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This is to certify that the
dissertation entitled

CREATING NEW PRODUCT ADVANTAGE THROUGH
COLLABORATION

presented by

ZEYNEP EMDEN

has been accepted towards fulfillment
of the requirements for the

PhD. degree in MARKETING

 

 

 

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6/01 cJCIRC/DateDuopes-sz

 

CREATING NEW PRODUCT ADVANTAGE THROUGH COLLABORATION

By

Zeynep Emden

A DISSERTATION

Submitted to
Michigan State University
in partial fulﬁllment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Marketing and Supply Chain Management

2004

ABSTRACT

CREATING NEW PRODUCT ADVANTAGE THROUGH COLLABORATION

By

Zeynep Emden

Considerable numbers of studies in the extant literature deal with inter-partner
relationships. Yet only a few studies focus their scope on aspects of inter-ﬁrm
collaboration for new product development, and none examine the role that inter-ﬁrm
collaboration may play in creating or enhancing new product advantage. This dissertation
investigates the role of inter-ﬁrm collaboration in new product development and creating
product advantage. The relational aspects as well as technological competencies of the

partners are the focal points of this investigation.

This research consists of three interrelated parts. The ﬁrst part examines the selection
of a partner with the highest potential to create new product advantage. The second part
deals with the underlying factors that inﬂuence the manager’s decision for collaboration
for new product development. The third part tests a model, which includes the necessary
collaboration processes that lead to new product advantage. The rationale of the ﬁrst two
parts of this study is to identify the best foundation for co-development alliances for
maximum synergy creation. The rationale of the third part is to determine the best
practices that lead to sustained collaboration during the course of a co-development

partnership.

The following research questions are addressed in these three parts: (1) which criteria
of partner selection yield stable and productive new product alliances; (2) what are the
factors that elicit managerial choice of collaboration for new product development; and
(3) what are the underlying factors that facilitate sustained collaboration at the operation
stage.

Because the goal of this research is to establish a theory of inter-ﬁrm
collaboration for new product development, a theory development orientation for the ﬁrst
two parts of this dissertation research is adopted. The literatures on inter-ﬁrm learning,
inter-organizational relationships, and new product development are used as starting
points for examining the co-development alliances. Then a series of interviews with
managers are conducted. To collapse multiple indicators into single constructs in theory
building ﬁ'om case studies, the method of narrative analysis has been adopted.

The ﬁrst two studies are followed by a third study in which a model of new
product advantage creation through collaboration is tested. This study employs survey

sampling for data collection and quantitative techniques to test the proposed model.

Copyright by
ZEYNEP EMDEN

2004

Dedicated to my parents...

ACKNOWLEDGEMENTS

This dissertation is a fruit of many years of educational accumulation. At
Michigan State University, I have had the opportunity to work with outstanding people. I
am pleased to have an opportunity to thank those who have been instrumental in helping
me tocomplete this dissertation.

I would like to express my earnest gratitude to Dr. Roger J. Calantone, my
advisor, for being with me every step of the way over the past ﬁve years. He has been a
true mentor who graciously supported me through the difﬁcult times in the program. I
would not have been here without his encouragement, guidance, and support. The
beneﬁts I have gained from his intellect and futuristic thinking will extend to my future
career endeavors. I feel especially fortunate for having the opportunity to work with Dr.
Cornelia Droge. I am indebted for her belief in me particularly during the early years in
the program. Her generosity in devoting her time to extensive discussions and providing
feedback was exceptionally helpful during my dissertation research. She has also been a
family away from home, who kindheartedly showed interest in every aspect of my life. I
would like to thank Dr. Brian T. Pentland for his willingness to devote his time and
wisdom, particularly for sharing his expertise in qualitative research with me. His
enthusiasm and understanding have added an enjoyable dimension to my dissertation
research. I am grateful to Dr. Regina McNally for her sincerity and endless support. She
has not only provided thorough and valuable comments on every draft, but also genuine
advice for my job interviews.

I would also like to extend my thanks to Dr. Tamer S. Cavusgil for giving me the

opportunity to be a part of the intellectual community at Michigan State University, and

vi

for making possible to reach my long-awaited dream. I would like to thank to Dr. Robert
Nason, the department chair, for his continuing assistance throughout the years. I would
also like to extend my gratitude to Dr. Attila Yaprak, from Wayne State University.
During our interactive work, I have beneﬁted extensively from his writing skills and
academic integrity. Thanks to Dr. Shawnee K. Vickery for her friendship and quality
education. In addition, I would like to thank to Kathy Mullins, Laurie Fitch, Beverly
Wilkins, Michelle Hopkins, Sherry Danner, Kathy Waldie, Tiffany Norwood, Marilyn
Brookes, Renee Dixon, Patty Geller, and Cheryl Lundeen for their continuous help; and
to the more senior doctoral students for sharing their experiences with me along the way.
Also, I would like to thank to Dr. Remzi Karaman, for encouraging me to pursue an
academic career. I would also like to thank the managers who participated in this study
for their time and valuable inputs.

I wish to acknowledge the generous grant ﬁ'om the Department of Marketing and
Supply Chain Management at Michigan State University. This ﬁnancial support was

essential for the accomplishment of this dissertation research.

Last but not least, I wish to thank my parents, Serpil and Erdal Ozbiyik, and
brother, Murat Ozbiyik for their gratis love, encouragement, and support in every stage of
my life. I am most thankful to God for loving me as much to give me my husband, Reha,
who helped me go through the toughest times of this endeavor. Without his love,
ﬁ'iendship, understanding, and support, it would not have been possible to achieve this

milestone.

vii

TABLE OF CONTENTS

LIST OF TABLES ............................................................................................................. X
LIST OF FIGURES .......................................................................................................... XI
CHAPTER 1
INTRODUCTION .............................................................................................................. 1
1.1 BACKGROUND ...................................................................................................... 1
1.2 RESEARCH QUESTIONS AND CONTRIBUTIONS ...................................................... 5
1.3 METHODOLOGY ................................................................................................... 7
CHAPTER 2
COLLABORATIN G FOR NEW PRODUCT DEVELOPMENT: SELECTING THE
PARTNER WITH A MAXIMUM POTENTIAL TO CREATE VALUE ......................... 9
2.1 INTRODUCTION .................................................................................................... 9
2.2 BACKGROUND .................................................................................................... 12
2.3 RESEARCH APPROACH ....................................................................................... 18
2.4 EMERGENT THEORY OF PARTNER SELECTION .................................................... 19
2.4.1 Phase 1: Technological Alignment ........................................................... 22
2.4.2 Phase 2: Strategic Alignment .................................................................... 26
2.4.3 Phase 3: Relational Alignment .................................................................. 29
2.5 DISCUSSION ....................................................................................................... 32
2.5.1 Theoretical Contributions and Implications .............................................. 32
2.5.2 Managerial Implications ........................................................................... 35
CHAPTER 3
STRATEGIC CHOICE OF COLLABORATING FOR NEW PRODUCT
DEVELOPMENT ............................................................................................................. 38
3.1 INTRODUCTION .................................................................................................. 38
3.2 CONTRIBUTIONS ................................................................................................. 41
3.3 BACKGROUND .................................................................................................... 42
3.4 RESEARCH APPROACH ....................................................................................... 44
3.5 EMERGENT THEORY OF COLLABORATION CHOICE FOR NPD ............................. 47
3.5.1 Phase 3: Pre-disposition ............................................................................ 47
3.5.2 Phase 2: Partner Evaluation ...................................................................... 52
3.5.3 Phase 1: Strategic Assessment of the Opportunity ................................... 58
3.6 THEORETICAL IMPLICATIONS ............................................................................. 59
3.7 FUTURE DIRECTIONS FOR RESEARCH ................................................................. 65

viii

CHAPTER 4
CREATING NEW PRODUCT ADVANTAGE THROUGH SUSTAINED

COLLABORATION ......................................................................................................... 67
4.1 INTRODUCTION .................................................................................................. 67
4.2 THEORETICAL FRAMEWORK .............................................................................. 72

4.2.1 Role of Trust ............................................................................................. 74
4.2.2 Commitment ............................................................................................. 76
4.2.3 Communication ......................................................................................... 78
4.2.4 Flexibility .................................................................................................. 80
4.2.5 Cooperation ............................................................................................... 81
4.2.6 New Product Advantage ........................................................................... 84
4.3 RESEARCH METHODOLOGY ............................................................................... 87
4.3.1 Measures ................................................................................................... 87
4.3.2 Sampling and Data Collection .................................................................. 89
4.3.3 Analytical Approach ................................................................................. 93
4.3.3.1 Measure Validation and Hypotheses Testing ....................................... 94
4.3.3.2 Results ................................................................................................... 95

4.4 DISCUSSION ....................................................................................................... 99
4.4.1 Summary of the Results ............................................................................ 99
4.4.2 Theoretical Implications ........................................................................... 99
4.4.3 Managerial Implications ......................................................................... 100

CHAPTER 5

CONCLUDING REMARKS .......................................................................................... 103
5.1 SUMMARY OF THEORETICAL IMPLICATIONS .................................................... 104
5.2 SUMMARY OF MANAGERIAL IMPLICATIONS ..................................................... 105

BIBLIOGRAPHY ........................................................................................................... 107

ix

TABLE 1:

TABLE 2:

TABLE 3:

TABLE 4:

TABLE 5:

TABLE 6:

TABLE 7:

TABLE 8:

TABLE 9:

LIST OF TABLES

OVERVIEW OF CONTENT IN THE THREE RESEARCH STUDIES .......................... 2
STUDIES ON COLLABORATIVE PRODUCT DEVELOPMENT ............................... 15
COMPANY AND INTERVIEWEE PROFILES ........................................................ 17
EMERGENCE OF CONCEPTS FROM STORIES .................................................... 2O
TEMPORAL SEQUENCE OF EVENTS ................................................................. 21
TEMPORAL SEQUENCE OF EVENTS ................................................................. 46
CONSTRUCTS AND INDICATORS ...................................................................... 90
STATISTICAL TEST FOR NON-RESPONSE BIAS ............................................... 94
THREE-STAGE LEAST SQUARES ESTIMATION RESULTS ................................. 96

LIST OF FIGURES
FIGURE 1: EMERGENT THEORY OF PARTNER SELECTION FOR CREATING PRODUCT
ADVANTAGE THROUGH COLLABORATION ....................................................... 23

FIGURE 2: FRAMEWORK OF THE EMERGENT THEORY OF COLLABORATION DECISION FOR

PRODUCT DEVELOPMENT ................................................................................. 48
FIGURE 3: PROCESS THEORY OF COLLABORATION DECISION ............................................ 49
FIGURE 4: PHASE 2: PARTNER EVALUATION .................................................................... 54
FIGURE 5: THEORETICAL FRAMEWORK .............................................................................. 71
FIGURE 6: RESULTS OF THE TESTS OF THE HYPOTHESES ................................................... 98

xi

CHAPTER 1

INTRODUCTION

This dissertation investigates the role of inter-ﬁrm collaboration in new product
development and creating product advantage. The relational aspects as well as
technological competencies of the partners are the focal point in this investigation. This
research consists of three interrelated parts. The ﬁrst part examines the selection of a
partner with the highest potential to create new product advantage. Second part deals with
the underlying factors that inﬂuence the managers’ decision for collaboration for new
product development. The third part tests a model, which includes the necessary
disposition and the collaboration process dimensions to facilitate sustained collaboration
and create new product advantage. An overview of the content of each of these three

parts is given on Table 1.

1.1 Background

Rapid changes of technology and market demands in the environment have
mandated increasing attention to the innovation process. Finding and utilizing the
available and accessible resources have become critical for a ﬁrm to successfully deal
with increased competition and changing environments (Wind and Mahajan 1997). At the
same time, the product innovation process has become increasingly challenging, as
innovation demands greater coordination and integration among ftmctional areas within
an organization (Olson et a1. 1995; Sarin and Mahajan 2001), norms and values that

facilitate organizational learning (Atuahene-Gima 1995; Gatignon and Xuereb 1997;

Hurley and Hult 1998; Slater and Narver 1995), and engaging in behavioral routines that

attain and generate knowledge (Li and Calantone 1998; Sinkula et al. 1997).

 

 

 

 

Table 1: Overview Of Content In The Three Research Studies
Study Locus in Topic Research Goal Focus on Method
Number Text Stage of
Alliance
1 Chapter 2 Collaborating
for New
Product Determine the
Development: factors that make a
Selecting the potential partner a
Partner with a good candidate for
Potential to collaboration and . .
. . . Burldlng
Maxrmize value creation. theo
Product Formation ﬁo ry
In case
Advantage .
studres
2 Chapter 3 . Uncover the
Strategrc .
. underlyrng reasons
Chorce Of that elicit strate ic
Collaborating . g
chorce of
for New . .
collaborating for
Product
new product
Development
development.
3 Chapter 4 Develop a model
Creating New that captures the TI
Product role of Stage
Advantage collaboration . I
Through processes and ﬁrm Operation S
. . . . . quares
Sustained disposrtron In E . tion
Collaboration creating new
product advantage.

 

 

 

 

 

 

 

 

Furthermore, turbulent external environments (McCann and Selsky 1984),
shrinking product life cycles (Chen and Li 1999), exploding R&D costs (Rindﬂeisch and
Moorman 2001), and dispersion of skills and knowledge across ﬁrms (Barney 1991; Das
and Teng 2000) have made combining skills and resources inevitable for ﬁrms. Managers
have realized that one way to enhance their capabilities in providing superior products
and services is to gain access to complementary skills and knowledge bases beyond their
own skill portfolios (Mohr and Spekman 1994). Organizations have been compelled to
search for resources that complement their internal competences and know-how related to
new product innovation activities through horizontal and vertical alliances (Rindﬂeisch
and Moorman 2001).

There are various reasons why, for new product development, collaboration has
become attractive. These are: 1) Collaboration allows for cross-disciplinary integration,
which may be the foundation for really new products (Chesbrough 2003); 2) Non-equity
based collaborations do not require a total focus change for the company, but rather
provide a uniﬁcation of skill portfolios and an opportunity for the ﬁrm to utilize its
existing competence (Das and Teng 2000); and 3) Non-contractual arrangements call for
mid-level management control and therefore provide needed ﬂexibility, for example
spontaneous decision making, for new product development (D02 and Hamel 1998).

Yet those very same reasons that make the strategic alliances attractive may also be
the roots of adversities, such as ﬁrst, coordination challenges due to cultural and
procedural diversities (Parkhe 1991) and competitive positions of the partners (Sivadas
and Dwyer 2000); and second, value creation and extraction challenges due to non-

redundant knowledge base within the alliance and tacitness of the exchanged information

(Madhavan and Grover 1998; Simonin 1999). As a result, the performance of
collaborative new product development is based not only on the foundation and nurturing
of relational proﬁciencies, but also on the superiority of functional activities that facilitate
integration of complementary know-how.

The impact that organizational complementarities, compatibilities, and inter-ﬁrm
knowledge transfer might have on achieving and sustaining superior performance as
alliances unfold has inspired a ﬂurry of research in the organizational behavior (Das and
Teng 2000; Khanna 1998; Parkhe 1993), strategy (Doz 1996a; Inkpen 2000; Mohr and
Spekman 1994; Mowery et al. 1996) and marketing literatures (Bucklin and Sengupta
1993; Iyer 2002; Lambe et al. 2001). In a similar vein, the role of ownership and access
to knowledge and complementary resources (Grant 1996; Madhavan and Grover 1998),
learning and adaptability (Han et al. 1998; Hurley and Hult 1998; Slater and Narver
1995), and ability to create value by integrating and applying these resources (Sinkula et
al. 1997) also have received considerable attention in the marketing literature. Yet only a
small number of studies focus on aspects of inter-ﬁrm collaboration for new product
development (Rindﬂeisch and Moorman 2001; Sivadas and Dwyer 2000), and none
examine the role that inter-ﬁrm collaboration may play in creating or enhancing new
product advantage. The purpose of this study is to ﬁll this void. This work builds on the
contributions of previous studies that have focused on the relational aspects of new
product alliances (Dyer and Singh 1998) and on the impact that inter-ﬁrm knowledge
transfer might have on alliance performance (Gnyawali and Grant 1997; Parkhe 1991),

and new product success (Chen and Li 1999; Sinkula et a1. 1997).

1.2 Research Questions and Contributions

Speciﬁcally, the following research questions will be addressed in this dissertation:
(1) which criteria of partner selection yield stable and productive co—development
alliances; (2) what are the factors that elicit managerial choice of collaboration for new
product development; and (3) what are the underlying factors that facilitate sustained
collaboration and lead to new product advantage at the operation stage. Each of these
research questions will be addressed in a separate essay. This approach grants the
researcher the ﬂexibility of employing disparate samples and methodological techniques
for each study. Thereby it allows for independent studies and a focus on each research
question individually. Consequently, the dissertation consists of three research studies
(see Table 1). The ﬁrst research study deals with the strategic foundation of co-
development alliances in terms of selecting the partner with a potential to maximize new
product advantage. This research study will be presented in Chapter 2. The second study
addresses the underlying factors that affect the managerial choice of collaboration for
new product development. This study will be presented in Chapter 3. The third study
deals with the role of collaboration processes and ﬁrm disposition on facilitating new
product advantage. This study will be presented in Chapter 4.

This dissertation is signiﬁcant for, at least, three reasons. First, the assessment of
co—development alliances, in all of the three parts, is based on relational aspects of inter-
ﬁrm collaboration as well as technological know-how transfer, while the existing
research concentrates on either the former or the latter. Sivadas and Dwyer (2000), for
example, focus on the governance mechanisms and cooperative skills of the organization

and ignore the process of transfer and integration disparate pools of know-how. Others

(Chen and Li 1999; Powell 1992; Tyler and Steensma 1998) center their attention on
transfer of tacit know-how related with new product development, but lack the relational
aspects that may play a role in ensuring this transfer. This research creates a link between
the social and relational exchange theories of strategic alliances (Das and Teng 2000) and
alliance learning theories (Hamel 1991; Inkpen 1996; Inkan 1998; Inkpen 2000; Iyer
2002; Khanna 1998; Parkhe 1991) to address both of these aspects.

Second, in line with conceptualizations of Kanter (1994) and D02 and Hamel
(1998), this dissertation assesses multiple stages of strategic alliances rather than the
mere focus on formation or management. The rationale of the ﬁrst two studies of this
dissertation is to identify the best foundation for a new product alliance that maximizes
the relational and technological synergy creation. The rationale of the third part is to
determine the best practices that lead to sustained collaboration during the life of an
alliance. In particular, this dissertation will identify partnerships that will lead to the
creation of successful new products by identifying technically and organizationally
compatible partners, and uncover the factors that facilitate the integration and
transformation of the complementary pools of know-how into product value.

Third, although marketing scholars agree that the nature of inter-ﬁrm relations may
be substantially different in horizontally aligned ﬁrms (Achrol 1997), the majority of the
inter-organizational literature examines vertical alliances (Rindﬂeisch and Moorman
2001). This research is primarily concerned with inter-ﬁrm collaborations through which
ﬁrms seek to leverage their technical competencies into proﬁtable new products. When
companies collaborate for new product development they do so with different types of

organizations, such as their competitors, suppliers, customers, or universities and research

centers (Saez et al. 2002). It is possible that competition and cooperation coexist in co-
development partnerships (Rindﬂeisch and Moorman 2001). This adds a novel dimension

to the characteristics of co—development partnerships.

1.3 Methodology

Because the goal of this research is to establish a theory of inter-ﬁrm
collaboration for new product development, I adopt a theory development orientation for
the ﬁrst two parts of this dissertation research. I use the “theory building from case
studies” approach for this purpose (Eisenhardt 1989). This method is appropriate for my
research because the research subject of my dissertation is in its early stages in the sense
that it sheds light on an area, co-development alliances, which has not been studied
widely. The research subject also calls for a fresh perspective to complement the evolving
nature of inter-partner arrangements for new product development; that is, evolving from
a cost-based (transaction cost) approach to value creation (system change, resource-
based) approach (Das and Teng 2000). For testing the proposed model in the third study,
I will employ a three stage least squares technique and mail surveys for data collection.

I use the literatures on inter-organizational relationships, strategic alliances and new
product development as a starting point for examining the co-development alliances.
Concepts in these literatures have motivated my approach and the initial propositions
about the three research questions. For the ﬁrst two studies, I conducted a series of
interviews with managers involved in co-development alliances. The purpose of these
interviews was twofold. First, they provided input from managers, which enriched the

theory based on the literature. Managers’ input was used to guide the theory development

process itself. Second, they provided guidance for the relevance and face validity of the
framework, and conﬁrmed whether the literature-based assumptions were in line with
managerial experience.

In the subsequent chapters (Chapter 2, Chapter 3, and Chapter 4), the three
research studies will be presented. The last chapter, Chapter 5 is devoted to concluding

remarks for all of the three research studies.

CHAPTER 2
COLLABORATING FOR NEW PRODUCT DEVELOPMENT: SELECTING

THE PARTNER WITH A MAXIMUM POTENTIAL TO CREATE VALUE

2.1 Introduction

Product innovation has become not only the lifeblood of organizations, but also
increasingly more challenging, as innovation demands greater coordination, cooperation,
and integration among ftmctional areas within an organization (Olson et al. 1995; Sarin
and Mahajan 2001). In the early twenty ﬁrst century, the challenge of creating new
products has become more than building cross-functional processes and structures (Perks
2000). Managers confront paradoxes as internal industrial research has become less
effective and the outputs of signiﬁcant long-term research investments are not of any use
to them (Chesbrough 2003). This situation is caused by a conﬂuence of at least Six forces
in the market place. These are turbulent external environments (McCann and Selsky
1984), increased global competition (Blackwell and Eilon 1991), shrinking product life
cycles (Chen and Li 1999), increased complexity of technology needed to innovate and
exploding R&D costs (Rindﬂeisch and Moorman 2001), growing mobility of highly
experienced and skilled people (Chesbrough 2003), and dispersion of skills and
knowledge across ﬁrms (Barney 1991; Das and Teng 2000). These forces drive managers
to employ a diﬂ‘erent ‘model’ to stay competitive in the innovation race. Chesbrough
(2003) refers to this as a shiﬁ from a “closed innovation paradigm” to an “open
innovation paradigm” (pg. 20). In this new model advocated by Chesbrough, product

success stems from building the best business model by using the right mix of internal

and external resources. Companies do not have to originate research in order to beneﬁt
from it, since they can also beneﬁt from other companies’ resources as well as beneﬁt
from other companies’ usage of their own resources. This way companies are able to
utilize the brains of millions outside in the industry, who will develop things that create
demand for their own products (Deck and Strom 2002). Yet the challenge of boosting the
productivity of research and development shifts from simply building cross-functional
processes and structures to building cross-enterprise processes (Deck and Strom 2002)
and innovative ways of managing these processes (J assawalla and Sashittal 1998).
Companies are compelled to leverage their internal strengths with the core competencies
of development partners to enhance and/or sustain their capabilities in providing superior
products and services to their customers (Mohr and Spekman 1994).

The purpose of the current research is to look at this ‘new generation’ product
development practices, which are called co-development alliances (a term consistent with
several scholars and numerous professionals). Speciﬁcally, the aim is to develop a theory
of partner selection for achieving desirable outcomes from co-development alliances. Co-
development alliances are non-equity based collaborative relationships enjoined by two
or more ﬁrms, in order to integrate and transform into value disparate pools of know-how
related to the new product or service development (adapted from Link and Bauer 1989).
In co-development partnerships, each party contributes a signiﬁcant portion of the end
solution. These partnerships do not include relationships involving a purchase of
components requiring minor inter-organizational interaction. Adapting the deﬁnition of
cross-functional collaboration of Jassawalla and Sashittal (1998), inter-ﬁrm collaboration

is deﬁned as a type of cross-organizational linkage, which in addition to high levels of

10

integration, is characterized by participants who achieve high levels of transparency,
mindfulness and synergies from their interactions.

A wealth of beneﬁts may accrue from inter-ﬁrm collaboration for product
development (Littler et al. 1995). First, inter-ﬁrm collaboration may provide access to
new skills and/or technologies that are otherwise unavailable to the ﬁrm (Mohr and
Spekman 1994). Second, collaboration allows for cross-disciplinary integration, which
may be the foundation for really new products (Chesbrough 2003). Third, inter—ﬁrm
collaboration for product development may constitute the means for creating or
exploiting new markets (Littler et al. 1995). Fourth, inter-ﬁrm collaboration may create
opportunity for the utilization of technologies that have not yet found application in the
market place (Chesbrough 2003). Fifth, inter-ﬁrm collaboration may lead to shared R&D
costs and risks (Perks 2000). And ﬁnally, inter-ﬁrm collaboration for product
development may increase the speed to market (Bronder and Pritzl 1992; Deck and Strom
2002).

Undoubtedly, the complexities of NPD processes are intensiﬁed when
organizational boundaries are crossed (Perks 2000). In addition to the widely
acknowledged risks of the product development process itself, collaborative product
development entails additional risks and detriments (Littler et al. 1995). First, in
accordance with the assertions from a voluminous stream of research (Achrol 1997;
Achrol and Kotler 1999; Kanter 1994), in co-development alliances managers need to
overcome many obstacles and operate through different organizational conﬁgurations, as
in any inter-organizational arrangement. Differences in organizational cultures, and by

extension in mindsets, expectations and behavior among the partners, can make building

11

relational capital and managing co-development alliances extremely costly (Hanson and
Lackman 1998; Tse et al. 1994). Second, knowledge exchanged in a collaborative new
product development arrangement may be proprietary, and in a situation of high
competitive overlap, there is the risk of knowledge spillover (Yan et al. 2000).

In the following sections, the motivations for the current research question will be

described and the method employed to address the issues will be explained.

2.2 Background

Three motivations underlie the current research question. First, as Sivadas and
Dwyer (2000) highlighted, collaborative product development requires a continuous ﬂow
of information between partners, to ensure the best possible integration. It also requires a
level of ﬂexibility be granted to those involved with the product development task. New
product alliances can be a clash between the logic of alliances and the logic of new
product development (Bidault and Cummings 1994). Constant information ﬂow, which
may be challenging to achieve even across the functional entities within the borders of a
ﬁrm, may become unattainable across ﬁrm borders (Perks 2000). Partners may become
protective about their resources, especially when their competitive advantage relies on
these resources (Hamel 1991). In that case, partners will strive to restrict knowledge (Yan
et al. 2000) and also become excessively controlling over the new product development
project. In fact such a high potential for conﬂict and cooperation produces the very
setting for innovation (Perks 2000). This peculiarity of co-development alliances

introduces interesting aspects that call for investigation.

12

Second, a study by Hagedoom (2002) on 40 years of data on R&D partnerships
reveals a pattern of growth in the number of R&D collaborations since 1960. While
collaboration has become the “next generation” for product development practices, there
has been relatively little academic research on collaborative new product development. In
a review of this literature for this dissertation, only about a dozen studies from scholarly
journals were identiﬁed. Five of these are case studies (Appleyard 2003; Deck and Strom
2002; Hummel et al. 2000; Kreiner and Schultz 1993; Perks 2000), one is a ﬁeld survey
(Littler et al. 1995), two are causal models (Rindﬂeisch and Moorman 2001; Sivadas and
Dwyer 2000), three are regression models (Athaide et al. 2003; Chen and Li 1999; Saez
et al. 2002), and the last one is a trend analysis (Hagedoom 2002). Summaries of these
articles are given on Table 2.

Third, in a survey done by Deck and Strom (2002) with companies who are
involved in cocdevelopment projects, the number one concern revealed was a “poor
foundation for collaboration.” This concern is echoed by a number of scholars in the
strategy (Mohr and Spekman 1994), management (Hitt et al. 2000) and marketing
literatures (Bucklin and Sengupta 1993). Glaister (1996), for instance stated the
sustainability and viability of an alliance is, to a great extent, determined by the partner
chosen. Similarly, Dev et al. (1996) pointed out that while some of the alliance failures
may be attributed to changes in business conditions, a number of alliance failures are
triggered by inappropriate partner selection. Although two studies in the co-development
literature recognized the importance of partner selection for achieving desirable outcomes
(Athaide et al. 2003; Saez et al. 2002), none have addressed this issue extensively. High

risks co-exist with the high beneﬁts in co—development alliances (Littler et al. 1995).

13

Reducing the potential risks while making the most of the beneﬁts, such as maximizing
the value gained through collaborative NPD, may be a function of partner choice.
Choosing the right partner may also reduce or abolish the clash between the logic of
alliances and the logic of new product development, and may unlock venues for value
creation through co-development.

In accordance with the purpose of developing a theory of partner selection for co-
development in this research, ﬁrst a series of interviews was conducted with managers
from the ﬁeld. A summary of company and interviewee proﬁles is given on Table 3.
Then narrative analyses were performed to develop a process theory of partner selection
for co-development. In the following section, the method that founded the emergent

theory is explained.

14

Table 2:

Studies on Collaborative Product Development

 

 

 

 

 

 

 

 

 

 

 

R§i::;nt Focus Major Findings Method
Sivadas and Management Cooperative competency (a combination of Structural
Dwyer 2000, trust, communication, and collaboration) Equation
Journal of has a signiﬁcant impact on the NPD Modeling
Marketing success. Complementarity of partner

competencies has signiﬁcant effect on NPD

success only in one of the industries

studied.
Rindﬂeisch Information processing Participants of horizontal alliances possess Structural
and Moorman both higher levels of knowledge Equation
2001, Journal redundancy and lower levels of relational Modeling
of Marketing embeddedness compared with vertical

alliances.
Athaide et al. Relationship Sellers consider both the buyer’s ability OLS
2003, Journal management and motivation before engaging in product Regression
of Marketing co-development. Idiosyncratic investments
Theory and are another factor affecting their decision.
Practice Co-development relationships lead to seller

satisfaction when the buyer is

knowledgeable.
Kreiner and Organizational Successful collaboration emerges from Case Studies
Schultz Networks ordinary interaction within personalized
(1993), networks. Excitement, commitment and
Organization other sentiments are important for
Studies establishment and survival of the

collaborations than are calculations of

beneﬁts and costs. Collaborative ties attract

other partners. Sharing of information,

research plans and visions are an integral

part of co-development relationships.
Littler et al. Field characteristics and A list of factors in two categories (inputs Descriptive
1995, Journal responses category, such as choice of partner; and statistics and
of Product collaboration management category, such mean
Innovation as building trust and communication) comparisons
Management contributing to collaborative product

development success.
Appleyard Knowledge Buyers may prefer generally applicable Building
2003, Journal accumulation modiﬁcations to customized ones; mathematical
of Product generally applicable modiﬁcations may model using a
Innovation lead to greater knowledge accumulation at case
Management the supplier.

 

15

 

Table 2 (cont’d)

 

 

 

 

 

 

 

Chen and Li Learning Content learning in technological ﬁelds Probit
1999, Advances increases the number of new product lines; Regression
in content learning in manufacturing and Analysis
Competitiveness marketing areas has no impact on the
Research number of new product lines. Process
learning (gaining knowledge from the
management process of alliance activities)
has positive impact on the number of new
product lines.
Perks 2000, Information exchange Complementarity of resource inputs and Case Study
Industrial outputs and the state of competitiveness
Marketing can inﬂuence the approach towards
Management integrating marketing information in the
collaborative new product development
process.
Hagedoom Trends There is a clear pattern of growth in R&D Descriptive
2002, Research partnerships since 1960. Companies seem statistics
Policy to increasingly prefer contractual
partnerships to joint ventures. This
preference is ampliﬁed in several sectors,
top three being pharmaceuticals,
information technology, and aerospace &
defense industries.
Deck and Strom Strategy A general co—development model has three Case Study
2002, Research levels: a strategy for development chain
Technology design, process and governance structures
Management that deﬁne how the partners work together,
and information technology that supports
collaborative development.
Saez et al. 2002, Empirical Among external sources of ideas for Logistic
R&D innovation, customers are most valued and Regression
Management research centers are the last on the list,
despite the fact that when it comes to co-
development, research centers are most
likely to be chosen.
Hummel et al. Group decision making The support of Team Expert Choice, a Case Study

2000, Journal of
Multicriteria
Decision
Analysis

 

 

group decision support system, appears to
have enhanced the decision-making
processes and outcomes of new product
evaluation. The evaluation resulted in
valuable guidelines for improving the
development and diffusion of the product.

 

 

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17

2.3 Research Approach

Consistent with the exploratory nature of this research, a theory development from
case studies approach is employed. This approach allowed study of co-development
alliances in natural settings. Moreover, in-depth case research presented the opportunity
to engage in theory building in an area in which there has been relatively little prior
research and theory (Eisenhardt 1989). Theory building from case study research starts
ideally as close as possible to no theory under consideration and no hypotheses to test;
i.e., in this approach the constructs, their deﬁnitions, and measurements emerge from the
process itself, rather than being speciﬁed at the outset (Eisenhardt 1989). In accordance
with Eisenhardt’s approach, the research problem was formulated and the existent
literatures on new product alliances and inter-ﬁrm collaboration were reviewed to specify
some of the potentially important constructs and shape the initial design of the research,
but consideration of speciﬁc relationships between variables was avoided as much as
possible.

In this theory building approach, no Single technique is available to collapse
multiple indicators into single constructs. For that purpose, the method of narrative
analysis was employed. Pentland (1999) argues that narratives are “naturally suited for
the development of process theories and explanations” (p. 717). Following Abbott’s
(1990) suggestion, a process theory of partner selection for co-development was created
by ﬁrst classifying sequential patterns, then looking for antecedents and consequences of
these patterns across different cases. Unlike a typical dataset, narratives contain a wealth
of information on the causal chain of events (Abbot 1990). In fact the empowering

character of narrative research is that it allows for examining more than just sequential

18

patterns; i.e. it allows examining characters, narrative voice, and evaluative context
(Pentland 1999). Thus it enables evolution from simple descriptions to explanations.

An in-depth study of each case was performed by using structural analysis of the
stories told by managers. First, the primary sequences in the narratives were isolated
following the analytical framework advocated by Labov and Waletzky (1967). Each
narrative was organized according to the temporal sequence by assigning a displacement
set to each clause in the narrative by adding subscripts to the clauses: a left subscript
indicated the number of antecedent narrative simultaneous with the given clause, and a
right subscript indicated the number of following clauses simultaneous with the given
clause (Labov and Waletzky 1967). Then the free clauses were moved to the beginning of
the narrative, and the restricted clauses were moved “to a point as early as possible in the
narrative without changing the temporal sequence of the original semantic interpretation”
(Labov and Waletzky 1967). Last, sequential categories were formed inductively and
commonalities and divergences among cases (and explanations thereof) were identiﬁed in
the other ingredients of the narrative. Table 4 presents the emergence of the categories
from the stories, and Table 5 demonstrates the temporal sequence of these categories in
each of the stories told by the managers. In the following section, the emergent process

theory for partner selection resulting from this analysis is presented.

2.4 Emergent Theory of Partner Selection
Findings suggest that inter-organizational ﬁt is the vital factor that determines the
success prospect of co-development alliances. Since partnering ﬁrms have subjective

self-awareness, to assess an initial ﬁt, they are likely to evaluate several characteristics of

19

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21

their partners. Figure 1 shows the framework of the partner selection process that was
developed from the data consistently with Tables 4 and 5. It highlights the process that
the managers followed to select partners for co-development in cases they declared to be
successﬁrl. The emergent model reveals several phases leading to a selection of a partner
with the potential to create value. These phases are (1) technological alignment, (2)
strategic alignment, and (3) relational alignment. These are illustrated in Figure 1. In the
following sections the emergence of these phases will be discussed.
2.4.1 Phase 1: Technological Alignment

The leﬁ-most box in Figure 1 shows that when looking for a partner for
collaborative product development, managers initially look for technological alignment.
In fact, existence of technological alignment gives managers ideas about opportunities,
thus triggering the decision for collaboration for the ﬁrms. This ﬁrst phase of the partner
selection process is comprised of three general categories of afﬁrmations from the
managers. These are technical capability, resource complementarity, and overlapping
knowledge bases.
Technical Capability. In all of the four cases studied, each partner was stated to have
either an innovative technology or expertise at a certain ﬁeld. This technology or
expertise attracted the attention of the other ﬁrm(s), either because it was widely
publicized or simply through networking. For instance one of the respondents stated:
“The whole world came to us because we had put these really outrageous trade shows,
and the product concept was so amazing, we were just truly the most exiting thing in

printing. So many people said they wanted to be a part of it. ” If partners were not well

22

 

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informed about the technological competences of one another, one party had to convince
the other of its capability at the outset. For instance, one other manager declared: “We put
together a proposal to them for what we could oﬁ'er them in terms of supply chain
education And we really pitched it to them on a couple fronts. One was our faculties’
willingness get to know their business and customize what we ojﬁ’r. Second our depth of
knowledge in the supply chain area. ” At the technological alignment phase ﬁrms
recognized the potential partner’s unique competencies, which can be leveraged into their
new product development related activities. This ﬁnding seems to be consistent with the
resource-based view of strategic alliances. According to the resource-based view, ﬁrms
search for strategic alliance partners that have unique technological resources (Barney
1991) that they can leverage (Hitt et al. 2000). In fact, in the resource based view of
strategic alliances, such a need is argued to be the primary reason for creating a strategic
alliance (Das and Teng 1999) and for the selection of speciﬁc alliance partners (Hitt et al.
2000).

Resource Complementarity. The second general category of afﬁrmations from the
managers is technical resource and market knowledge complementarity. In all of the
cases analyzed, the potential partners possessed technical resources that were distinct, yet
complementing one another for the opportunity foreseen. Partners would be able to
exploit and/or create these opportunities only by integrating their complementary skills
and resources. One of the managers stated: “So, when we were to make a decision,
company A was complementary and able to round the edges for us. Complementary
skills, complementary market knowledge, so we were able to augment our decision with

their strengths. ” In all cases, not only were the ﬁrms adept at certain technologies, but

24

they also had a thorough understanding of the needs of dissimilar sets of customers.
Through collaboration partnering, ﬁrms were either able to create new market segments
for their mutual product (mutual market expansion), or as one partner gained access to a
new market, the other had the opportunity to become a value-added supplier in its own
market. More speciﬁcally, their market knowledge as well as technological knowledge
complemented one another. Supportive of these ﬁndings, a group of researchers argue
that strategic alliances are more likely to succeed when partners possess complementary
assets (Hill and Hellriegel 1994; Luo 1999). Dyer and Singh (1998), for example,
suggested that generating rents from core competencies might require a ﬁrm to use those
in conjunction with complementary resources from another ﬁrm. Similarly, Das and Teng
(2000) argued that partners’ resources might provide greater competitive advantage when
they are used in combination. Moreover, new product researchers argued that signiﬁcant
innovations are likely to emerge from a combination of complementary skills (Glaister
1996)

Overlapping Knowledge Base. In this phase, a third category also emerged from the
aﬁ‘mnations of the managers. This category is described by overlapping knowledge bases
among partners. In all the stories analyzed, managers mentioned having somewhat
similar knowledge bases, which allowed them to see the value in the potential partners’
competencies. For instance, one manager said that before they decided to partner with
another company to have access to state of the art technology, his company had already
“been working on some government contracts to evaluate a certain technology for
transportation at the research level we of eﬂort.” Various reasons were stated for these

knowledge overlaps, such as same educational background, previous work done on the

25

same subject, or simply working with similar technologies in the same industry.
Regardless of the reasons, overlapping knowledge bases provided the necessary grounds
for the ﬁrms to (1) realize the potential of the technology owned by the other, (2)
discover the complementarities of their competencies, and (3) communicate these inter-
organizationally.

In accordance with this ﬁnding, a group of researchers (Geringer 1988; Hitt et al.
2000; Kogut 2000) argued that while skill discrepancies have been recognized as
motivators for collaboration and facilitators for knowledge transfer (Dyer and Singh
1998), such transfer is not guaranteed unless prior knowledge and a set of learning skills
speciﬁc to the context exist; i.e. absorptive capacity exists (Cohen and Levinthal 1990).
That is, some level of similarity within the knowledge domain is necessary for
understanding of the intricacies of the new knowledge and its applicability. Yet, Hitt et
al. (2000) mentioned that if a partner is willing to share its expertise, it might help the
other ﬁrm develop the adequate absorptive capacity by working in tandem to provide the
necessary experience. Therefore, in the absence of such capacity, it is expected that the
managers choose to ally with “partners who are willing to share their capabilities and,
perhaps, to make special efforts to help their partners acquire these capabilities” (Hitt et
al. 2000).

2.4.2 Phase 2: Strategic Alignment

The middle box in Figure 1 shows that aﬁer assuring technological alignment,

managers seek strategic alignment with the potential partner. Strategy is deﬁned as the

goals of an organization and the manner in which it seeks to achieve them (Saint-Onge

26

1996). Two emergent categories comprised the strategic alignment phase. These are (1)
motivation correspondence and (2) goal correspondence.

Motivation Correspondence. Motivation correspondence refers to the extent to which
the partners’ perceived ulterior motives guiding their behaviors are in correspondence
with one another (Smith and Barclay 1997). In all of the cases analyzed, not only did the
partners have correspondent motivations, but also they had looked for signals to assure
this. From partnering ﬁrms A and B, manager A said, “ We knew that they weren’t
interested in having our technology. They were interested in selling more film and being
a value-added supplier while manager B stated, “They were trying to penetrate our
traditional market. They needed a lot of help getting into and understanding that market.
That was partly where we joined them. ” These partners clearly had different, yet
correspondent motivations to enter the co-development partnership. Correspondence of
motivations signals whether or not the partner has mutually beneﬁcial intentions to
accomplish the collaborative task, and determines the likelihood that the partner will
engage in opportunistic behaviors. There may be different motivations for ﬁrms to enter
alliance relationships (D02 and Hamel 1998). For instance, ﬁrms may enter alliances to
internalize knowledge that is not readily available in the marketplace (Hamel 1991). C0-
development partners may be competitors in the same market (Saez et al. 2002), or fear
that knowledge outﬂow “may equip a previously non-competing partner with the
necessary skills and knowledge to enter such markets” (Perks 2000). Therefore, aiming to
internalize the competencies of a partner may be considered an opportunistic behavior in

a co-development setting.

27

Goal Correspondence. A second category that emerged, as a part of this phase, is the
goal correspondence of the partners. Goal correspondence is deﬁned as the prospective
partners having non-competing goals. It is found that high levels of goal correspondence
enhance the consistency of expectations and assures mutual gains. Goal correspondence
does not necessarily mean that partners have exactly the same goals. For instance, in case
1 (see Table 1), manager ﬁom company A said, “Our service oﬂering of education isn ’t
the whole requirement of what the customer really needs. The customer really needs to
get results from the education, so there is a learning component and then there is the
implementation and achievement of the results component. And we are not able to do that
part, because it is outside the mission of the university. So working with a consultant
enables us to oﬂer a bigger package. So there is a good balance of two organizations
seeking a common objective ”; whereas manager from company B said, “There are a lot
of consulting companies out there and we didn ’t really want to go at it just kind of like
everybody else. So, we were trying to ﬁgure out a way to be diﬂerent. ” Although
according to manager A, the two parties had common goals, in reality they had different
goals, as can clearly be seen from the two managers’ statements. The goal of company B
was to differentiate itself ﬁ'om its competitors by the mutual product offer, whereas the
goal of company A was to meet needs better by providing a more comprehensive service
package. The reason why manager A perceived these goals to be common is most likely
because these two goals are not conﬂicting with one another, and can be achieved

through a common business model.

28

2.4.3 Phase 3: Relational Alignment

The last box in Figure 1 shows that the last phase of partner selection process is
relational alignment. Three general categories appear to constitute this phase. These are
(1) compatible cultures, (2) propensity to change, and (3) long-term orientation.
Compatible Cultures. Culture is the collection of cognitions, expectations, mindsets,
norms and values within an organization (O'Reilly et al. 1991). Culture is a determinant
of how organizations make decisions. It shapes the collective behaviors of the members.
Findings show when the partners have compatible cultures, i.e. share similar bases for
norms, values, and expectations, conﬂicts are overcome relatively easily. Supportive of
this ﬁnding, Parkhe (1991) argued that diversity in terms of cultural and procedural
differences may be the roots of adversities in alliances and can negatively affect the
quality of interactions in a partnership. To have effective communication and exchange
of explicit knowledge, there has to be at least a minimum level of congruence in the
norms and procedures, that is, in the ‘way of doing things’. Partners should be able to
“speak the same language” as pointed out by one of the respondents: “It is sometimes
very hard to discuss new products, new markets and new ideas with bigger companies. I
don ’t know why exactly, but they don ’t seem to speak the same language. We have the
discussion and it doesn ’t stick We don ’t get any traction on it. It is very diﬂicult because
again we both come from diﬂerent worlds. And we see some value in some of the
products they have and they don ’t seem to see that value.” Partners with compatible
cultures are more likely to understand one another and work toward common goals.
Compatible cultures not only provide common grounds for communication but also serve

to synchronize the expectations and behavior among the partners. Indeed, talking about a

29

successful co—development partnership, one manager mentioned that it feels like they
have no boundaries between the two organizations because, they are “all just kind of
kindred spirits in [their] values on how [they] treat customers and each other. ”

Cultural compatibility was implicit in all narratives but one. One manager stated:
“Actually our cultures did not match up, because nothing is going to match the culture of
a university. No business organization will ever match up. But, they were very upﬁ'ont,
very open and very consistent with what they do. ” This statement shows that in the
absence of cultural ﬁt, other attributes of the partner (such as openness and consistency)
may create the necessary grounds for collaboration. Likewise, Hitt et al. (2000) argued
that in the absence of overlapping procedmal routines, the commitment of a partner to the
alliance relationship might create a willingness to share tacit knowledge and to develop
the necessary common grounds for communication and knowledge transfer.

Propensity to Adapt. A second emergent category in this phase is the propensity of the
partner to change. Propensity to adapt refers to the willingness of partners to adapt as the
requirements of collaboration change. In all stories, managers mentioned they were
comfortable with asking their partners for changes on their share of the task, because
their partners were willing to say, “Yes, that makes a lot of sense, we should try that. ”
Propensity to adapt may be considered a necessary characteristic, since it may form the
basis for the needed ﬂexibility, for both new product development (Sivadas and Dwyer
2002) and sustained collaboration (D02 and Hamel 1998). Co-development relationships
may evolve in ways that are hard to predict. The manner in which value is created is not
preordained. D02 and Hamel (1998) stated that in such situations, initial agreements have

less to do with success than adaptability to change. Adaptability to change is clearly a

30

necessary characteristic for co-development partners, and managers seek signals of the
potential partner’s propensity to adapt.

Long-Term Orientation. [bug-term orientation refers to a willingness to make short-
term sacriﬁces for long-term results. In a study of buyer-seller relationships, Ganesan
(1994) argued a short-term orientation is having concern only for the options and
outcomes of current period, whereas long-term orientation is focusing on achieving future
goals and being concerned with both current and future outcomes. Anderson and Weitz
(1992) referred to such a long-term orientation as relationship commitment, and argued
that such commitment results in independent channel members working together to
increase mutual gains (Anderson and Weitz 1992). We found that partners with long-
term orientations are picked over the others, because long-term orientation gives the
partner the ability to overcome obstacles, resolve conﬂicts and continue under
uncertainty. For instance, one manager stated: “Everybody could see the potential of the
product concepts. But again it was potential and it was very latent. Most of those people
dropped of quickly. They saw the kind of work involved and how small the opportunity
was in the short-term. ” In all success cases studied, partners were aware of short-term
sacriﬁces that the collaborative task may have required, and were willing to contribute
without knowing the exact outcome. In fact one of the managers mentioned: “Now we

are a success story but it was ﬁ'om the deepest darkest hole that we came. ”

31

2.5 Discussion
2.5.1 Theoretical Contributions and Implications
Although there have been an increased number of co-development alliances in
industry, a review of the literature revealed a relatively limited number of studies that
have addressed this issue. Based on a widely accepted notion that the foundation of an
alliance is a signiﬁcant determinant of its sustainability and viability (Glaister 1996), this
study attempts to develop a process theory of partner selection in co-development
alliances. In accordance with the theory development approach in this work, and also
based on the fact there has been relatively little prior research and theory on co—
development alliances, a “theory development from case studies” method has been
employed. Interviews with managers with co-development experiences were performed
and their stories of successful cases were recorded. Based on the assertions that
inappropriate partner selection underlies a number of alliance failures (Dev et al. 1996),
this study aimed to build a partner selection process theory speciﬁcally for co-
development alliances. Accordingly, manager’s stories of partner selection process were
analyzed using narrative analysis technique, with the purpose of ascertaining routines in
their stories and grasping causal meanings from recurring sequences or from divergences.
The results are signiﬁcant for at least three reasons. First, although marketing
scholars agree that the nature of inter-ﬁrm relations may be substantially different in
horizontally aligned ﬁrms (Achrol 1997), the majority of the inter-organizational
literature examines vertical alliances (Rindﬂeisch and Moorman 2001). When companies
collaborate for new product development they do so with different types of organizations,

such as their competitors, suppliers, customers, or universities and research centers (Saez

32

et al. 2002). This research is primarily concerned with inter-ﬁrm collaborations through
which ﬁrms seek to leverage their technical competencies into proﬁtable new products.

Several characteristics differentiate co—development alliances from other types of
partnerships. Co—development alliances are non-equity based relationships, in which each
party contributes a signiﬁcant portion of the end solution; i.e. these partnerships do not
include relationships involving a purchase of components or simply funding of a
research. In addition, co-development partnerships involve high levels of integration, and
some level of competitiveness among partners (Rindﬂeisch and Moorman 1998). This
contradiction adds a novel dimension to the characteristics of co-development
partnerships. In the current study, co-development alliances were treated in isolation from
other types of partnerships.

Second, the motivations for co-development alliances were found to be in line with
the resource based-view of strategic alliances. The resource-based view suggests that
strategic alliances are speciﬁcally created for value maximization in the ﬁrm through
pooling and exploiting valuable resources with a partner (Das and Teng 2000; D02 and
Hamel 1998). Valuable resources are usually scarce, imperfectly imitable and imperfectly
mobile (Barney 1991), and hence accumulation of these resources is a strategic necessity
for the ﬁrm. Reciprocal strengths and complementary resources pooled by the alliance
partners facilitate value creation and value extraction by the ﬁrm ﬁ'om the alliance (D02
and Hamel 1998; Parkhe 1991). Co-development alliances make specialization and
variety possible simultaneously.

Third, ﬁndings suggest that the partner selection process involves relational and

strategic alignment as well as technological alignment of the partners. The emergent

33

model reveals a comprehensive theory including all these aspects, whereas the existent
research on inter-ﬁrm relationships, except for one (Sivadas and Dwyer 2000),
concentrate on either relational aspects (Morgan and Hunt 1994, Anderson and Narus
1992,) or on technological know-how transfer (Hamel 1991; Inkpen 1996; Inkpen 1998;
Inkpen 2000; Iyer 2002; Khanna 1998; Parkhe 1991).

Overall, the ﬁndings suggested that partners’ technical, strategic and relational ﬁt in
conﬂuence is the vital factor that determines, the potential of co-development alliances to
create value. Each emergent phase is necessary but not sufﬁcient for insuring a selection
of a partner with a potential to create value. Findings show that to maximize the potential
for value creation through collaboration, a partner should be selected in a manner that not
only enables transfer of tacit know-how, but also maintains the necessary relational and
strategic grounds to ensure this transfer. Somewhat similar to these ﬁndings, Sarkar et al.
(2001) deﬁnes an inter-organizational ﬁt as having different resource and capability
portfolios, while sharing similarities in social institutions. In addition to his ﬁndings,
results of the current research suggest that strategic alignment is an important factor in
ascertaining a “ﬁt” between partners. Mockler’s (2001) claim is supportive of this
argument. He stated that strategic ﬁt is a necessary but insufﬁcient condition for
multinational strategic alliances (Mockler 2001 ).

Two characteristics of co-development alliances make them more vulnerable to
strategic misalignment than the other types of alliances. First, in co-development
alliances, there is a possibility that the potential partners are rivals in other markets, or
may become competitors in the future (Perks 2000; Rindﬂeisch and Moorman 2001).

Second, the foremost reason for co-development partnering is to create synergistic value

34

by pooling and integrating core competencies. Thus, knowledge shared for co-
development is almost certainly proprietary and may be vital for the competitive stances
of the parties. There is a high risk of knowledge spillover in case of a competitive overlap
(Yan et al. 2000). In these circumstances, mutual gain is only possible by assuring -

appropriate strategic alignment between the partners.

2.5.2 Managerial Implications

By providing a better understanding of the sequence of actions/decisions associated
with partner selection, this study provides managers with useful insights on what
characteristics of the potential partners may underlie successful value creation through
co—development. There are three partner related aspects that facilitate value creation in
co-development alliances. These are technological alignment, strategic alignment, and
relational alignment.

The phases depicted in the process model provide the basis for a set of normative
suggestions that managers could follow to promote choice of a partner with the maximum
potential to create value through co-development. This emergent model underscores the
need for managers to look for technological alignment with a partner to maximize the
transfer and integration of disparate pools of know-how. The model also underscores the
signiﬁcance of strategic and relational alignment with a potential partner to ensure this
transfer, as well as the sustainability of the partnership.

Technological alignment of ﬁrms may trigger the decision for collaboration for
product development. Co-development alliances are formed when the technical skills of

the partners comprise the necessary complementarities for the creation of unique

35

capabilities, owned by neither of the parties alone. As well as partners with unique
competencies, ﬁrms also search for partners that have complementary skills and
resources (Johnson et al. 1996), which can be integrated with their own resource
endowment to create synergy (D02 and Hamel 1998). Complementary skills provide the
opportunity for integrating and transforming the unequal pools of technical know-how
into product value (Doz 1996a; Sarkar et al. 2001).

One might expect that technological alignment of co-development partners would
be a sufﬁcient condition for creation of value. However, since co—development alliances
are venues for integrating core competencies (and in case of a competitive overlap there
is a risk for ﬁrms to pass on valuable knowledge to the partner), congruence of the
motivations and the goals of partners (i.e., strategic alignment) is another necessary
condition to ensure the ﬂow of information necessary for successful product co-
development. There is a possibility that a co-development alliance may fail even when
partner ﬁrms have the full technological and strategic potential to create value through
collaboration. According to the emergent partner selection theory, in addition to
technological and strategic alignments, relational alignment of partners appears to be
another necessary condition for synergistic value creation.

A relational misalignment may occur in three circumstances. Norms, values, or
procedural routines of potential partners may not be congruent; that is, partners do not
‘speak the same language’ and/or do not share similar basis for expectations and
behaviors. This would impede the understanding and ﬂows of information among
partners. Second, potential partners do not have the willingness to adapt as the

requirements of the collaborative partnership change. In this situation the mutual and

36

innovative ways to create synergistic value may never be formed. Finally, the partner
may be concerned only with short-term returns. In that case, the partner would not be
willing to make the necessary contributions, which could bring long-term outcomes. In
all of these situations, the prospects of a co-development alliance may be undermined.
Therefore maximizing potential for creating synergistic value through co-development
alliances hinges on three aspects: 1) selecting a partner with maximum potential for
creating technological synergy (i.e., technological alignment with the partner); 2)
selecting a partner with maximum potential to collaborate (i.e., strategic alignment with
the partner); and 3) selecting the partner with a maximum potential to sustain the

relationship (i.e., relational alignment with the partner).

37

CHAPTER 3
STRATEGIC CHOICE OF COLLABORATING FOR NEW PRODUCT
DEVELOPMENT
3.] Introduction

Strategic alliances are considered as an alternative to internalization on
one hand and market exchanges on the other. That is, for a given product
or service, a firm may choose to: I) produce its own, 2) purchase it from
the market place, or 3) make it jointly with partner ﬁrms (Das and T eng
2000).

F irms seldom have the ability to control the leading-edge technologies to create
innovative products on their own (Doz 1996b). Via collaboration, ﬁrms may access
unique technologies and valuable resources that are not available in-house. Valuable
resources to be used in combination are usually scarce, imperfectly imitable and
imperfectly mobile (Barney 1991; Barney 1996), and they are intrinsic to the processes
and routines in organizations. These are usually resources that have not been extracted
from practice; that is, they are implicit and non-codiﬁable accumulation of skills (Reed
and DeFillippi 1990). They are only accessible through hands on experience and oblige
ﬁrms to engage in some form of inter-ﬁrm collaboration. Inter-ﬁrm collaborations allow
ﬁrms access the valuable resources, which are not available by any other means (Kotabe
and Swan 1995). By forming collaborative product development partnerships, ﬁrms
explicitly declare their intention to integrate and share these resources (Sampson 2002).

Co-development alliances are non-equity based collaborative relationships entered

into by two or more ﬁrms, to integrate and transform disparate pools of know-how

38

related to the new product or service development into value (Link and Bauer 1989). In
co-development partnerships each party contributes a signiﬁcant portion of the end
solution. These partnerships do not include relationships involving a purchase of
components requiring minor inter-organizational interaction. Inter-ﬁrm collaboration is
deﬁned as a type of cross-organizational linkage, which in addition to high levels of
integration, is characterized by the participants who achieve high levels of transparency,
mindfulness and synergies from their interactions (Jassawalla and Sashittal 1998). The
fundamental purpose of this collaboration is to increase product advantage, while
generating economic (Hamel 1991) and relational rents (Dyer and Singh 1998) to the
partners. The purpose of the current research is to look at these ‘new generation’ product
development practices. Speciﬁcally, the aim is to develop a process theory of the
strategic choice of collaborating for product development.

The conﬂuence of at least four forces make collaborative new product development
appealing for the ﬁrms: 1) the increasing strategic need for sustaining competitive
advantage and delivering customer value necessitated by the globalization of markets and
competition; 2) the urgency felt by ﬁrms operating in this uncertain environment to
rapidly assemble and conﬁgure skill portfolios to sustain competitive advantage; 3) the
realization by managers that organizational competence might be a function of
reconﬁgured tangible and intangible assets as alliances evolve over time and as partners
learn and invest into their relationships (Lei et al. 1997); and 4) realization on the part of
managers that through partnerships, ﬁrms can enhance their capabilities in providing

superior products and services to customers faster by gaining access to new technologies

39

or to complementary skills and knowledge bases beyond their own compilation (Mohr
and Spekman 1994).

Despite the rich beneﬁts that may accrue from collaboration for new product
development (Inkpen 1996; Inkpen 1998; Inkpen 2000), sustaining competitive
advantage through the assembly and conﬁguration of skill combinations within a
collaborative entity is a difﬁcult task (Achrol and Kotler 1999; Kanter 1994). The
existence of non—equity based collaborations for new product development is based on
dynamism, collaboration, and mutual learning (D02 and Hamel 1998). Even though
individual partners possess all the technical competence needed to perform the
collaborative task, unsatisfactory inter-ﬁrm cooperation, or failing to sustain it, may
obstruct the success and viability of the alliance (Dyer and Singh 1998; Iyer 2002). The
complicated and evolutionary nature of non-equity based inter-ﬁrm collaborations (D02
and Hamel 1998), in general, and the high potential of conﬂict and cooperation in co-
development alliances (Perks 2000) foster a difficult decision for managers to make. The
factors that inﬂuence this strategic decision are paid little attention to in the strategy and
marketing literatures (Hagedoom 1993 is an example). The accuracy of the collaboration
decision constitutes the initial stones in the path to success or failure, and therefore is an
important issue that calls for investigation. The purpose in the current research is to
develop the relevant concepts clarifying this issue based on the interviews with managers
from the ﬁeld, and the results of the narrative analysis of their stories. Speciﬁcally, the
interest is to identify the factors that inﬂuence the choice of collaborating for new product

development.

40

3.2 Contributions

Findings of this study are signiﬁcant for two major reasons. First, this research is
primarily concerned with inter-ﬁrm collaborations through which ﬁrms seek to leverage
their technical competencies into proﬁtable new products. Several characteristics
differentiate co-development alliances from the other types of partnerships. Co-
development alliances are non-equity based relationships, in which each party contributes
a signiﬁcant portion of the end solution; i.e., these partnerships do not include
relationships involving a purchase of components or simply funding of research. Also,
unlike the cost minimization based partnerships, viabilities of co-development alliances
are centered on the net value of the collaborative transactions (Madhok and Tallman,
1998). In fact, the potential value to be created through the collaboration is what brings
and keeps the partners together in a co-development arrangement. In addition, co-
development alliances differ from the other non-equity based partnerships because they
involve high levels of integration, and some level of competitiveness among partners
(Rindﬂeisch and Moorman 1998). These contradictions add a novel dimension to the
characteristics of co—development partnerships and render strategic choice of co-
development an ignored issue.

Second, the method employed here, theory building ﬁnm case studies, grants the
opportunity to study co-development alliances in their natural settings. This method also
gives the researcher the opportunity to develop a comprehensive theory, when the
research subject is in its early stages and there has been relatively little prior research and
theory. Narrative analysis allows for examining just more than the content of interviews,

such as sequential patterns, the characters, narrative voice, and evaluative context

41

(Pentland 1999). Thus, employing narrative analysis allowed us to investigate multiple
cases, without sacriﬁcing the in—depth investigation of each case (Pentland 1999).

In the following sections, ﬁrst the motivations for the current research question will

be described and then the method will be explained.

3.3 Background
Co-development alliances are formed with the purpose of developing the right
combination of resources to create synergistic value (Hagedoom 1993). The right mixture
entails minimum transaction speciﬁc investments, since its formulation involves
predominantly the existing capabilities of the partnering ﬁrms (Sivadas and Dwyer 2000).
Therefore, co-development alliances entail loose ties among partners. In fact, in co-
development alliances, compulsion for the partners to stay together is driven primarily by
the potential of the synergistic value to be created through the collaboration. The
viabilities of co-development alliances are based on the net value of the collaborative
transactions. Madhok and Tallman (1998) conceptualize such value “in terms of the
ability of partners to earn rents over and above what could have been achieved in the
absence of the partnership” (p. 328). They deﬁne potential economic value by potential
rents minus potential costs associated with transacting through alliances. In co-
development alliances, value can be created through collaboration even in the absence of
cost efﬁciency, if the collaboration speciﬁc rents are high enough.
The primary motivation of co-development alliances is a commitment to an
external problem or opportunity, rather than an internal need for resources. “The former

is often a product of internal organizational planning and change; and the latter arises

42

from inter-organizational planning and change” (Van de Ven 1976, p. 29). Co-
development alliances elaborate from collaboration-speciﬁc rents (Madhok and Talhnan
1998); that is, ﬁrm speciﬁc resources are only valuable when they are used in
combination with others, in the right formulation.

Furthermore, despite the fact that co-development alliances are characterized by
little alliance speciﬁc investments and nontraditional contracts they entail a great deal of
risks for the partnering ﬁrms. As Sivadas and Dwyer (2000) highlighted, collaborative
product development requires a continuous ﬂow of information between partners, and
ﬂexibility be granted to those involved with the product development task to ensure the
best possible integration. Constant information ﬂow, which may be challenging to
achieve even across the functional entities within the borders of a ﬁrm, may become
unattainable across the borders (Perks 2000). Especially, partners may become protective
about their resources, when their competitive advantage relies on them (Hamel 1991). In
that case, partners will strive to restrict knowledge (Yan et al. 2000) and also become
excessively controlling over the new product development project. The roles of
reciprocity and power symmetry intensify as ﬁrms rely on their social capital to handle
market uncertainties more effectively (Chung, Singh and Lee 2000).

The aim of the current research is to identify the factors that bring about the
decision to collaborate for product development. The investigation ﬁrst started by
searching the literature for collaborative product development studies. At the end of a
review of this literature, only about a dozen studies ﬁ'om scholarly journals were
identiﬁed. As shown on Table 2 (please refer to chapter 2), ﬁve of these are case studies

(Appleyard 2003; Deck and Strorn 2002; Hummel et al. 2000; Kreiner and Schultz 1993;

43

Perks 2000), one is a ﬁeld survey (Littler et al. 1995), two are causal models (Rindﬂeisch
and Moorman 2001; Sivadas and Dwyer 2000), three are regression models (Athaide et
al. 2003; Chen and Li 1999; Saez et al. 2002), and the last one is a trend analysis
(Hagedoom 2002). Given the relatively small number of studies on co-development
alliances, we employed a theory development from case studies approach for our study
(Eisenhardt 1989). Interviews with managers ﬁ'om the ﬁeld were conducted, and
narrative analyses were performed on their co—development initiation stories. A summary
of company and interviewee proﬁles is given on Table 2 (please refer to Chapter 2). In

the following section the method that founded the emergent theory will be explained.

3.4 Research Approach

Theory development from case studies approach allowed the study of co-
development alliances in a natural setting. Moreover, in-depth case research open up the
opportunity to engage in theory building in an area, in which there has been relatively
little prior research and theory (Eisenhardt 1989). Theory building from case study
research starts ideally as close as possible to no theory under consideration and no
hypotheses to test; that is, in this approach the constructs, their deﬁnitions, and
measurements emerge ﬁom the process itself, rather than being speciﬁed at the outset
(Eisenhardt 1989). In accordance with Eisenhardt’s approach, the research problem was
formulated and the existent literatures on new product alliances and inter-ﬁrm
collaboration were reviewed to specify some of the potentially important constructs and
to shape the initial design of the research, but propositions concerning speciﬁc

relationships between variables were avoided as much as possible.

44

In the theory building approach, no single technique is available to collapse
multiple indicators into single constructs. For that purpose, the method of narrative
analysis was employed. Unlike a typical dataset, narratives contain a wealth of
information on the causal chain of events (Abbot 1990). In fact the empowering character
of narrative research is that it allows for examination of more than sequential patterns,
such as the characters, narrative voice, and evaluative context (Pentland 1999). Thus it
enables the evolution from simple descriptions to explanations.

An in-depth study of each case was performed by using structural analysis of the
stories told by managers. First, the primary sequences in the narratives were isolated
following the analytical ﬁamework advocated by Labov and Waletzky (1967). Each
narrative was organized according to the temporal sequence by assigning a displacement
set to each clause in the narrative by adding subscripts to the clauses; with a leﬁ subscript
indicating how many antecedent narrative clauses the given clause is simultaneous with,
and with a right subscript indicating how many following clauses the given clause is
simultaneous with (Labov and Waletzky 1967). Then the free clauses were moved to the
beginning of the narrative, and the restricted clauses were moved “to a point as early as
possible in the narrative without changing the temporal sequence of the original semantic
interpretation” (Labov and Waletzky 1967). Last, sequential categories were formed
inductively and commonalities and divergences for among cases (and explanations
thereof) were sought in the other ingredients of the narrative. Table 6 presents the
temporal sequence of these categories in each story. The framework for the emergent
theory of collaboration choice for product development is presented in Figure 2. The

following section presents this theory.

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3.5 Emergent Theory of Collaboration Choice for NPD

“An organization is shaped by the stream of strategic decisions its managers make
over time, and how they make those decisions” (Korsgaard et al. 1995). The complex,
unstable and risky nature of co—development partnerships in conjunction with its
signiﬁcant beneﬁts renders a difﬁcult decision for managers to make between
collaborating and not collaborating for product development. When considering this
decision, managers seem to be troubled with a broad range of factors. Results of the
narrative analysis yield three phases of decision making for collaborative product
development. These are strategy, evaluation, and pre-disposition. A detailed ﬂow chart of
the emergent phases is given in Figure 3. In the following sections, the emergence of
each of these phases and their interrelations will be discussed. The three phases will be
presented in a reverse fashion. That is, the third phase (Pre-disposition) will be presented
ﬁrst, since it involves the ultimate factor that leads to the collaboration decision. The
phases preceding the third phase will be elaborated on subsequently.
3.5.1 Phase 3: Pre-disposition

The third box in Figure 3 shows that the phase of collaboration decision process

that precedes the collaboration decision is the pre-disposition towards the potential
partner. The inherent evolutionary dynamics of co-development alliances call for loosely
speciﬁed control and incentive systems in contracts (Ring and Van de Ven 2003). In all

the co—development cases studied, the relationships relied on open-ended contracts,

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particularly during the early stages of the partnership. One of the managers in a co-
development alliance studied stated: “So on one hand you have to put something in the
contract. 0n the other hand, it is all very abstract. ” Supportive of this ﬁnding, Das and
Teng (2001) proposed that contracts in social-exchange based partnerships are
incomplete and do not specify every detail of the relationship with the purpose of
providing necessary ﬂexibility for an ongoing and unidentiﬁed process of value creation.
However, collaborative product development encompasses a high risk of sharing
proprietary knowledge (Sivadas and Dwyer 2000), and renders the accurate assessment of
the value of the commodity to be exchanged (Gulati 1995), as well as the ultimate value
to be created, a challenge. Firms managed such partnerships despite the fact that they
have minimal contractual control over the behavior of the partner, as well as the outcome
of the partnership. For instance one manager stated, “There is no formal agreement, but
they ’ve helped us in posturing and producing samples and doing testing. We ’ve helped
them in producing test products for them when they have a unique application. So, it has
just been a very good working relationship and at this point it is proﬁtable for both of
us. ”

At the end of the investigation, it was found that in the absence of detailed
contracts, the amount of uncertainties and the strategic signiﬁcance of knowledge shared
in co~development alliances oblige managers to look for other ways of building
conﬁdence in their partners for creating value: “There is no formal [agreement]. We do
have a mutual nondisclosure agreement, but apart ﬁom that we don ’t have anything on

paper yet. So it is all based on trust right now. That’s quite important. ” Interestingly,

another manager stated that trying to get closure on pages and pages of contractual

50

detail, just that very process itselﬁ can stop the potential relationship of trust, because it
is more of a negotiating relationship at that point as opposed to a working relationship. ”
Congruently, Macauley (1963) observed that detailed contracts could obstruct creating
good exchange relationships, and may hinder the formation of trust among partners. V

From the narrative analysis of co-development initiation stories, trust emerged as
the key to building sustainable collaborations, and was inﬂuenced by the outcome of the
partner evaluation. It was found that these collaborations are based on informal norms
and acceptable behavior, rather than control mechanisms. One of the managers
highlighted the importance of trust: “You have to build trust simply through some time
and through some personal relationships because at the end of the day it is hard to write
a legal contract upﬁ'ont that is going to deal with every unpredictable situation that
might come up during the partnership. If we are going to have scenarios where you may
not have written the contracted deal with exactly this case and if there is no trust there
and one partner feels slighted, then the partnership is rapidly going to break down. ” This
ﬁnding is supported by several scholars in the literature. Gulati (1995), for instance,
proposed that trust is an alternative to a detailed contract, which is basically a control
mechanism making behavior predictable. Similarly, Das and Teng (1998) proposed a
supplementary relationship between control and trust in inter-ﬁrm relationships, and
deﬁne a ﬁrm’s conﬁdence in partner cooperation as a function of both control and trust.
Since co-development alliances rule out detailed contracting, and by extension
predetermined control mechanisms, ﬁrms rely on high levels of trust to have conﬁdence

in partner cooperation and ability.

51

3.5.2 Phase 2: Partner Evaluation

In all the cases, the partner prospect was stated as the primary driver of trust in
partner’s ability and cooperation. Despite the fact that trust is a necessary condition for
creating and sustaining collaboration (D02 and Hamel 1998), ﬁrms do not blindly trust
one another (Achrol 1997). The middle box in Figure 3 shows that previous to
developing a pre-disposition towards the collaboration partnership, managers evaluate the
partner prospect to determine its potential to create technological and relational synergies.
In the co-development decision cases studied, to build trust, managers employed a course
of evaluation techniques of potential partners, which were aimed towards maximizing the
potential rents (beneﬁts) and minimizing the potential costs (risks); i.e. ensuring highest
value creation through the prospective co-development partnerships. Findings suggest
that assurance for maximizing the rents hinged on partnering with a ﬁrm who has the
credentials for creating technological synergy, as well as characteristics that facilitate the
transfer of critical knowledge to ensure this creation. Assurance for protecting the
proprietary knowledge or core competences hinged on partnering with a ﬁrm who has the
proper intentions and goals, and thus would be less prone to opportunistic behavior.

At the end of the investigation it was found that the collaboration decision for
product development is inseparable from the partner’s prospect. That is, unless a partner
with the minimum requirements for being ‘trustworthy’ is met, the ﬁrms do not consider
collaborating for product development. The second box in Figure 3 represents the two
general categories, which emerged from factors declared by managers to be used in
evaluating a partner. These categories are (1) the potential of the partner to create

technological synergy and (2) the potential of the partner to create relational synergy. The

52

sub-categories for these constructs are adopted from Chapter 2 of this dissertation and are
presented in Figure 4. Accordingly, the potential of the partner to create technological
synergy was to a great extent determined by the partner’s technological and relational
propensities. The potential of the partner to create relational synergy on the other hand
was determined by the partner’s strategic propensity.

Technological and Relational Propensity. Analyses revealed that trust based on a
partner’s expertise and reliability to perform the collaborative task depended on its
technological propensity and relational propensity (constructs which were developed in
Chapter 2) of the partner. Technological propensity leads to trust because the ultimate
success of the collaboration is not merely a function of a ﬁrm’s capabilities (Das and
Teng, 2000), but also a function of the partner’s skills and resources (Hitt et al. 2000;
Sarkar et al. 2001; Saxton 1997), and mainly the value of synergistic combination of
these. One of the product development consultants interviewed declared: “You know, I ’ve
seen a few companies who look at their scorecards when they are evaluating supplies.
They ’11 give bonus points for contributing innovation and new ideas. Not just driving
down the cost on producing, whatever their current products are. You know, if you are
looking at it from the smaller company ’5: angle, there are ways to demonstrate to a larger
partner that hey, I ’m oﬂering you something that my competition can ’t oﬂer you because
I’m going to help you innovate. I’m going to help you be more creative, not just give you

a service that you can buy ﬁ'om five diﬂerent companies. ”

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Relational propensity of the partner is another factor enhancing the trust of
managers based on the reliability of the partner to perform the job effectively during their
courses of operation. Co-development alliances need to adapt to unfolding situations (Das
and Teng 2001), especially since the value to be created through the collaboration and the
manner in which it will be created is not entirely known at the outset. Propensity of the
partner to adapt may form the basis for the needed ﬂexibility, both for new product
development (Sivadas and Dwyer 2000) and for sustained collaboration (D02 and Hamel
1998). Similarly, long-term orientation of the partner demonstrates the willingness of the
partner to make short-term sacriﬁces for long-term outcomes, and the ability to overcome
obstacles, resolve conﬂicts and continue under uncertainty.

Managers mentioned they were comfortable asking their partners for changes on
their share of the task, because their partners were willing to make adjustments, rather
than expressing a ‘take it or leave it’ attitude. In a similar vein, Achrol (1997) stated that
trust building among partners is greatly enhanced by non-evaluative, spontaneous, and
suggestive interactions, rather than planned and directive interactions. One of the
managers stated:

“And this is, this I think, is one of our real competitive strengths here is our
willingness and ability to customize, to change, to adapt, to be ﬂexible. Most
[companies] what they do is they take a [program], something they oﬂer to the public
and a company comes to them and says, will you put together a program for us in this
area. And what they do is they take what they have of the shelf and they say, here it is
customized for you. Well they haven’t customized anything. All they ’ve done is taken

something of the shelf and oﬂered it. And when the client then asks for, well we ’d like

55

this changed and this changed and this changed the typical [company] will say, no.
Because they are not going to be willing to invest additional dollars, time and effort in
customizing and truly meeting the needs of the corporate client by adjusting what they
had oﬂered. ”

Potential To Create Strategic Synergy. The second dimension of “trustworthiness” of a
partner is the belief that the partner will not behave opportunistically. This belief was to a
great extent determined by the partner’s strategic propensity. Three characteristics of co-
development alliances create high risk, and by extension, the necessity to build
conﬁdence in a partner’s goodwill. First, in co-development alliances, there is a
possibility that the potential partners are rivals in other markets, or may become
competitors in the future (Perks 2000; Rindﬂeisch and Moorman 2001). Second,
knowledge shared for co-development is almost certainly proprietary and may be vital for
the competitive stances of the parties. Third, the evolutionary nature of co-development
alliances require incomplete contracts among partners, and thus very little control over
partner behavior. Managers look for inherent characteristics that demonstrate that the
partner has intentions and motives beneﬁcial to them when new conditions arise,
conditions for which a commitment was not made in the contract. Two categories of
afﬁrmations of managers emerged for assuring strategic propensity of the partners:
motivation correspondence and goal correspondence (these constructs were developed in
Chapter 2). The analysis yielded that goal and motivation correspondence of a potential
partner leads to the belief that the partner is less prone to behave opportunistically even
when new conditions arise. In co-development alliances, unintended resource transfer

may empower a partner who is competing in the same market, or equip a previously non-

56

competing partner with the necessary knowledge to enter such markets (Perks 2000). It
was found that goal and motivation correspondence of a potential partner leads to a belief
that the partner is less prone to behave opportunistically even when new conditions arise.
Thus strategic propensity of the partner was found to be another contributor to the level
of trust.

Interfering Factors. During narrative analysis, two categories of afﬁrmations emerged
as interfering factors between Phase 2 and Phase 3. These are overlapping knowledge
bases and cultural compatibility of the partners (see Chapter 2 for the development of
these constructs). In all the stories analyzed, managers mentioned having somewhat
similar knowledge bases, which allowed them to see the value in the potential partners’
competencies. Overlapping knowledge bases provided the necessary grounds for the
ﬁrms to (I) realize the potential of the technology owned by the other, (2) discover the
complementarities of their competencies, and (3) communicate these inter-
organizationally.

Similarly, compatible cultures provided a common ground for the partnering ﬁrms
to communicate their relational and strategic propensities to one another. Partners with
compatible cultures are more likely to understand one another and work toward common
goals. An organization’s culture acts as a powerful ﬁlter on its perceptions of the business
environment and how it reacts to it (Sait—Onge 1996); thus, compatible cultures not only
provide common grounds for communication but may also synchronize the expectations
and behavior among the partners. Compatible cultures facilitate trust because they make
it possible for partners to communicate their positive strategic and relational propensities

to one another. In a situation where the potential partners share common grounds for

57

norms, values and procedures, managers are more likely to recognize the congruency of
goals and motivations, positive relational attitudes such as long-term orientation, and the
propensity to adapt.

3.5.3 Phase 1: Strategic Assessment of the Opportunity

The left-most box in Figure 3 shows that in the decision process for collaborative
product development, the evaluation of strategic factors for the ﬁrm precedes the partner
evaluation phase. Although strategy can be characterized in several ways (Porter 1980)
the most relevant strategy difference inﬂuencing the strategic choice of co-development
is the degree of innovation (Eisenhardt and Schoonhoven 1996). In all of co-development
cases studied, either new product development and innovation were central to the ﬁrms’
strategy, or the ﬁrms were looking for ways of differentiating themselves from the rest of
the competition. While talking about their collaboration decision, one of the managers put
it, “We were trying to ﬁgure out a way to be dijferent as opposed to the same. So that
was a definite factor in it”. All of the managers interviewed assigned a high importance
on new product development and innovation in their strategic position.

Collaboration for product development is key to an innovative strategy for
multiple reasons. First, inter-ﬁrm collaboration may provide access to new skills and/or
technologies that are otherwise unavailable to the ﬁrm (Mohr and Spekman 1994). A
synergistic combination of these valuable resources can equip both partners to leapfrog
their competitors in the innovation race (Hagedoom, 1993). Second, collaboration allows
for cross-disciplinary integration, which may be the foundation for really new products
(Chesbrough 2003). Third, the commercial viability of a technology is often not clear and

technological standards may advance for political or social reasons not just superior

58

technology (Eisenhardt and Schoonhoven 1996). Co—development alliances can help
ﬁrms gain the legitimacy of pioneering technologies by tying other ﬁrms and their
resources to the technology (Eisenhardt and Schoonhoven 1996), and thereby creating
technology driven demand. Inter-ﬁrm collaboration may also create opportunity for the
utilization of technologies that have not yet found application in the marketplace
(Chesbrough 2003). Fourth, through co-development partnerships ﬁrms may gain an
additional edge by creating demand from the customers of the collaboration partner
(Littler et al. 1995).

Firms who will not gain strategic advantages from collaborating are less likely to
collaborate for new product development because the high uncertainty and high risk
associated with co-development partnerships may exceed the beneﬁts (Eisenhardt and
Schoonhoven 1996). The resulting value in a co—development partnership is partly
unknown, and also may not be reﬂected in immediate ﬁnancial outcomes.
Correspondingly, Axelrod (1984) pointed out people engage in cooperation only when
the payoff of cooperation exceeds the costs of engaging in one. Only ﬁrms whose
strategic positions are deﬁned primarily by their innovativeness (that is, ﬁrms who gain

strategic advantage by innovating) would be committed to a co—development partnership.

3.6 Theoretical Implications

The purpose of the current research was to look at the ‘new generation’ product
development practices, which are termed as co-development alliances in this work.
Speciﬁcally, this study aimed to develop a theory of the collaboration choice for new

product development. A narrative analysis of the stories told by managers yielded three

59

phases in the decision process of collaboration for product development. These were the
(l) strategic evaluation of the opportunity, (2) partner evaluation, and (3) pre-disposition
towards the partner. This study revealed facts about co-development alliances which have
not been addressed in the extant alliance literatures. These will be explained in the
following paragraphs.

The primary motivation for emergence of a co-development alliance is a
commitment to an external problem or opportunity (see “the system change” approach of
Van de Ven 1976), rather than an internal need for resources. Despite the strategic
advantages that reside in collaborative product development, co—development partnering
is not vital for short-term ﬁrm survival. Moreover, due to the high risk of passing on
critical knowledge in a possible present or future competitive overlap, such partnerships
were found to be evaded unless a partner is associated with a minimum level of
trustworthiness. Since co-development alliances are evolutionary in nature, because of
their non-equity bases and new product development purposes, they represent incomplete
contractual arrangements, which do not provide the sufficient control mechanisms in a
highly uncertain situation. The lack of one mechanism in building conﬁdence in a partner
derives the necessity for another (Das and Teng 1998). Trust is a vital element in
sustaining the ongoing process of collaboration and in facilitating the transfer of tacit
know-how. Thus, it is essential to maintain or enhance the level of trust throughout the
life span of a co—development partnership. Achrol (1997) argues, “any kind of direct
monitoring of one another’s behaviors is the antithesis of trust, defeats its very purpose,
and would surely undermine it over time” (p. 66). Therefore, a detailed contract may not

even be desirable or constructive for the future prospect of a co-development

60

relationship. Also the primary concern in co-development alliances was not avoidance of
opportunism, but rather the level of value realized and created through collaboration. In
fact, in a relationship dominated by protection against opportunism, ﬁrms are reluctant to
make unilateral and voluntary commitments outside the terms of the contract (Parkhe
1993). This contradicts the idea of creating synergies while the value of the commodities
to be exchanged as well as the ultimate value is unknown at the inception. Thus, to
eliminate the need to take costly and complicated safeguards, ﬁrms tend to put emphasis
on building trust by the selection of a partner who not only has the necessary technical
capabilities for creating synergistic value, but also is less prone to behave
opportunistically.

Furthermore, co-development partnerships are aimed at improving the long-term
perspective of the product market combinations of the companies involved (Hagedoom
1993). Therefore, exchanges in co-development alliances have to take place over time
rather than at once. These exchanges are not transaction speciﬁc and can be better
characterized by the “relational exchanges” of Macneil (1980). Relational contracting
hinges upon the historical and relational context of the transactions (MacNeil 1980). In a
social network, the history of transactions is determined by prior interactions between
partners (Gulati 1995), as well as prior transactions with other partners in the industry
(Saxton 1997). The relational aspect of co-development arrangements is also likely to
bring willingness to cooperate and by extension, building trust among partners.

Although trust have received signiﬁcant attention in the marketing, strategy, and
organizational literatures, and is proposed to be a ﬁmdamental contributor to positive

organizational outcomes (see, e. g., Morgan and Hunt 1994), it has usually been

61

conceptualized as a function of prior relationships (see, e.g., Gulati 1995) or of the
partner’s reputation for being fair and honest (Anderson and Weitz 1992). Yet, co-
development partnerships are typically driven by the possible opportunities that the joint
resources of partners may bring. Therefore the attraction for a partnership stems from
ﬁrm speciﬁc expertise. For instance, the very technology that would provide the potential
synergy for a ﬁrm may not be owned by a prior partner or by a well-known company in
the network. In co-development alliances managers are not only concerned about
opportunism issues, but also whether or not the combined resources would create
synergies. Furthermore, the potential of cooperation for a ﬁrm may differ in various
relationships.

This study developed an understanding of how ﬁrms develop trust when they do not
acquire any prior information about the honesty and fairness of the potential partner. So
how do ﬁrms build initial trust towards a potential co-development partner? Despite the
necessity of high levels of trust in co—development alliances, ﬁrms do not blindly trust
one another (Achrol 1997). The antecedents of initial trust were determined based on the
narrative analysis. The analysis yielded parallel ﬁndings with the two dimensional
conceptualization of trust: i.e., credibility and benevolence, by Ganesan (1994). The
relationships between these antecedents and trust in a partner was also shown. This is
similar to the goodwill trust-competence trust conceptualization of Das and Teng (2001).
Trust was found to be based on (1) a partner’s expertise and reliability to perform the job,
analogous to the ‘credibility’ conceptualization of Ganesan (1994); and on (2) the
partner’s technical ability and the complementarity of its resources (technical and

market), given the market opportunity foreseen. This is because the ultimate success of

62

the collaboration is not merely a function of a ﬁrm’s capabilities (Das and Teng, 2000),
but also a function of the partner’s skills and resources (Hitt et al. 2000; Sarkar et al.
2001; Saxton 1997), and mainly the value of their synergistic combination. Co-
development alliances are formed when the technical skills of the partners comprise the
necessary complementarities for creation of unique capabilities, owned by neither of the
parties alone. As well as partners with unique competencies, ﬁrms also search for
partners that have complementary skills and resources (Johnson et al. 1996), which can
be integrated with their own resource endowment to create synergy (D02 and Hamel
1998). Complementary skills provide the opportunity for integrating and transforming the
disparate pools of technical know-how into product value (Doz 1996b; Sarkar et al.
2001)

Co-development alliances are oﬁen motivated by a need to reduce uncertainties, yet
they also invite ﬁrms to take additional risks with their partners (Das and Teng 1998). For
instance, while ﬁrms are interested in accessing their partners’ valuable resources, they
also attempt to protect their own idiosyncratic competencies. Unintended resource
transfer may empower a partner who is competing in the same market, or equip a
previously non-competing partner with the necessary knowledge to enter such markets
(Perks 2000). Goal and motivation correspondences of a potential partner were found to
lead to a belief that the partner is less prone to behave opportunistically even when new
conditions arise; this is analogous to the ‘benevolence’ conceptualization of Ganesan
(1994). Thus the strategic propensity of the partner was found to be another contributor to

the level of trust.

63

Co-development partnerships entail intensiﬁed management complexities due to
their cross-organizational boundaries (Littler et al. 1995). During their courses of
operation, co-development alliances need to adapt to unfolding situations (Das and Teng
2001), especially since the value to be created through the collaboration and the manner
in which it will be created is not entirely known at the outset. The propensity of the
partner to adapt as situations evolve was found to be another factor enhancing the trust of
managers based on the reliability of the partner to perform the job effectively. Co-
development partnerships are characterized by low short-term and highly uncertain long-
terrn rents. Finally, it was found that a partner is more trusted in terms of performing the
collaborative job more efﬁciently if it exerts efforts on future goals and is willing to make
sacriﬁces in the short-run to accomplish those.

In contrast to the existing literature (see, e. g., Morgan and Hunt 1994), the current
ﬁndings suggest that initial trust is not a function of communication in co-development
alliances. Communication is certainly necessary for building trust, yet what is
communicated is the main factor. Overlapping knowledge bases and compatible cultures
were found to be the facilitators of communication among the partners. Saint-Onge
(1996) conceptualizes culture interchangeably with tacit knowledge. That is, he deﬁnes
tacit knowledge as the collective mindsets of members in an organization. He points out
the necessity of having some level of overlap of tacit knowledge of partners to make
meaning ﬁ'orn the exchanged knowledge, because “communication between parties will
be disrupted if discontinuities in tacit knowledge exist” (p. 11). According to this view,

overlapping knowledge bases and cultural compatibilities are parts of tacit knowledge:

64

They are necessary for effectively communicating and making meaning from the
exchanged knowledge.

Parallel with the ﬁndings from the literature, it was found that ﬁrm strategy is a
determinant of collaboration choice. Also ﬁrms who expect high rents versus costs (that
is, ﬁrms that gain strategic advantage from innovating) were more likely to collaborate
for product development. This is because co—development alliances are characterized by
providing revenues for highly innovative products (Chesbrough 2003), yet they are
associated with high relational and strategic risks, as well as low or no short-term, and

unknown long-term returns.

3.7 Future Directions for Research

Findings of the current research reveal fruitﬁrl research avenues for future research.
One of these is the role that environmental factors may play in determining the ﬁrms’
level of innovativeness, and thus indirectly inﬂuencing the co-development decision.
Alliances are needed most in environments that are characterized by a high level of
uncertainty and volatility (Das and Teng 2001a). Managing uncertainty in high-tech
industries is an important motive for alliances, which offer quick access to resources on a
fairly broad scale. The environmental uncertainties that impel a ﬁrm towards the co-
development decision primarily stem ﬁom the technological turbulence or competitive
factors in the industry.

The cost of developing an innovative product is usually substantially greater than
that of a product based on a more familiar technology (Whittaker and Bower 1994).

Likewise, since much of the new technology is relatively untried in the marketplace,

65

there is no guarantee that any particular one will yield an effective product. Getting
access to a technology through collaboration entails less termination costs than
internalizing that technology. Collaboration for new product development provides a
window of opportunity for minimizing and sharing the R&D costs and risks (Hagedoom
1993). Therefore, one can propose that higher technological turbulence generates higher
commitment to collaboration for product development.

Competition also plays an important role in determining the commitment level to
the collaborative product development. Shan (Shan 1990) for instance found that high
competition was associated with alliance formation. Eisenhardt and Schooven (1996)
argue that when a ﬁrm encounters many competitors, its strategic position is vulnerable.
The scarcity of resources and proﬁts renders co-development a venue for enhancing
competitive advantage for ﬁrms in such competitive environments. This is because co-
development makes it possible to produce more innovative products, faster and better.
Therefore an increased level of competition in the industry is likely to enhance the

likelihood of a ﬁrm to engage in collaborative product development.

66

CHAPTER 4
CREATING NEW PRODUCT ADVANTAGE THROUGH SUSTAINED

COLLABORATION

4.1 Introduction

Innovation, which many say is a vital element of staying alive in the competitive
race, has become an even more daunting task in the twenty ﬁrst century as a result of
several changes that took place during the last decade. These are turbulent external
environments (McCann and Selsky 1984), increased global competition (Blackwell and
Eilon 1991), shrinking product life cycles (Chen and Li 1999), increased complexity of
the technology needed to innovate and exploding R&D costs (Rindﬂeisch and Moorman
2001), growing mobility of highly experienced and skilled people (Chesbrough 2003),
and dispersion of skills and knowledge across ﬁrms (Barney 1991; Das and Teng 2000).
These changes require ﬁrms to embrace new ways to stay competitive. Firms are forced
to leverage their internal strengths with the core competencies of development partners to
create innovative products faster and better (Mohr and Spekman 1994). Chesbrough
(2003) refers to this as an open innovation model. In this new model advocated by
Chesbrough, product success stems from building the best business model by using the
right mix of internal and external resources. Companies beneﬁt ﬁom research that was
not originated in house. They beneﬁt from the resources of other ﬁrms as well as
beneﬁting from other ﬁrms’ usage of their own resources. This way, to create demand for
their products, companies are able to utilize the brains of millions outside in the (Deck
and Strom 2002). Yet, in this new system, the challenge of boosting the productivity of

research and development shifts from simply building cross-functional processes and

67

structures, to building cross-enterprise processes (Deck and Strom 2002) and developing
innovative ways of managing these processes (Jassawalla and Sashittal 1998).

The purpose of the current research is to investigate these innovative ways of
creating new products. While collaboration has become the “next generation” for product
development practices, there has been relatively limited academic research on
collaborative new product development, which is named “co-development alliances”. Co-
development alliances are non-equity based collaborative relationships entered into by
two or more ﬁrms, to integrate and transform into value disparate pools of know-how
related to new product or service development (Link and Bauer 1989). In these
partnerships, each party contributes a signiﬁcant portion of the end solution (Deck and
Strom 2002). The scope of this construct excludes relationships involving the purchase of
components and requiring minor inter-organizational interaction. Adapting the deﬁnition
of cross-functional collaboration from Jassawalla and Sashittal (1998), inter-ﬁrm
collaboration is deﬁned as a type of cross-organizational linkage, which in addition to
high levels of integration, is characterized by participants who achieve high levels of
transparency, mindfulness and synergies from their interactions.

Collaboration for product development offers multiple beneﬁts to ﬁrms. For
instance, inter-ﬁrm collaboration may provide access to new skills and/or technologies
that are otherwise unavailable to the ﬁrm (Mohr and Spekman 1994). A synergistic
combination of these valuable resources can equip both partners with the means to
leapfrog their competitors in the innovation race (Hagedoom 1993). Second,
collaboration allows for cross-disciplinary integration, which may be the foundation for

really new products (Chesbrough 2003). Third, the commercial viability of a technology

68

is often not clear and technological standards may advance for political or social reasons
not just superior technology (Eisenhardt and Schoonhoven 1996). Co-development
alliances can help ﬁrms gain the legitimacy of pioneering technologies by tying other
ﬁmis and their resources to the technology (Eisenhardt and Schoonhoven 1996), and
thereby creating technology driven demand. By these means, inter-ﬁrm collaboration
may also create the opportunity for utilization of technologies that have not yet found
application in the market place (Chesbrough 2003).

At the same time, collaboration for product development may intensify the widely
acknowledged risks of the product development process itself. Three factors make
management of co-development alliances intricate. These are (1) the complicated and
evolutionary nature of non—equity based inter-ﬁrm collaborations (D02 and Hamel 1998),
in general; (2) the potential of concurrent conﬂict and cooperation between co-
development partners (Perks 2000); and (3) the increased complexity of cross-functional
integration across the ﬁrm’s borders (Perks 2000). The latter characterizes successful
new product development (Kahn 2001). The purpose of the current research is to ﬁnd the
factors that lead to a better administration of these intricacies in order to create
advantageous products through collaboration.

Current work builds on the contributions of previous studies that have focused on
the impact that inter-functional collaboration may have on new product success (see, e.g.
Jassawalla and Sashittal 1998; Kahn 1996; Souder 1988; Xie et al. 1998), on factors
leading to superior products (see, e.g. Li and Calantone 1998), and on aspects of inter-
ﬁrm relationships (see, e.g. Anderson and Narus 1990; D02 and Hamel 1998; Madhok

and Tallman 1998). In extending these streams of research, ﬁve constructs were used to

69

capture the effects of inter-organizational collaboration on new product advantage: trust,
commitment, communication, ﬂexibility and cooperation. The relationships in the
current model are conceptualized under the umbrella of the ‘sustained collaboration’
ﬁarnework suggested by D02 and Hamel (1998). This framework argues that
maximization of value creation through collaboration is dependent not only on the initial
conditions, but (more importantly) on the proﬁciency of collaboration processes
throughout the life span of the alliance. Therefore, in the current model firm dispositions
to the co-development partnership are conceptualized as antecedent to collaboration
process dimensions, which are believed to be necessary ingredients for achieving superior
products. Here the process dimensions -ﬂexibility, cooperation, and communication- are
proposed to be primarily inﬂuenced by the ﬁrm’s disposition towards the alliance; and
they are the underlying aspects of sustained collaboration. The model is summarized in
Figure 5 and explained in detail in the subsequent sections.

This work is signiﬁcant for at least three reasons: (1) the presentation of new
product advantage as a function of collaborative activities is a new conceptualization in
the literature; (2) the view of disposition leading to collaborative processes is an
extension of an important alliance concept (D02 and Hamel 1998) into the collaborative
product development context; and (3) the use of communication and ﬂexibility as
mediators of the trust-cooperation and commitment-cooperation associations is an
extension of the existing literatures on relationship management (see, e. g. Morgan and

Hunt 1994).

70

 

   
     

 

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In the following section, the relevant theory on collaborative product development
is reviewed and the underlying rationale is presented. Subsequent sections present the
data, methods of analysis, results, and a concluding discussion about the normative and

practical implications of this work.

4.2 Theoretical Framework

The primary motivation of co-development alliances is a commitment to an external
problem or opportunity, rather than an internal need for resources. “[Intemal need for
resources] is often a product of internal organizational planning and change; and [a
commitment to an external problem or opportunity] arises from inter-organizational
planning and change” (Van De Ven 1976, p.29). Co-development alliances are motivated
by collaboration-speciﬁc rents (Madhok and Tallman 1998). That is, ﬁrm speciﬁc
resources are valuable in collaborations collectively. Thus, co-development requires
relatively minor relationship speciﬁc investments and permits loose ties among partners.
In fact, in co-development alliances the primary motivation for the partners to stick
together may be the potential for synergistic value creation, rather than relationship
speciﬁc investments. The following words of a product management consultant
underscore the inﬂuence of value creation potential on the managerial aspects of co-
development alliances:

“I think the difference between other models and a model where the two companies
are really completely distinct and their only connection is an agreement to develop this
project or technology or service together, is that you don ’t have the formal equity or

management links that force people to work together. If things start to go sour, if either

72

partner feels like they are not getting value ﬁ'om the partnership, or if they feel like there
is not trust on the other side or they are having diﬂiculty working in the relationship or
communicating, there is no force ﬁom the top like you would have in a joint venture that
is going to say, ‘No you guys have to work together, figure it out, we are locked into
have, this is a done deal’. We are in bed with each other on non-equity basis, so it just
puts more emphasis on making sure that the management team and the line management
team really keeps those communication lines open, keeps the focus on the win-win
proposition, the value for both sides. Because that ’s the only thing holding stuff together ”
(Kevin Schwartz, PR T110.

Despite the fact that co-development alliances may involve relatively less
relationship speciﬁc investments, they generate many risks for the partnering ﬁrms.
Knowledge exchanged in a collaborative new product development arrangement may be
proprietary; and in a situation of high competitive overlap, there is the risk of knowledge
spillover (Yan et al. 2000). At the same time, collaborative product development requires
a continuous ﬂow of information among the partners (Sivadas and Dwyer 2000), as well
as ﬂexibility for those involved with the product development task, to ensure a
synergistic integration of know-how. Constant information ﬂow, which may be
challenging to achieve across functional entities within a single ﬁrm, may become
unattainable across ﬁrm borders (Perks 2000), especially if partners become protective
about the knowledge central to their competitive advantage (Hamel 1991). This high
potential for conﬂict, which can be a clash between the logic of new product
development and the logic of alliances (Bidault and Cummings 1994), may also produce

the very setting for creating innovative products (Perks 2000). Yet, to create superior

73

products through collaboration, ﬁrms must ﬁnd ways to minimize the inherent conﬂicts
and maximize the potential of cooperation. The following sections will elaborate on ﬁve
concepts (trust, commitment, communication, ﬂexibility and cooperation) and their
interrelationships. These ﬁve may be key to abolishing the clash between the logic of
alliances and logic of new product development, thus leading to better products. The
theoretical framework underlying the hypotheses is presented in Figure 5.
4.2.1 Role of Trust

Co—development partnerships are based on informal norms and acceptable behavior,
rather than control mechanisms because of two reasons. First, co-development
partnerships are aimed at improving the long-term prospects of the product-market
combinations of the companies involved (Hagedoom 1993). Therefore, exchanges in co-
development alliances have to take place over time rather than at once. These exchanges
are not transaction speciﬁc and can be better characterized by the “relational exchanges”
of Macneil (1980). Relational contracting hinges upon the historical and relational
context of the transactions (MacNeil 1980). In a social network, the history of
transactions is determined by prior interactions between partners (Gulati 1995), as well as
by prior transactions with other partners in the industry (Saxton 1997). The relational
aspects of co-development arrangements are also likely to encourage the willingness to
cooperate and by extension, the building of trust among partners.

Second, the inherent evolutionary dynamics of co-development alliances call for
loosely speciﬁed control and incentive systems in contracts (Ring and Van De Ven
1992), because during their courses of operation, co-development alliances need to adapt

to unfolding situations (Das and Teng 2001a). This adaptation is especially necessary

74

since the value to be created through the collaboration and the manner in which it will be
created is not entirely known at the outset. Das and Teng (1998) proposed that trust is an
alternative to a detailed contract, which is referred to by Gulati (1995) as a control
mechanism making behavior predictable. Das and Teng (1998) further introduced a
supplementary relationship between control and trust in inter-ﬁrm relationships, and
deﬁned a ﬁrm’s conﬁdence in partner cooperation as a function of both control and trust.
Since the deﬁnition of co-development alliances rules out detailed contracting, and
by extension pre-determined control mechanisms, ﬁrms rely on high levels of trust to
have conﬁdence in partner performance and cooperation. In fact, detailed contracts may
not even be desirable or constructive for the future prospect of a co-development
relationship. Achrol (1997) argues, “any kind of direct monitoring of one another’s
behaviors is the antithesis of trust, defeats its very purpose, and would surely undermine
it over time” (p. 66). Co-development alliances are not based on the idea of avoidance of
opportunism, but rather on the potential value to be realized and created through
collaboration. In fact, in a relationship dominated by protection against opportunism,
ﬁrms are reluctant to make unilateral and voluntary commitments outside the terms of the
contract (Parkhe 1993). This contradicts the idea of creating synergies when the value of
the commodities to be exchanged as well as the ultimate value is unknown at the
inception. Thus, to eliminate the need to take costly and complicated safeguards, ﬁrms
tend to put emphasis on building trust with a partner in their co-development alliances.
Trust is conceptualized according to the two dimensional operationalizations of
Ganesan (1994) and Das and Teng (Das and Teng 2001b). The ﬁrst dimension of trust is

‘competence trust’ (i.e., credibility, see Ganesan 1994), and it refers to “the expectation

75

of technically competent role performance” (Barber 1983, p.14) and reliability. The
second dimension of trust is ‘goodwill trust’, and this refers to the expectation that a ﬁrm
has moral obligations, responsibility (Barber 1983) and intentions (Noteboom 1996) to
show concern for others’ interests, even when the initial conditions change (i.e.,
benevolence, see Ganesan 1994).

4.2.2 Commitment

Relationship commitment is a belief that maintaining a relationship is a preferable
state, compared to not maintaining it; that is, it refers to the willingness of partners to
exert effort on behalf of the relationship (Morgan and Hunt 1994). When the members of
an organization share this belief, it forms a common bond among individuals resulting in
group commitment. At the organizational level, these group-speciﬁc commitments are
communicated with the other members or groups that comprise the organization, and
organizational commitment is formed as the collection of these group-speciﬁc
commitments (Reichers, 1985).

Commitment has been discussed extensively in the organizational behavior
(Reichers 1985) and the marketing literatures (Sinkula et al. 1997). In organizational
behavior theory, organizations are viewed as composites of coalitions and constituencies,
each espousing unique sets of goals and values where commitment may diverge among
competing interests. Achieving harmony among these proﬁles is thus a key challenge in
achieving organizational commitment. Likewise, the ultimate value of high—quality
decisions depends to a great extent upon the willingness of all members in an
organization to cooperate in implementing those decisions (Wooldridge and Floyd 1990).

For achieving positive outcomes from the relationship during its life span (that is, for

76

synergistic value to be created through collaborative product development), collaboration
has to be supported by a convergence of opinions in an organization (D02 and Hamel
1998)

In marketing, commitment is viewed as a diverse but controllable antecedent to
positive performance outcomes (Mohr and Spekman 1994; Moorman et a1. 1992).
Morgan and Hunt (1994), for instance, underscored the importance of the role that
relationship commitment might play in achieving positive relational outcomes such as
acquiescence, lower propensity to leave the relationship, and cooperation. Emden et a1.
(2004) propose a positive inﬂuence of organizational commitment on learning from
alliance experiences. Commitment can also facilitate partner resource alignment and
resolution of inter-partner conﬂicts, thereby directly affecting the collective strengths of
the partners and the alliance’s performance (Das and Teng, 2000). Commitment to
alliance relationships might offer beneﬁts of specialization and variety generation, in the
sense that it provides the context in which both parties can achieve individual as well as
joint goals without raising the possibility of opportunistic behavior (Mohr and Spekman
1994). More committed partners will strive to balance short-term problems with long-
tenn goal achievement (Mohr and Spekman 1994), and thus commitment increases
compliance and cooperation between alliance partners (Morgan and Hunt 1994).

Trust leads to commitment (Morgan and Hunt 1994). However, in this model for
co-development alliances, only one dimension of trust (competence trust) is proposed to
have an inﬂuence on the commitment to the co-development partnership. Competence
trust reduces the perception of performance risk associated with a co-development

partnership (Das and Teng 2001). Thus the more a partner is believed to have the

77

expertise to perform the collaborative task, the more a ﬁrm will be committed to a co-
development partnership with that partner. Ganesan (1994) observed that in buyer-seller
relationships, partners are trained to “focus on objective evidence of reliability rather than
motives of the other partners” (p. 12). This focus may be enhanced in a co-development
partnership, where the fundamental value drivers are the integration of ﬁrm-speciﬁc
capabilities.

Although goodwill trust reduces the perception of relational risk associated with a
co-development partnership (Das and Teng 2001), a signiﬁcant inﬂuence of goodwill
trust on the commitment to the relationship is not anticipated. Commitment entails long-
terrn orientation and short—term sacriﬁces. Thus, it will only be granted to those
partnerships that are characterized by high levels of competence trust; that is,
partnerships that have a high potential to create synergistic value. Therefore,

H I : Competence trust has a positive impact on commitment to a co—development

partnership.
4.2.3 Communication

As opposed to integration, collaboration is described as a more complex, higher
intensity linkage (Jassawalla and Sashittal 1998). Collaboration is an unstructured,
involved process, which is characterized by continuous relationships, shared visions,
along with an emphasis on mutual gains (Xie et al. 1998) and the presence of informal
structures to manage relationships (Kahn 1996). Informal and voluntary sharing of
information, and by extension, the superiority of the information exchanged, has an
important impact on the synergistic value to be created through the collaboration.

Therefore, Anderson and Narus (1990)’s deﬁnition of inter-organizational

78

communication is adapted, and communication is deﬁned as the formal as well as
informal and voluntary sharing of critical and timely information between partners.

The primary motivations for collaborative product development are the
anticipation of excess value relative to that possible without collaboration, and the
expectation that direct and indirect relational experiences will facilitate the formation of
future ties (Chung et al. 2000; Das and Teng 2000). Since the information shared in a co-
development alliance may be vital for the competitive positions of the respective
partners, ﬁrms are prone to restricting this critical knowledge ﬁom each other (Sivadas
and Dwyer 2000). The fear that proprietary knowledge outﬂow may equip a partner with
the necessary skills and knowledge to become a competitor may hamper the sharing of
critical knowledge among partners (Perks 2000). For timely, adequate, and critical
information to be exchanged, a partner has to be trusted in terms of having the proper
intentions in entering the co-development alliance; that is, having intentions and motives
beneﬁcial to the ﬁrm even when new conditions arise, conditions that were not pre-
speciﬁed in the agreement. Thus,

H2: Goodwill trust has a positive impact on communication.

The systems change approach of inter-ﬁrm relationships (Van de Ven 1976)
suggests that the rationale for alliance formation is the value creation potential of ﬁrm
speciﬁc expertise that are pooled. In the tension between competition and cooperation
within co-development alliances, relational capital will serve to both enhance cooperative
behavior and mitigate competitive conﬂicts (Anand and Khanna 2000). Thus, the higher
the perceived level of synergies to be created through collaboration, the more partners

will be able to balance the tradeoff between competition and cooperation within the co-

79

development partnership. Souder (1988) observed: when the receiver was perceived as
not having enough knowledge of signiﬁcant value to utilize the incoming information or
to provide contribution to the new product development, there was an intentional
reduction of communication among ﬁmctional units within an organization. Likewise,
lack of belief in the value creation potential of a partnership may limit the amount and
quality of information exchanged among partners. In addition, efﬁcient communication is
a function of the nature and extent of the resources deployed in communication, the
passion with which the ﬁrm deploys these resources and its positive approach to the
collaborative experience; all of these underscore a commitment on behalf of the
collaborative relationship. Hence, commitment is an important ingredient in achieving the
timely, adequate and effective exchange of critical knowledge.
H3: Commitment to the co-development partnership has a positive impact on
communication.
4.2.4 Flexibility
Flexibility is the extent to which parties are prepared and able to reassess and adjust
their relationships as the intended objectives of the partnership shift. How best to manage
the interface between partners and to govern their relationship is something to be
discovered rather than determined at the inception (D02 and Hamel 1998). Collaborative
product development is characterized by the joint determination of product development
activity and the management of performance through a process of ﬂexible negotiations.
Heide (1994) observes that “individual goals are reached in a bilateral system through
joint accomplishments, and a concern for the long-term beneﬁt of the system serves as a

restraint on individual tendencies” (p. 74). Collective incentives to maintain the

80

relationship lead to the ﬂexible behaviors necessary to meet changing requirements
(Bello and Gilliland 1997). Homan (1958) suggests that participants will continue to
interact with each other only if they perceive that the exchange relationship is an
attractive alternative. When two parties face various unforeseen events, they will modify
their resources to match each other’s needs only in the presence of this perception.
Potential mutual beneﬁts and willingness to make short-term sacriﬁces for achieving
long-term gains encourage partners to adjust as the necessities of the relationship change.
In addition, the synergy that can be created through collaboration may not be redeployed
to other partnerships. This idiosyncrasy creates a symmetric dependence condition, which
functions as an incentive to maintain the relationship (Bello and Gilliland 1997), as well
as leading to bilateral governance in the form of ﬂexible adjustment processes (Heide
1994). Therefore,
H4: Commitment to the co-development relationship has a positive impact on
flexibility.
4.2.5 Cooperation
Cooperation is the process by which organizations interact, form psychological
relationships, and work together to achieve collective rather than individual gains
(Anderson and Narus 1990). Cooperation in co-development alliances is informal in the
sense that it involves ﬂexible arrangements in which the contributions of the parties are
determined by behavioral norms rather than contractual obligations (Smith and Barclay
1997). Kahn (1996) characterizes the company’s internal environment as one of
cooperation (as opposed to competition), since the goals are similar across departments,

and penalties for dealing with other departments do not exist. Yet, the dynamics of inter-

81

frrrn collaboration calls for the contrary: competition and cooperation coexist in co-
development partnerships (Rindﬂeisch and Moorman 2001). Hence, despite the fact that
cooperation is vital for sustaining the ongoing process of collaboration, it may be difﬁcult
for co-development partners to move toward a high level of cooperation (D02 and Hamel
1998). In particular, this may be due to the unfeasibility of anticipating the ultimate
consequences of collaboration and the resulting strategic and long-term beneﬁts (as
opposed to ﬁnancial and short-term beneﬁts).

Axelrod (1984) points out that cooperation arises when parties perceive that they
will be in contact for a long time. Co—development partners have a tendency to cooperate
because there is a possibility that they may have future relations with one another.
Likewise, they may be concerned with their reputations in their social network. That is,
the choices they make today may not only determine the outcome of the current
partnership, but may also inﬂuence the choices of their future partners in the network.
Yet, the main condition of cooperation is the recognition that the payoff of cooperation
will exceed that of not engaging in one (Axelrod 1984); that is, two ﬁrms will engage in
collaborative product development activities when the pooled resources can create excess
value relative to their value before the pooling (synergy) (Das and Teng, 2000; Chung,
Singh and Lee, 2000). Communication reveals the magnitude of mutual gains to the
partners, and enhances cooperation by making both the value of the partner-speciﬁc
capabilities overt to the partners, and the possible ways of synergy creation through
integration. The knowledge intensive nature of collaborative exchange also motivates
partners to commit human resources to learning the specialized procedures associated

with new product development (Bello and Gilliland 1997). In a distributor-manufacturer

82

partnership investigation, Anderson and Narus (1990) found that this type of intensiﬁed
communication also leads to greater cooperation. In addition, cooperation is dependent
on the expectation of the other party’s behavior (Axelrod 1984). Co-development
partners are in ‘the game’ for mutual gains; that is, they realize that the value to be
created through collaboration goes beyond the value they can create on their own
(Madhok and Talhnan 1998). Although co-development partners’ motivation to come
together implies their willingness to cooperate, communication creates foresight for
partner motivation and thus leads to greater cooperation. Thus,
H5: Communication has a positive inﬂuence on cooperation.

Heide (1994) notes that goals, which can be reached through a joint business model,
serve as a restraint on individual tendencies. Joint accomplishment through collaborative
product development is guaranteed only if the partners are open to one another’s requests
to modify a prior agreement; that is, if they are willing to work out a new deal rather than
hold each other to the original terms (D02 and Hamel 1998). Social exchange theory of
alliances underscores the important role of this expected reciprocity among partners (Das
and Teng 2001). The theory of social exchange assumes that inter ﬁrm processes evolve
over time as the actors mutually and sequentially demonstrate their trustworthiness
(Hallen et al. 1991). “They can demonstrate their trustworthiness by committing
themselves to the exchange relationship, and one important way of showing commitment
is adapting to the other” (p. 31). In co—development partnerships, which are characterized
by higher levels of partners’ ﬂexibility, similar or complementary coordinated actions
will be taken by ﬁrms to achieve mutual outcomes with reciprocation over time. Thus,

H6: F lexibility has a positive inﬂuence on cooperation.

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4.2.6 New Product Advantage

A ﬁrm’s competitive advantage manifests itself in its ability to differentiate its
products ﬁom alternatives on the most important attributes (Day and Wensley 1988),
such as quality, reliability, newness, and uniqueness (Cooper 1992). Cooper (1992) refers
to this as ‘differential advantage’. Struggling to stay competitive in markets which are
characterized by turbulent external environments, shrinking product life cycles, increased
complexity of the technology to innovate, and dispersion of skills and resources across
ﬁrms, organizations are compelled to engage in product innovations that demand greater
attention to the external market and external technological resources (Day and Wensley
1988). In this race, organizations that take advantage of leveraging their resources and
opportunities with development partners are likely to be more adept and have a greater
chance at creating more innovative products faster and better (Chesbrough 2003).
Reciprocal strengths and complementary resources pooled by the co-development
partners may facilitate product value creation through collaboration. Inter-ﬁrm diversity
in terms of differences in skills and knowledge bases among the partners provide
opportunities for the aligning ﬁrms to integrate and transform disparate pools of tacit
know-how into greater product value (Hagedoom 1993).

Just as the proﬁciency of new product development activities has an impact on the
product’s success (Cooper and Kleinschrnidt 1987), the proﬁciency of collaboration
processes are expected to have a similar inﬂuence on the product’s relative advantage.
That is, through efficient collaboration ﬁrms may be able to create products that are
superior to existing products. Partnering with a ﬁrm whose resources provide a potential

for synergistic value may have the potential for but does not guarantee the creation of

84

F

 

product value. The proﬁciency of collaboration processes, and by extension the ability to
sustain the process of ongoing collaboration, is the key for the creation of product
advantage (D02 and Hamel 1998).

Cross-ﬁrnctional harmony is proposed to have a signiﬁcant effect on long-term
innovation performance of an organization (Xie et al. 1998). Furthermore, Souder (1988)
found that disharmony among the functional entities was primarily driven by the lack of
communication. Communication is primary for value creation in the sense that it
minimizes the ‘bad conﬂict’ and facilitates the use of ‘good conﬂict’ in a co-development
partnership in the following sense. First, communication decreases the uncertainties
related to the collaborative product development processes and leads to the right
formulation for creating synergistic value. Second, communication facilitates inter-
organizational learning and integration of ﬁrm-speciﬁc know-how, and leads to an
understanding of the value of collective competencies.

Xie et al. (1998) propose that there has to be some level of inter-functional conﬂict
among units for innovative product development because innovation requires the
combination of different points of view and different information sources to produce new
knowledge. In fact, co-development alliances are characterized by rich venues to put
disparate pools of know-how together. Yet, while inter-functional diversity in the form of
differences in skills enhances the innovativeness of the product, it can cause diﬂiculties
in integration (Xie et al. 1998). Parkhe (1991) characterizes this conﬂict as diversity in
terms of differences in mindsets, procedures and behavior among the partners. This form
of conﬂict may negatively affect the realization, transfer and integration of diverse points

of views and competences among partners.

85

Sivadas and Dwyer (2000) underscores that in the absence of familiarity with each
other’s procedures, parties may lack the mechanisms to connect the ﬁrm speciﬁc insights
related to the new product development processes, “to develop new products that harness
the collective wisdom of all involved” (p. 33). Furthermore, the absence of an
understanding of the other unit’s technological competence may conceal the potential
synergies that may be created through collaboration. Communication may minimize
inter-ﬁrm diversities in norms and procedures. Also, by communicating ﬁrm-speciﬁc
competencies, partners enhance their understanding of the value of the commodities
being exchanged, as well as the synergies and mutual gains that the collaboration may
bring. Therefore,

H7: Communication has a positive impact on new product advantage.

The high unpredictability in collaborative innovation processes calls for greater
teamwork among the partners. The heterogeneities among partners in terms of
competencies, as well as norms and behaviors, lead to greater interdependence among
partners to create value through integration of ﬁrm-speciﬁc know-how (Sivadas and
Dwyer 2000). The only way to create superior products through collaboration is by joint
effort, since neither of the parties have the ability to create equivalent value on their own
(Madhok and Talhnan 1998). “Once trust is established, joint efforts will lead to
outcomes that exceed what a ﬁrm would achieve if it acted solely in its own best
interests” (Anderson and Narus 1990, p. 45). New product advantage is enhanced by
cooperative activities undertaken by the partners. Therefore,

H8: Cooperation has a positive impact on new product advantage.

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D02 and Hamel (1998) refer to the ability of ﬁrms to keep up with the changes in
the collaborative task as the ‘adaptability to change’. Hallen (1991) proposed that just as
the partners “may have to make adaptations to bring about initial ﬁt between their needs
and capabilities, adaptation also may be necessary in the ongoing relationship as the
exchanging parties are exposed to changing business conditions” (p.30). As the partners
engage in co-development alliances and the initial conditions allow them to start to create
value, they also start to monitor the alliance for efficiency (D02 1996). The product value
to be created through the alliance is largely unknown and the ways in which it will be
created emerge as parties exchange and integrate their areas of expertise. Thus, the
requirements of the collaborative task are prone to change continuously over the course
of the collaborative development process, and ﬂexibility of the partners plays an
important role in maintaining the value creation process. Adaptations by the two parties
in a business relationship are related positively to each other (Hallen 1991): ﬂexibility of
one partner may encomage the other partner to be ﬂexible to adjust as the intended
objectives of the partnership shift. The ultimate product value depends on the proﬁciency
of each partner to adjust the initial conditions of their agreements as the requirements of
the collaboration change. Therefore,

H9: Flexibility has a positive impact on new product advantage.

4.3 Research Methodology
4.3.1 Measures
To adequately measure the constructs, a comprehensive review of the literature was

performed. From this review, valid multiple-scale items were borrowed and adapted. In

87

those instances where no previously developed scales existed, measures were developed
using the ﬁamework proposed by Churchill (1979). The measurement approach for each
theoretical construct in the model is described brieﬂy below.

New product advantage is deﬁned as the extent to which a new product has superior
attributes compared with competitors’ products (Cooper 1992). The scale for new product
advantage was adopted from Li and Calantone (1998). All of the new product advantage
dimensions are measured ﬁ'om the perspective of the managers. The speciﬁc components
of this construct are newness, productivity, reliability, uniqueness, ease of use,
ftmctionality, and compatibility.

Flexibility is deﬁned as the extent to which a ﬁrm is willing to adapt in response to
changing circumstances during the course of the co-development partnership (adapted
from Heide 1994). The scale for this construct was adapted from Bello and Gilliland
(1997) and Heide (1994).

Cooperation is the extent to which co-development partners take similar or
complementary coordinated actions to achieve collective gains (adapted from Anderson
and Narus 1990). Since the existing scales for this construct were context speciﬁc, a new
scale was developed for the measurement of this construct.

Communication is deﬁned as the formal as well as informal and voluntary sharing
of critical and timely information between partners (adapted from Anderson and Narus
1990). The scale for this construct was adopted from the information-sharing dimension
of Mohr and Spekman (1994)’s communication scale.

Organizational commitment was viewed as the extent to which the organization

places value on an alliance relationship to warrant maximum efforts in maintaining it

88

(Morgan and Hunt 1994). The scale for organizational comnritrnent was adapted from
Morgan and Hunt’s relationship commitment, and Gundlach et al.’s (1995) attitudinal
dimension of commitment.

The two dimensional conceptualization of trust by Ganesan (1994) was adopted.
Accordingly, goodwill trust is the extent to which the ﬁrm believes that the co-
development partner has intentions and motives beneﬁcial to the ﬁrm when new
conditions arise. Competence trust is deﬁned as the extent to which the ﬁrm believes that
the co—development partner has the required expertise and reliability to perform the
collaborative task. Scales for both of these constructs were adapted from Ganesan (1994).

For each perceptual measure, a seven-point Likert scale was employed, typically
anchored by 1=Strongly disagree and 7=Strongly agree. The measures for each construct
are noted on Table 7.

4.3.2 Sampling and Data Collection

The sampling ﬁarne for this study is US. ﬁrms that have recently participated in co-
development partnerships. To put together a mailing list for this study SDC Platinum’s
alliances and joint ventures database was used. Alliances with announcement dates
between January 1, 1999 and June 6, 2003, from a wide array of high-tech industries,
including biotechnology (medical lasers, rehab equipment, other medical equipment),
computer equipment, electronics, communications, and others (robotics, lasers,
propulsion, satellites, advanced materials, etc.) were examined.

During this time period, 724 partnerships were announced within the selected
industries. Since the database did not include a ﬂag for co—development partnership, other

ﬂags (e. g., marketing agreement ﬂag, joint venture ﬂag, etc.) were used to omit those

89

Table 7: Constructs and Indicators

 

Competence Trust (a = .9318)

Ctrustl: Promises made by our partner are reliable.

Ctrust2: If problems arise they are honest about the problems.
Ctrust3: Our partner does not make false claims.

Ctrust4: Our partner has the ability to keep the promises it makes.

 

Goodwill Trust (a = .8665)

Grustl: Our partner’s representative is like a friend.

Grust2: When we share our problems with our partner we know that they
will respond with understanding.

Grust3: We feel our partner considers how its decisions and actions will
affect our business.

 

Commitment ((1 = .8388)

Cmtrntl: We emphasize the commitment to improvements that beneﬁt the
relationship as a whole.

Cmtmt2: The relationship with this partner is something that we are very
committed to.

Cmtmt3: We work hard to maintain this relationship.

 

Communication ((1 = .6633)

Comml: We share proprietary information with our partner.

Comm2: We inform our partner in advance of our changing needs.

Comm3: We do not volunteer much information regarding our business to the
partner (reverse scale).

 

 

Cooperation ((1 = .9032)

Coopl: Our relationship with this partner can be characterized by high level
of cooperation.

Coop2: There is a lot of teamwork between our partner and us.
Coop3: We carry on the collaborative project through committed teamwork.

 

90

 

Table 7 (Cont’d)

 

Flexibility (a = .6049)

Flexl: We are open to their request to modify a prior agreement.
Flex2: We expect to be able to make adjustments in the ongoing relationship
to cope with changing circumstances.

 

 

New Product Advantage (a = .8189)

Npadvl: In terms of newness, i.e., the extent to which a product is new to
the market.

Npadv2: In terms of productivity, i.e., the product increases the customer’s
work efficiency.

Npadv3: In terms of reliability, i.e., extent to which a product is free of errors.

Npadv4: In terms of uniqueness, i.e., the extent to which a product has unique
features.

Npade: In terms of ease of use, i.e., the extent to which a product is easy to
Learn and/or use.

Npadv6: In terms of functionality, i.e., the extent to which a product meets
customer’s functional needs.

Npadv7: In terms of compatibility, i.e., the extent to which a product is similar
with the existing products.

 

91

 

recorded partnerships, which did not ﬁt the deﬁnition of co-development alliances. The
next stage of the sampling procedure involved validating the co-development partnership
and ﬁnding the name of a key informant. Targeted key informants included vice
presidents of R&D, vice presidents of strategic alliances or business development, or
chief technology officers.

Before mailing questionnaires, pre-contact of each key informant by telephone
was attempted to (1) validate the existence of a co-development project within that ﬁrm,
(2) assess informant’s ability to serve as a key informant by asking if he or she was
knowledgeable about the co-development project in question, (3) obtain cooperation, and
(4) verify the informant’s mailing address. 71 of these contacts stated that their
companies were not associated with a domestic co-development partnership. The phone
process further eliminated 151 ﬁrms in which a knowledgeable executive could not be
reached or identiﬁed. Therefore, the ﬁnal population of the sampling ﬁame consisted of
431 ﬁrms. These managers were asked for their permission to send them a cover letter
accompanied by a research summary sheet explaining the objectives and deliverables of
the study and requested their participation. In case they were not willing to participate
personally, these managers were asked to provide the names and contact details of one
other manager who could be subsequently contacted. This manager was requested to be
knowledgeable about the company’s co-development-related- procedures and activities.
Participating ﬁrms were also promised an executive summary of the ﬁndings of the
study.

Of these 431 ﬁrms, 108 agreed to participate. The most common reasons for

declining were company policies forbidding participation in surveys and lack of time.

92

The survey instrument was either emailed or mailed to those managers (depending on
their preference) who agreed to participate. The ﬁrst round of follow-up was performed
through e-mail reminders, which followed the completion of the ﬁrst e-mailing by 1.5
weeks. A second stream of follow-ups was completed through telephone calls.

The surveys for 4 ﬁrms were returned as undeliverable, and another 32 replied that
they were willing to participate but they are not allowed to share any information
regarding the partnership under question. Of the 104 ﬁrms that received the survey, a
total of 35 usable surveys were returned, for a 33.6% response rate.

As a validity check, respondents were asked to provide information regarding their
position and the number of years they had worked for their ﬁrm. All respondents were

vice presidents of their ﬁrms and had worked for their ﬁrm an average of 10.63 years.

4.3.3 Analytical Approach

A multi-step approach was adopted for data analysis. First the potential non-
response bias was evaluated by comparing early and late respondents in terms of their
annual sales and numbers of employees. Then a test of the measurement model was
performed by subjecting the measures to a series of exploratory factor analyses. In light
of these factor analyses, the items for each construct were selected. The average scores
for each construct were calculated. These were then used to test the hypotheses.

To assess non-response bias, responses were divided into two groups based on the
date on which they were received. The two groups of early and late responders were then
compared based on their sales volume and numbers of employees (Armstrong and

Overton 1977). Here, a t-test was conducted for testing the null hypothesis, which stated

93

that early and late respondents were equal in terms of their number of employees and
sales volume. No statistically signiﬁcant difference was detected between these groups at

.05 level. Results of this test are given on Table 8.

Table 8: Statistical Test for Non-Response Bias

 

 

 

 

 

Variable of T-Test For Equality Of Means of Early and Late
Comparison Respondents
t Df Sig (2-tailed)
Number of Employees 1.231 23 .231
Sales Volume 1.254 31 .219
(in million $)

 

 

 

 

 

4.3.3.1 Measure Validation and Hypotheses Testing

An exploratory factor analysis (EFA) was run on the data to analyze all measures
for validity and reliability. The initial measurement model consisted of 22 previously
selected manifest indicators of ﬁve constructs. Factor loadings were evaluated and
indicators were discarded if they did not load on the relevant factors or if they exhibited
cross loadings. A total of 4 indicators were dropped from ﬁrrther analysis at this step
(because they cross-loaded on other factors), and therefore the measurement model
resulted in eighteen indicators: 3 for goodwill trust, 4 for competence trust, 3 for
commitment, 3 for communication, 2 for ﬂexibility, and 3 for cooperation.

Reliabilities of the remaining indicators were assessed through their Cronbach’s
alpha scores. Reliabilities for all the measures were above the recommended limit of .6

(Cronbach 1951). The measures and reliabilities are displayed in Table 7. The average

94

scores for each construct are calculated using the remaining measures. A three stage least

squares (3 SLS) method was employed to test the systems of equations in the model.

4.3.3.2 Results

The model displayed a system weighted R-square of 0.368. The results of the
3SLS are given on Table 9. All of the hypothesized paths were found to be signiﬁcant at
the p<0. 10 level, except for the path between cooperation and new product advantage and
the path between communication and new product advantage. The inﬂuence of the ﬁrm’s
competence trust on its commitment to the co-development partnership was signiﬁcant,
as had been hypothesized in H1 (Bill =.238). The positive inﬂuence of goodwill trust on
communication (HZ) was also supported by the ﬁndings (Buz= .348). The results ﬁrrther
supported the third and fourth hypotheses, which posited a positive inﬂuence of
commitment on communication and ﬂexibility, respectively (Bm= .440, Btu: .316). The
positive inﬂuences of communication (BH5= .368) and ﬂexibility (Brio: .359) on
cooperation also found support by the results. Although each collaboration process
dimension was expected to lead to an enhanced level of new product advantage, a
positive inﬂuence of only ﬂexibility (BH9= .408) on new product advantage was found.
The ﬁndings were non-signiﬁcant for the inﬂuence of communication and cooperation on
new product advantage (13m: ~0.01, BHg= 181). Although a direct path between
competence trust and ﬂexibility had been not hypothesized initially, while testing for a
mediating effect of commitment between these two constructs, a signiﬁcant positive
inﬂuence of competence trust on ﬂexibility was discovered ([3= .348). These ﬁndings are

presented in Figure 6.

95

Table 9:

Three-Stage Least Squares Estimation Results

 

 

System Weighted MSE = 0.9797

Degrees of ﬁ'eedom = 153
System Weighted R—Square = 0.3651

 

 

Dependent Variable: New Product Advantage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable df Parameter Error t-value Signiﬁcance
Standard
Estimate
Intercept 1 2.034 1.055 1 .93 0.063
COOP 1 0.181 0.178 1.02 0.317
COMM 1 -0.016 0.153 -0.11 0.915
FLEX 1 0.408 0.175 2.33 0.026
Dependent Variable: Communication
Variable df Parameter Error t-value Signiﬁcance
Standard
Estimate
Intercept 1 0.86884 1 .267 0.69 0.498
GTRUST 1 0.34814 0.171 2.03 0.051
CTRUST 1 -0.0019 0.187 -0.01 0.992
CMTMT 1 0.43996 0.212 2.07 0.047
Dependent Variable: Cooperation
Variable df Parameter Error t-value Signiﬁcance
Standard
Estimate
Intercept l l .806 0.904 2 0.055
COMM 1 0.368 0.135 2.72 0.01 1
FLEX 1 0.359 0.159 2.25 0.032

 

96

 

 

 

Table 9 (cont’d)

 

Dependent Variable: Flexibility

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable df Parameter Error t-value Signiﬁcance
Standard
Estimate
Intercept 1 1 .029 1 .026 1 0.323
CMTMT 1 0.315 0.169 1.86 0.072
CTRUST 1 0.348 0.149 2.34 0.026
GTRUST 1 0.118 0.136 0.87 0.391
Dependent Variable: Commitment
Variable df Parameter Error t-value Signiﬁcance
Standard
Estimate
Intercept 1 4.50741 0.72392 6.23 <.0001
CTRUST 1 0.23779 0.12629 1.88 0.0688

 

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98

4.4 Discussion
4.4.1 Summary of the Results

The research suggests that proper disposition towards the co-development
partnership is necessary because it leads to greater levels of communication, ﬂexibility
and cooperation. Flexibility is the key to creating superior products through
collaboration. The results show that communication mediates the relationship between
goodwill trust and cooperation. Although this ﬁnding seems contradictory with the
conceptualizations of Anderson and Narus (1990) and Morgan and Hunt (1994), who
found support for a relationship in the opposite direction, the reader must keep in mind
that the current conceptualization of communication is unidirectional and it represents the
communication of the focal ﬁrm with its partner.

Both dimensions of trust -competence trust and goodwill trust- eventually lead
indirectly to cooperation. For cooperative collaboration, the partner has to be relied on
both in terms of technical competence and for having good intentions. The results showed
that the level of cooperation was enhanced with the existence of ﬂexibility and
communication. Only one of the collaboration dimensions was found to have a
signiﬁcant inﬂuence on new product advantage: ﬂexibility.

4.4.2 Theoretical Implications

Several extensions to the relationship management literature (Morgan and Hunt
1994) were attained in this research. These were (1) the two dimensions of the
conceptualization of trust (adopted from Ganesan 1994) and their consideration with
commitment, (2) the mediating role of communication between trust and cooperation,

and (3) the mediating role of ﬂexibility between commitment and cooperation.

99

Communication serves as a tool for expressing both the technological capabilities
and good intentions to the partner and thus leads to higher levels of cooperation. A ﬁrm’s
ﬂexibility in adjusting to its partner’s needs and requests also facilitates cooperative
behavior. Flexibility signals a concern on behalf of the ﬁrm for the long-run beneﬁt of the
collaboration and the sharing of a collective incentive to maintain the relationship.
Flexibility has been found to have positive relational outcomes in export partnerships
(Bello and Gilliland 1997). Similar to those ﬁndings, the current results show that
willingness to adjust to the unfolding situations positively affects the superiority of the
new product in co-development partnerships. Flexibility is found to be greatly inﬂuenced
by the level of expectation of technical competence and the reliability of the partner.
Willingness to exert effort on behalf of maintaining the relationship also manifests itself
in a ﬂexible mindset.

Although cooperation has been recognized as a key factor leading to positive
relational outcomes (Anderson and Narus 1990, Morgan and Hunt 1994) in the marketing
literature, the results failed to support the association between cooperation and new
product advantage. Yet, one potential avenue for future research may be to investigate the
inﬂuence of collaboration dimensions on creating innovative products. For instance,
higher levels of cooperation may lead to more innovative products but not necessarily to
other dimensions of product advantage (functionality, productivity, ease of use, reliability
and compatibility).

4.4.3 Managerial Implications
Alliance situations are characterized by both strong inertial and adaptive forces

(D02 1996). A strong foundation for a co-development alliance constitutes the

100

fundamental basis for creating value through collaboration. Yet, the biggest challenge
that calls for management attention in co-development alliances is sustaining the ongoing
process of collaboration (D02 and Hamel 1998). This is because creating value in a new
product alliance is not merely dependent on the best possible combination of resources,
but also on transformation of this integrated know-how into value (Sarkar et al. 2001).
Trust and commitment are vital elements facilitating the transfer of tacit know-
how and adaptation to the changing circumstances of the relationship. Yet, this ﬁnding
should not be interpreted as meaning that co-development partners should be trusted and
ﬁrm should be committed to the partnership regardless of the circumstances. Rather, the
results imply that a ﬁrm should select a co-development partner on whom it could rely
for technological competence as well as having good intentions, because in partnerships
that are characterized with high levels of trust and commitment, more communication
occurred and ﬁrms were willing to adapt as the requirements of the relationships
changed. The high level of expectation of technically competent role performance and
reliability on behalf of the co-development partner implies an enhanced level of
commitment of the ﬁrm to the relationship. This commitment manifests itself in an open
mindset for modiﬁcations to cope with changing circumstances. The high levels of
commitment coupled with the expectation that a partner will not behave opportunistically
even when the initial conditions change, implies that a ﬁrm will not hesitate to share
critical information with that partner. This sharing is voluntary, which means that it is not
forced by or limited to pre-speciﬁed agreements. Firms commrmicate voluntarily because

they expect mutual gains from the collaboration.

101

The results show a positive inﬂuence of ﬂexibility and communication on
cooperation. This implies that the existence of teamwork among partners to achieve
collective rather than individual gains is dependent on voluntary and timely sharing of
critical information as well as on the willingness of the ﬁrm to adjust to changing
circumstances. Although positive associations between all the collaboration process
dimensions and new product advantage were hypothesized, only an inﬂuence of
ﬂexibility on new product advantage was supported. To cope with the many sources of
new ideas and directions in which the product concept as well as the terms of the
relationship may advance, a ﬂexible approach to these changing circumstances is needed
for creation of advantageous products.

Collaborative product development may reveal windows of opportunities for
creating more innovative products, faster and better (Hagedoom and Dysters 2002). Yet a
downfall of co-development managers should avoid is technological myopia, that is,
being blinded by the remarkable possibilities that the integration of resources could bring.
Integration of resources may create a highly innovative product, which may not
necessarily solve the customer problem. In that case, further collaborative work may be
needed to improve the product in terms of functionality, ease of use, productivity and
reliability. Current ﬁndings serve as a reminder for managers not to be lost in the vast
opportunities that the collective capabilities bring, without keeping customer needs in

mind. This will be elaborated on more in the following section.

102

CHAPTER 5

CONCLUDING REMARKS

The underlying motivation of this dissertation research was to discover and explain
the role of inter-ﬁrm collaborations in creating new product advantages. The relational
aspects as well as technological competencies of the partners were the focal point in this
investigation. This study assessed multiple stages of collaborative product development
(co-development) alliances. The ﬁrst two parts aimed to identify the best foundation for a
co'development alliance, i.e., one that maximizes the potential to create relational and
technological synergies. Inter-organizational technical, strategic and relational alignments
were found to be the bases for partner selection. The characteristics of the prospective
partner as well as the innovativeness of ﬁrm strategy and disposition towards the partner
were found to play important roles in the strategic decision of collaborating for new
product development. The rationale of the third part was to determine the best practices
that lead to sustained collaboration and product advantage during the operation stage of
co-development partnerships. The disposition of the ﬁrm towards the co—development
partner was found to have a signiﬁcant role in facilitating the collaboration processes.
Flexibility was found to be the key to enhancing product advantage.

The research questions in each of the studies were motivated by a synthesis of the
relevant literature. The constructs and hypotheses for the ﬁrst two studies were
determined at the end of interviews with managers in the ﬁeld. Although the hypotheses

for the third study were developed based on the existing inter-organizational relationships

103

and new product development literatures, the interviews with managers provided a great
deal of input for this study in terms of linking the concepts to the practice.

As a whole, this dissertation research sheds light on the process of establishing and
sustaining collaborations to create new product advantages. In the following paragraphs
the theoretical and managerial implications of all three research studies together will be
discussed.

5.1 Summary of Theoretical Implications

Kanter (1994) pointed out the role of a strong foundation for the success of an
alliance relationship. D02 and Hamel (1998), on the other hand, emphasized the
importance of a sustained collaboration in addition to a strong foundation, for creating
value. In light of these two conceptual works, it is expected that a strong foundation with
a potential to create synergy, as well as the processes undertaken to sustain the ongoing
process of collaboration were necessary for creating superior products through
collaboration. The gains from a partnership are to a great extent dependent on the
partner’s competence as well as its behavior. The emergent theory of partner selection
developed in Chapter 2, revealed three stages of the selection process. These are
technological, strategic and relational alignment stages. It was found that the emergent
theory of collaboration choice in Chapter 3 was indivisible from the partner
characteristics. This process theory consisted of three phases including strategic
evaluation, partner evaluation and predisposition. In both of these studies, the conﬂuence
of the stages was supported by no single theory, but rather a consolidation of several
theories, such as the new product development, resource-based view of strategic

alliances, inter-organizational learning and relationship management literatures.

104

Chapter 4 was concerned with testing a model including factors leading to a
sustained collaboration and new product advantage. The concepts in this model and their
interrelations introduced valuable insights to the (very limited) co-development literature
as well as the existing new product development, relationship management and alliance
literatures. This research investigated factors that lead to superior products in a co-
development partnership. Creating superior products through collaborative activities is a
relatively new concept in the product development literature. Furthermore, the
proﬁciency of collaboration processes as antecedents to new product advantage is a new

concept in the product development literature.

5.2 Summary of Managerial Implications

This dissertation research provides a comprehensive set of guidelines for managers
who are currently involved in collaborative product development projects or are
considering to be involved in one in the ﬁrture. The three research studies that comprise
this dissertation cover the foundation stage as well as the operation stage of co-
development alliances. The ﬁrst research study (Chapter 2) presents a process model of
partner selection, based on successful cases ﬁom the ﬁeld. This process model depicts the
way in which a partner should be selected to ensure synergistic value creation and its
sustainability. The second research paper (Chapter 3) reveals the phases that should be
fulﬁlled in order for collaboration to be an acceptable and promising form of product
development method. Furthermore, the third research paper (Chapter 3), reveals the main

components for achieving greater levels of cooperation and superior products.

105

The main contribution of this study to managerial knowledge is the key role of
trust in all stages of co-development partnerships. During the initiation stages, trust is
build based primarily on inertial factors, such as the technical competence as well as the
strategic stance of the partner. The level of trust has an important role on the
collaboration processes during the operation stage. The partner has to be trusted in terms
of having good intentions and technical competence in order for communication and to
take place and for the ﬁrm to be able to adjust to unfolding situations, both of which lead
to greater levels of communication.

An appropriate foundation is fundamental for ensuring the integration of know-
how to create product value. A poor foundation is bound to lead to impaired collaboration
processes, and to dissolution or poor product advantage. Therefore, managers have to
take all stages seriously, including partner selection, decision for collaboration, and

management, in order to gain beneﬁts ﬁ'om co-development.

106

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