Executive Summary

Innovation is increasingly important to competition in technology intensive industries. In seeking innovation, individual firms often find that external knowledge and research partners are critical to success. Innovation is often the result of synthesizing or "bridging" ideas from different knowledge domains. Therefore, firms increasingly enter into research and development (R&D) alliances with other firms to combine complementary knowledge in the pursuit of new innovative technologies. Indeed, many governments around the world support cooperative research activities in the expectation that collaborating firms will successfully develop new technologies that will improve economic competitiveness.

Prior research suggests that alliance success is difficult to achieve, with failure rates around 50 percent. R&D alliances are even more challenging than other types of alliances, because knowledge sharing is characterized by inherently problematic issues that require careful governance, and because the innovation process itself is characterized by a high degree of uncertainty, which makes success extremely difficult to predict.

The perspective adopted in this study is that success in an R&D alliance is more likely to occur when the firms initiating the alliance: (a) partner with other firms that possess relevant complementary knowledge, and (b) effectively share and combine that complementary knowledge. Having the requisite knowledge within the alliance team and having the necessary processes in place to exchange that knowledge is critical to producing technical innovations. Effective "knowledge management" is therefore a fundamental driver of success in R&D alliances. Alliance success depends broadly on three categories of factors that influence the exchange of complementary knowledge: alliance "design" decisions made during the alliance formation stage; alliance "management" decisions made during the alliance execution stage; and "luck", that is, the playing out of random events under uncertainty. During the alliance formation stage, the designers of the alliance seek to identify the "win-win" opportunity for potential alliance members and recruit potential members based on a cost-benefit analysis of what each potential member might contribute to the alliance objective.

To examine how alliance-design and alliance-management factors influence R&D alliance success, this study uses a unique survey dataset that includes 397 firms in 142 R&D alliances. These R&D alliances received funding from the Advanced Technology Program, a U.S. federal government program that supports innovation and early-stage technology in U.S. industry. In the analysis, multiple firm-level measures of performance outcomes are utilized, including a perceptual measure (subjective assessment of overall value to the firm), a patent measure (patent applications filed by the firm), and a financial measure (revenues or cost savings realized by the firm from commercialization of technology). For 121 out of the 142 R&D alliances represented in the dataset, survey response information is available from more than one partner in the alliance.

The empirical analysis produces the following conclusions. Alliance designers are largely successful in choosing an "optimal" structure for the alliance in terms of the number and type of alliance partners. The number of alliance partners has a weakly negative effect on patent application, but no effect on overall value or commercialization. The presence of competitors in an alliance has no effect on any of the three outcomes measures.

Effective contractual provisions and governance arrangements for alliance management have a positive effect on alliance success in terms of delivering overall value and generating patent applications. Goodwill trust among alliance partners has a weakly negative effect on overall value, and a negative effect on patent application. These results suggest that successful alliances do not simply depend on goodwill trust, but develop contractual-based trust based on effective contractual provisions and governance arrangements. In other words, in alliance management, one would do well to "Trust, but verify."

Frequency of communication has a strong positive effect on all three measures of R&D alliance performance, including the perceptual measure of overall value, the patent application measure, and the financial value from commercialization measure. R&D alliance managers can increase the likelihood of alliance success by establishing routines that encourage frequent communication. Frequent communication facilitates the knowledge sharing and coordination that is critical to alliance success.

Finally, "reaching for the stars" is a strong predictor of alliance success. More ambitious projects with farther reaching goals demonstrate greater success on all three measures of R&D alliance performance. More ambitious projects have intrinsically greater potential value and potential impact. In addition, more ambitious projects are likely to mobilize greater commitment and effort on the part of both the partner companies and the individual participants.

The research carried out in this study suggests that there are fundamental differences between R&D alliances and other types of alliances, and consequently, the factors that influence success may be quite different. Some factors may be determinants of success in some types of alliances, such as manufacturing or marketing alliances, but not in other types of alliances, such as R&D alliances where creativity and innovation are central. Though many research studies combine R&D alliances and other types of alliances as a single subject for analysis, this study concludes that R&D alliances should be treated as a separate and independent type of collaborative activity.

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Date created: August 29, 2006
Last updated: September 11, 2006

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