Managing Portfolios of Product Alliances

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University of Western Ontario (Canada), 2007 - 137 pages
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Alliances are ubiquitous in today's competitive environment and account for an estimated $25--40 trillion in economic value. These alliances improve new product development efforts and positively influence innovation and profitability. Prior work suggests that firms' performance objectives are best served by undertaking multiple alliances. In contrast. I propose that not all firms are well suited to undertake multiple alliances. As such, it is not surprising that nearly 70% of alliances fail. The present research adopts a portfolio approach to alliances and emphasizes the need for firms to recognize the resource contributions required to engage in alliances. Drawing on March's (1991) exploitation - exploration framework, I relate portfolio depth (number of alliances) and portfolio breadth (diversifying into multiple product markets) to alliance performance and hypothesize that these main effects are moderated by firms' resource-enhancing strategies. I test the hypotheses using a rich data set of 596 alliances across multiple therapeutic areas in the biotech - pharmaceutical industry between the years 1987 and 1998, using a random effects regression model to predict the likelihood of alliance success.

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