6.1 Contribution and implications
Why are some companies more successful in forming alliances than others? In this study, we provided a theoretical account that potentially explains firms’ differences in alliance performance. Drawing on the literature on alliances (e.g., Killing 1983; Caloghirou et al., 2003;
Mellewigt et al., 2007), this paper has demonstrated that the dedicated alliance function contributes significantly to enhancing alliance success, improving the likelihood of creating a fruitful alliance. By uncovering this relationship, this thesis has shed light on the controversies that have arisen over the past decades concerning the role of the dedicated alliance function, resolving the mixed and inconsistent findings obtained to date (e.g., Heimeriks et al., 2007;
Dyer et al., 2001; Findikoglu et al. 2019). Previous research did not find a statistically significant contribution of the DAF to the performance of the alliance portfolio, maintaining the division between those who believed that dedicated functions created value and those who did not (e.g., Russo and Vurro, 2019; Heimeriks and Duysters, 2007). Until today, various authors suggested that the DAF had no impact on alliance performance and that, on the contrary, having one would have led to significant disadvantages. Proponents of this view believed that the DAF limited flexibility and did not improve alliance success (e.g., Heimeriks et al., 2007, 2015). According to these authors, the formalization and institutionalization of practices obtained by means of the DAF would have led to ‘superstitious learning’ (Hoang and Rothaermel, 2005; Zollo, 2009), and the establishment of codified and consistent procedures would have inappropriately led to emphasize process over speed in decision making (Dyer et al., 2001), therefore negatively impacting alliance performance. The results of the empirical analysis findings of this thesis confirm, however, that the dedicated alliance function has a significant positive impact on alliance performance, implying that firms that establish a dedicated alliance function can potentially have greater alliance success. This conclusion puts
37 an end to the vague and mixed evidence on the potential value of the DAF that has characterised the literature of alliances to date, clarifying this dispute once and for all (e.g., Heimeriks et al., 2015; Dyer et al., 2001; Russo and Vurro, 2019).
But how would DAF increase the performance of an alliance? By using a firm’s alliance performance as the dependent variable and the dedicated alliance function as the independent variable, this thesis showed that when a DAF is present, the overall alliance performance tends to increase. This can be explained by the numerous benefits that the dedicated alliance function would bring to the JV. Prior research found that “by establishing a dedicated alliance function, a firm can learn practices for selecting partners, negotiating agreements, and managing alliances, which in turn create value in the firm’s new alliances” (Findikoglu et al. 2019, page 177). Thus, in line with this thinking, by owning a dedicated function, an organization can potentially improve its knowledge management, external visibility, internal coordination, and accountability; thereby achieving a higher alliance success rate from improved practices, higher abnormal stock-market gains, and a greater ability to form more alliances and attract better partners (Dyer et al., 2001). Aiming to extend and explain this set of benefits already identified in the previous literature, this thesis focused on the impact the DAF has on alliance governance, a factor not yet considered in the existing literature. However, contrary to expectations, the results of this study revealed that the positive relationship between the dedicated alliance function and alliance performance cannot be explained by the effect that the DAF has on the development of smaller board sizes or the drafting of more complete contracts.
In line with earlier studies (e.g., Guest, 2009; Judge and Talaulicar, 2017; Reuer, 2014), this paper found that board size is an important antecedent for alliance success and that larger boards are expected to jeopardize alliance performance (Cheng et al., 2008; Hermalin and Weibasch, 2003; Lipton and Lorsch, 1992). However, analyses have shown that the DAF, instead of increasing alliance performance by reducing the number of boards of directors, can
38 potentially increase the likelihood of alliance success by increasing the board size. This may be contradictory to what has been presented in the literature review of this thesis but is in line with other studies that find that companies can boost alliance performance by increasing formal monitoring (Boone et al., 2007). According to these studies, firms can benefit from an increase in board size due to the increased net benefits of extra monitoring and specialization of board members, but this only occurs if and only if monitoring costs are kept low. Therefore, the dedicated alliance function could have a significant effect on minimising monitoring costs, allowing organizations to increase the number of board members involved in monitoring and control, therefore resulting in a more effective management of alliance-related activities (Linck et al., 2008; Boone et al., 2007; Fama and Jensen, 1983). This process would thus lead the benefits of a more effective monitoring system to outweigh the monitoring costs associated with a larger number of board members, thereby increasing alliance performance.
Regarding the other alliance governance factor, contract completeness, our evidence found no support for the assertion that the completeness of contracts plays a determining role in alliance performance. This would also seem to contradict some findings in the literature (Ryall and Sampson, 2009; Mayer and Argyres, 2004; Wang et al., 2021) but can be explained by the uncertainty that partners may face. In particular, environmental uncertainty may make it difficult for organizations to define the contract in all its details, making it more efficient to simply have shared guidelines and rules of conduct (Elfenbein and Lerner, 2003; Rothaermel and Deeds, 2006; Williamson, 1985). This would make allied companies more flexible to contract changes but would make it impossible to draft a contract that takes every aspect into account. Another explanation could lie in repeated interactions. Although formalization in the form of contract drafting may mitigate partners’ opportunistic behaviour that organizations face with new partners (e.g., Luo, 2002; Luo, 2005), it can be counterproductive in recurring alliances with the same partner, since the relationship is expected to rely on mutual trust and
39 relational commitment rather than rigid contracts (Gulati and Singh, 1998). The introduction of formal practices may dissatisfy a partner with whom the firm has earned the trust and formed intimate interpersonal ties in recurring alliances, resulting in increased tension that can weaken trust and collaboration (Gulati and Nickerson, 2008). Whatever the effect of contract completeness on alliance performance, however, the dedicated alliance function was not found to be a determining factor for contract completeness. Therefore, this paper found no support for the hypothesis that the dedicated alliance function has a positive impact on alliance performance due to a company's greater ability to write more complete contracts.
From a managerial point of view, these results provide many relevant implications. In particular, this thesis suggests that an organization can increase the chances of a successful alliance by establishing a dedicated alliance function. This is because, through the centralization of practices, the organization would become more efficient in the monitoring of the alliance, therefore potentially reducing monitoring costs. On the other hand, it cannot be said that by establishing a DAF, the organization can establish more complete contracts.
Therefore, organizations aiming to create more complete contracts should opt for another solution.
This study contributes to the literature in the following ways. First, this paper shows that the dedicated alliance function has a positive direct impact on alliance performance. In this way, it confirms studies that argued that the DAF creates numerous benefits for the alliance, thus suggesting that companies wishing to combine their resources and capabilities through joint ventures should establish a dedicated alliance function. Second, this thesis adds to the JVs literature by analysing the relationship between a dedicated alliance function and alliance governance. It has been demonstrated that by establishing a DAF, a company would have a positive impact on board monitoring, which can potentially lead to higher alliance performance.
40 Third, broadly speaking, this research also contributes to (dynamic) capability research in general, by indirectly showing that the dedicated alliance function helps build up the creation of an alliance capability, which, in turn, is positively related to a firm’s overall alliance performance. By establishing a dedicated alliance function, an organization can accumulate alliance experience and transform it into valuable know-how and best practices for the organization (e.g., Liu and Ravichandran, 2011). Therefore, the DAF promotes standardization, formalization, and centralization of management practices that facilitate the accumulation and application of experience across alliances, improving a firm’s ability to manage a given alliance activity (Conner and Prahalad, 1996; Eisenhardt and Martin, 2000).
Overall, this study significantly contributes to the present alliance literature, opening up the black box between the dedicated alliance function and a firm’s alliance success, thereby finally providing clarification to the much-discussed role of the dedicated alliance function.
6.2 Limitations and future research directions
In terms of limitations, this study presents the following aspects. First, this thesis is based on a medium-sized dataset (Reuer et al., 2014). Due to the limited sample size, some variables, such as contractual completeness and alliance function partner, were found to be not significant. As a result, future research could repeat a similar study with a larger dataset to test whether the findings of this thesis remain robust and whether other significant variables are found (Becker, 2000; Faul et al., 2009).
Second, the sampling method used was purposive, which means that the respondents were selected according to the experience and expertise of the researchers (Reuer et al., 2014).
Therefore, this could potentially lead to a biased sample, affecting the results. Hence, in replicating this study, future research should employ a form of probability sampling to verify the robustness of the results.Potentially suitable sampling methods could be taking a simple or
41 systematic random sample from a large database of JVs, as these methods would decrease potential sampling bias.
Third, this paper has focused on Joint Ventures in general, without considering the different levels of complexity of JVs. Future research could extend this work by making the important distinction between simple and complex Joint Ventures (e.g., Whitelock, 1993).
Consequently, it can be analysed how the presence or absence of a dedicated alliance function has an effect on the governance of equity-alliance with different complexities (e.g., Findikoglu et al., 2019).
Fourth, this thesis is based solely on a specific performance measurement. The performance measure used was constructed according to Mjoen and Tallman’s (1997) performance measure. Despite its significance and relevance, other performance measures are available in the literature on alliances (e.g., Ariño, 2003; Kale et al., 2002; Keating and Shadwick; 2002). These could be used to have a broader evaluation of an alliance’s performance, strengthening the results of this paper.
Fifth, another limitation of this study, which offers opportunities for future research, is the role of board size as the sole indicator of board composition. While central to most governance studies, previous research has identified multiple aspects of board composition, other than board size, that may play an important role in board governance (e.g., Judge and Talaulicar, 2017; Klijn et al., 2021; Misangyi and Acharya, 2014). In particular, some aspects that deserve more research attention are the involvement of the board of directors (‘board involvement’) and the percentage of insiders and outsiders that make up the board composition (e.g., Boone et al., 2007; Cheng et al., 2008; Hermalin and Weibasch, 2003; Linck et al., 2008).
By studying these two elements, new insights could be gained regarding the impact of DAF on alliance governance and the consequent effect on alliance performance.
42 Sixth, this paper suggests that the DAF can potentially increase alliance performance by decreasing monitoring costs and optimizing the benefits associated with a larger number of board members involved in alliance monitoring. Future research can study the relationship between DAF and monitoring costs in more detail, making it possible to generalize this conclusion more firmly. This potential research would complement the study carried out in this thesis and contribute significantly to the alliance literature.
Finally, despite the article’s potential contributions to the relationship between alliance function and alliance performance, this paper represents only a first step towards a deeper understanding of alliance capability development by means of a dedicated alliance function.
Future research can undertake further investigation into the role of the dedicated alliance function in the creation of alliance capability, by further examining other important factors in this process (Liu and Ravichandran, 2011; Russo and Vurro, 2019). More specifically, future research can complement the researched field of this study by exploring to what extent the experience accumulated through the DAF has an effect in the early steps of an alliance (such as the due diligence process, partner selection, and the construction of shared common goals), therefore making a comprehensive contribution to the alliance literature (Findikoglu et al.
2019).