Although, successful outcomes from cooperation alliances are contingent on exchange
partners decisions to contribute to the strategic alliance.
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This research brought in complentarty streams of literature that emphasize the
role of economic incentive ( as in economic property rights theory ) and the role of
communication ) as in social psychology ) and test though experimental design.
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Consistent with property rights theory, the study finds that aligning economic
incentives is necessary for success (Brazel, 1989) , but is not sufficient as some
economists would predict ( Demsetz, 1976).