Master Thesis
Effectiveness of trust as the sole governance mechanism
in Industry-University alliances, a case study
Diana Henriëtta den Heijer – S2017954
d.h.den.heijer@student.rug.nl
January 2016
Word count: 14293
MSc. Strategic Innovation Management
Faculty of Economics and Business
University of Groningen
Supervisors: 1st: dr. I. Estrada VaqueroABSTRACT In current literature, it is believed that trust cannot be used as the sole governance mechanism in alliances of which the partners are very different, such as in alliances between the Industry and the University. This thesis aims to provide insights in the circumstances when trust actually can be sufficient as the sole governance mechanism in an Industry-University alliance. A case study was done to uncover the reasons why trust seemed to be effective as the sole governance mechanism as no formal contract was signed. The focal alliance consists of an industry and a university partner in the north of the Netherlands, both part of the SPRINT consortium focused on healthy ageing, The aim was to design an improved ergometer for wheelchairs. Semi-structured in depth interviews were performed with experts, as well as the partners of the focal alliance. A within-case analysis was performed and propositions were formulated. As formal governance mechanisms usually require financial resources, it is interesting for manager to know when trust is effective as a sole governance mechanism.
1. INTRODUCTION Opposite poles attract, but do they innovate? Because of globalization, competition has gotten fiercer and consumers expect more innovative solutions to their problems (George, Zara & Wood, 2002). With technology improving rapidly, more possibilities arise which gives individual companies a hard time to keep up with other companies in the industry they are in (Lavie, Lechner & Singh, 2007). It is difficult for one company to have all the knowledge which makes it challenging to develop a competitive advantage over others. Increasingly, however, companies try to do it together instead of going it alone (Lavie et al., 2007). Alliances are a common way for companies to cooperate for innovation and use this collaboration to potentially (re-)combine knowledge. The race for knowledge is highly competitive which is why companies are increasingly looking for different kinds of partners to cooperate with in order to find complementary knowledge instead of similar knowledge (Kumar, 2014). This type of cooperation usually takes place among companies in the same industry, but can also take place between companies and universities: Industry-University (IU) alliances1. The latter is the focal phenomenon in this research.
These types of alliances play a key role in the innovation strategy of organizations (Bishop, D’Este & Neely, 2011). Industry-University alliances are especially interesting because they provide various advantages to companies. University research is often subsidized which is an advantage for collaborative research efforts. Because of the different perspective and the novel scientific knowledge a university partner holds, it can add value for the industry partner. But also for universities it can be beneficial to collaborate with the industry as it will enable the university to put their scientific theories and innovative ideas into practice. Firms can provide universities with market and industrial knowledge (Du, Leten & Vanhaverbeke, 2014). Although the industry partner can also hold scientific knowledge and the university might hold much knowledge on markets, generally speaking, these partners lack these types of knowledge. Jointly firms and research institutions can come up with successful innovations (George et al, 2002; Bishop et al., 2011).
The University of Groningen, the Netherlands, understands this benefit and has expressed an intent to focus more on collaborating with industry partners by recently appointing a dean of industry relations (
University of Groningen,
2016). The academic roadmap the University published in 2015 also indicated an intent to closely collaborate with the industry. In the strategic1 In this thesis Industry-University alliances are used as an umbrella term to refer to alliances
the articles about the alliances of the University of Groningen. Gulati (1998) makes a distinction between formal (use of contracts) and informal (more use of communication and informal mechanisms) management of the alliance. Following the Transaction Cost Theory, when more performance, relational, or regulatory risk is involved, it is common to opt for more formal management mechanisms of the alliance (Anderson, Christ, Dekker & Sedatole, 2014). Financial controls and contracts are frequently used as formal management methods, whereas communication, trust and mutual hostage situations can be seen as informal management mechanisms.
Trust can be defined as the positive expectations one has about another’s goodwill and competence in risky situations and is seen as a key element in alliances (Das & Teng, 2001). It takes time to establish trust and some partners are not even able to establish it at all. A reason for failure to establish trust can be that partners are just too different from one another (Gulati, 1995). Once trust is established it has been proven to be an effective governance mechanism by decreasing opportunism and enhancing integration (Das & Teng, 2001). However, the use of trust alone is not seen as a tool to successfully mitigate the difficulties due to the differences in IU alliances which require mutual adaptation and adjustment (Litwak & Hylton, 1962). It is mostly seen as most effective in addition to formal governance mechanisms (Gulati & Singh, 1998; Krishnan, Geyskens & Steenkamp, 2016). However, the focal case of this research contradicts assumptions that are made in the current literature. Although authors claim the sole use of trust is not effective when it comes to coordinating an Industry-University alliance, the focal alliance seems to be coordinated very well using only trust as a governance mechanism. Without making use of a formal contract, communication is frequent and progress is made. Both partners are pleased with what they get in return and would cooperate with the other partner again.
Currently, not much is known of alliances that use trust as their sole governance mechanism. While formal governance mechanisms usually involve a lot more costs. Therefore, it would be beneficial to know when trust can be used as the sole governance mechanisms as this can save companies and universities financial resources. More research is needed to gain a better understanding on which circumstances permit the sole use of trust. Therefore, the research question in this research is as follows:
Under which conditions can trust be effective as the sole governance mechanism to coordinate difficulties due to inter-partner dissimilarities in IU alliances?
2. THEORETICAL FRAMEWORK
In this section, the literature that already exists on this topic is reviewed and sub-questions will be formulated. First, the phenomenon Industry-University alliance will be discussed. Second, the literature on the inter-partner dissimilarities in IU alliances will be discussed. Thirdly, the existing literature on coordination of industry-university alliances is reviewed. Finally, Sub-questions will be formulated which help to answer the main research question. 2.1. Industry-University alliances When firms or institutions collaborate in a formal way an alliance could be established. Alliances are voluntary agreements for collaboration formed by different partners to reach a mutual or individual goal by sharing knowledge (Gulati, 1998; Mody, 1993). Collaborative efforts not only exist between firms in the same or a different industry. In order to find new or complementary knowledge, some firms search for partners outside of their own industry and opt for collaboration with universities for example. Industry-University alliances are collaborative agreements between firms and research organizations such as universities and public research institutes (Santoro & Chakrabarti, 2002).
Alliances are a common way for different companies to cooperate and are seen as a core component of many firms’ strategy (Sampson, 2007). These types of collaborations offer partners the possibility to benefit from asset complementarity and learning from the alliance partner (Wang & Zajac, 2007). Alliances are a form of open innovation in which the research and development department of a company or institution is influenced by actors from outside of the boundaries of the own organization (Du et al., 2014). A reason for forming an alliance can be attaining goals that are not possible to reach solely (Kumar, 2014). When the perspective of the Resource Based View is taken, an alliance is a way to access resources a company or institution could not access on its own (Ireland, Hitt & Vaidyanath, 2002). According to this theory resources form the base of a competitive advantage and become more valuable once they are rare, inimitable and non-substitutable. In the light of this theory, alliances are a way to access or develop these resources. When following the Knowledge Based View a firm is seen as an institution that makes it easier to integrate knowledge as it is difficult to transfer (Grant, 1996). The reason to initiate an alliance is similar to the Resource Based View, to acquire a resource of the partner which is a type of knowledge in this case (Wang & Zajac, 2007). Due to bounded rationality one person or institution cannot hold all knowledge because of limited capacity to acquire, store and process knowledge (Grant, 1996).
the choice for a partner is made in this stage. When the fit between companies or institutions is weak, this will affect the effectivity of the alliance in a negative way (Chan & Harget, 1993).
2.2. Inter-partner dissimilarities
An Industry-University alliance is a complex phenomenon. There are difficulties and risks involved in forming, coordinating and ending an alliance due to the high degree of differences between the partners (Etzkowitz, 2003; Piva & Rossi-Lamastra, 2013).
Firstly, the institutional environments are different for firms and universities which can increase uncertainty of the alliance (Etzkowitz, 2003). Knowledge bases of the two parties are different which might makes relative absorptive capacity harder to establish because partners are not similar. This dissimilarity makes it harder for both partners to learn from each other because they use different ways to approach matters and it is too different from their prior knowledge (Lane & Lubatkin, 1998; Cohen & Levinthal, 1989).
Biases in the form of overconfidence, single outcome calculation and adjustment and anchoring can also cause failure of the alliance (Chao, 2011). If not managed correctly, ambiguity in the alliance can result in ineffective learning between partners and ultimate failure of the alliances (Kumar, 2014). Next to that, when partners are highly different it is difficult to assess the contributions of both partners over time and might lead to the possibly false conclusion that these are unbalanced (Park & Ungson, 2001). Firms are usually focused on short-term commercial innovation outcomes because they aim to provide benefit for their customer (Steinmo, 2015). Firms try to capture valuable knowledge that can enhance their competitive advantage (Teece, 1986). Universities are more focused on long-term outcomes, intrinsic motivations and aim for a good publication reputation. Furthermore, universities are driven to create new knowledge and to educate students (Bruneel, D’Este & Salter, 2010).
When goals are very different, the middle ground lies further from what the partner wants itself. Initial conditions, such as the outlook on a good outcome, can change overtime and should be seen as a changing process which should be monitored across time. This can cause a positive or negative learning spiral in which strong or weak commitment and a positive and negative outlook reinforce each other. When partners are very different, there is a threat of a negative spiral (Doz, 1996). Another common difference in IU alliances is the degree of flexibility (Santoro & Chakrabarti, 2002). University partners are used to work in a very autonomous way and can make most of their own decisions up to a certain point. For companies the authority to make decisions usually does not lie with the person that is involved within the alliance. This is due to the hierarchical structure of a lot of firms which slows the process (Liebeskind, Oliver, Zucker & Brewer, 1996). The lead time is also different for companies and universities. When you work for the university the academic quality of your work is most important and to achieve this, scientists can take a lot of time to validate their findings and to look at a certain matter in depth and from numerous perspectives. When you work for a company however, time is money and has to be justified, which causes company employees to have less room for exploration and less possibility to be flexible. However, alliances are formed to actually profit from these differences in order to learn from the partner. Parkhe (1991) named this ‘Type 1 diversity’. This type of diversity is not detrimental, but even necessary for alliance partners to benefit from the collaboration. ‘Type 2 diversity’ is explained as the different characteristics the partners hold that result in ineffectiveness of the alliance (Parkhe, 1991). When partners are too different, learning of the other partner becomes more difficult and coordination using formal governance mechanisms is necessary to make sure these differences are not detrimental to the success of the alliance (Park & Ungson, 2001). 2.3. Coordination and trust For IU alliances typical difficulties in coordination can arise due to diversity of the partners as described in the previous section. Coordination
possibility of problems arising during following alliances because of learning merits (Bruneel et al., 2010).
As could be read in the introduction, taking a Transaction Cost Theory perspective, the higher the risk, the more formal governance mechanisms are used (Anderson et al., 2014). As could also be read in the previous section: once partners are very different, as is usually the case in IU alliances, formal governance mechanisms are most effective. Informal governance mechanisms can enhance the effects of the formal governance mechanisms (Litwak & Hylton, 1962). Du et al. (2014) argue that in alliances between a firm and science based partners, formal coordination should not be used, because science based partners are used to having autonomy, have different objectives and want to have the freedom to experiment. A formal type of management does not fit with these characteristics. Du et al. (2014) claim formal management is less necessary in this case because the partners are not competing and concerns about unwanted knowledge spillovers are less present. However, other authors disagree. One of the risks in any alliance is the possibility of the partner acting opportunistically. In order to learn from each other the knowledge base of the partner has to be accessed. It can be very hard to limit access to knowledge outside the scope of the alliance (Laursen & Salter, 2014). Although companies and universities are not direct competitors because universities do not have the complementary resources to compete in a commercial market, but still, the value of knowledge could decrease once it is shared (Sampson, 2007; Morandi, 2013). Researchers of the University could start working for competitors at some point or could engage in collaborations with competitors in the future. Furthermore, it might happen that the partner does not fulfill the commitments that were agreed upon during the formation of the alliance (Kumar, 2014). When goals of partners are very different, more formal governance methods are necessary to keep both partners on the same track and avoid the alliance from going into the direction of the goals of one of the partners and keep the focus on the mutual goal (Krishnan et al., 2016).
Commonly authors stress the importance of using formal governance mechanisms next to informal mechanisms as they are temporal and unstable, especially when partners are very different (Williamson, 1991). Morandi (2013) also states that formal planning in the first phase is important to reduce tensions and misunderstanding in later phases because a common perspective is created.
Trust
Following the relational perspective, trust is an important informal governance mechanism to use in managing an alliance (Dyer & Singh, 1998; Faems, Janssens, Madhok & van Looy, 2008). Once trust is established, this could be an effective tool to overcome opportunism, to facilitate a smooth communication process and decrease transaction costs. Faems et al. (2008) claim that trust is also influenced by the nature of the activities and the fit with the degree of the contractual formalization: a broad contractual governance structure in an exploratory innovation setting seemed to facilitate the establishment of trust better. Trust is usually not present at the beginning of an alliance of partners that have not cooperated before. Trust has to be built overtime and can thus be established if partners work together for a longer period of time or have collaborated in the past (Krishnan et al., 2016). However, this is not always the case. There are factors that can prevent partners in an alliance from developing trust or that will cause them to have more trouble to establish trust. Krishnan et al. (2016) propose behavioral uncertainty (when a partner sees the possibility of the other partner behaving opportunistically) and environmental uncertainty (when changes outside of the alliance are hard to predict) as factors that make it difficult to use trust as a governance mechanism when they are perceived as high.
A substantial number of authors believe trust is mainly effective as a governance mechanism when contractual governance mechanisms are also used (Gulati & Singh, 1998; Krishnan et al., 2016). Only using trust might not be effective enough and can cause difficulties. Although a certain amount of literature exists on the coordination of Industry-University alliances and the difficulties that accompany this process, there is still a lack of clarity and a literature gap to be filled. As was made clear in this section, due to inter-partner dissimilarities, most authors believe formal governance mechanisms should be used to coordinate IU alliances. Using trust as a governance mechanism has received attention in the current literature, but only in combination with more formal governance mechanisms. The effectiveness of the sole use of trust as a governance mechanism has been neglected in existing literature. The focal case of this research contradicts assumptions that are made in the current literature. Although numerous authors claim the sole use of trust is not effective when it comes to coordinating an Industry-University alliance, the focal alliance seems to be coordinated very well using this governance mechanism. Therefore, the aim of the paper is to make a contribution to the knowledge on which circumstances permit the use of trust as a sole governance mechanism in Industry-University alliances.
To be able to answer the main research question the following sub questions have been formulated which will help to remain focused on the main research question.
1. Which circumstances enhance the possibility of establishment of trust?
2. Which stage of the alliance is most suitable for the use of trust as the sole governance mechanism?
3. What characteristics of partners enhance the possibility to use trust as a governance mechanism? 3. METHODOLOGY In this section the research method is explained. Furthermore, the type of data collection and the choice of analyses is discussed. In addition, a description of the measures to maximize research quality are included. To answer the research question the current literature was reviewed, semi-structured interviews were performed in two phases. The first phase consisted of interviews with experts. In the second phase people involved in the focal alliance were interviewed. After, a within-case analysis was performed.
For this case study the method of Eisenhardt (1989) was used. In the preliminary stage, the existing literature was reviewed, experts were interviewed and research questions were developed. Based on suggested cases of the experts and evaluation of these suggested cases, a case was selected. In the second stage the interviews were conducted. This stage was split up into two parts. During the first phase expert interviews were held and during the second phase people involved in the case were interviewed. As well as in the second stage as in the third stage the data was analyzed. In the third stage conclusions were drawn and the theory was modified. Following Yin (1993), a within-case analysis was performed which involved reading, coding and interpreting each case individually. By using the method of within-case analysis, one makes sure the individual cases are understood well. 3.1 Data collection
Nine semi-structured in depth interviews were used as a primary data source. This method combines a predetermined set of open questions with the possibility to ask follow up questions on answers given (Bloomberg, Cooper & Schindler, 2010).. All interviews were held in Dutch as this was the mother tongue of all interviewees. Quotes used for the coding process were translated in English.
the second phase four people from both parties of the focal IU alliance were interviewed and were asked questions on the topics that seemed most important after comparing the answers of the expert interviews and the literature. Some interviewees sent an email after the interview with a document that could be used as additional data. These interviewees are listed as source in the document section in the table below. Furthermore, the interviewees were asked by email if they agreed with incorporating their quotes and if necessary, slightly adjusted.
In table 1 below an overview can be found of the interviews that were held, as well as a description of the interviewees. Table 1: data collection Data collection: Semi-structured Interviews
Role: Background: Date of
interview: Duration: Phase 1: Expert interviewee Business developer of the research & valorization office of the RUG October 13th, 2016 01:55 h Expert
interviewee Business developer of the Academic Hospital of Groningen (UMCG)
October 20th,
2016 00:54 h Expert
interviewee Professor Bioproducts and biotechnology in relation to Biobased economy
November 4th,
2016 01:11 h Expert
interviewee Dean & Director of Life science and technology at Hanze university of applied sciences November 7th, 2016 00:46 h Expert interviewee Director of SPRINT consortium November 7th, 2016 00:45 h Phase 2: SPRINT
representative Research engineer in medical product design; lecturer biomechanics and secretary general SPRINT November 25th, 2016 01:59 h University partner Professor Human Movement, Rehabilitation and Functional Recovery November 29th, 2016 01:57 h Industry
partner Project Manager company November 29th, 2016
00:53 h University partner Assistant professor Rehabilitation and Biotechnology December 6th, 2016 01:02 h
Documents Type: Content: Obtained from:
financial support Standard document SPRINT Formal contract with basic agreements considering costs, publications, confidentiality, liability and termination. Director of SPRINT Umbrella agreement alliances UoG Formal contract with basic agreements considering duration, Intellectual Property, confidentiality, liability and termination. Business developer of the research & valorization office of the RUG Informative
video Short explanation and description of the project Internet research
Furthermore, relevant documents were collected to use as a second source of data, such as umbrella agreements that are used as contracts in this type of alliance. 3.2 Case selection Following the article of Eisenhardt (1989) the case was not selected randomly, but for specific reasons. Based on interviews with experts in the field, the case was selected which seems most appropriate. Due to the increased interest in industry-university alliances of the University of Groningen as could be read in the introduction, this institution was chosen to perform the case study. Multiple experts suggested to approach an alliance within the SPRINT consortium. SPRINT2 is a collaboration effort from the UMCG, the academic hospital in Groningen which is connected to the University of Groningen in their educative efforts and research. SPRINT fits perfectly within the strategy of the University because it is focused on healthy ageing and benefitting society with research that is done by the university. SPRINT is focused on keeping elderly people as mobile as possible for as long as possible (www.imdi-sprint.nl). Therefore, most alliances are focused on movement and improving the way people move with or without using support equipment. Based on the interview with Bart Verkerke, director of the SPRINT consortium the alliance on the ergometer for wheelchairs between SPRINT and the company was chosen. The alliance is part of a bigger research to improve the way wheelchairs can be moved more efficiently and with less effort by the user. In this alliance, they are trying to come up with an improved ergometer which can be used in facilities to test and improve the skills of wheelchair users. In figure 1 an example of such an ergometer can be seen.
Figure 1: Wheelchair ergometer, photo taken by Diana den Heijer The alliance started in 2011. What makes this alliance remarkable is that no formal contract was used to coordinate the alliance. While for a large part of the alliances the University of Groningen forms, an umbrella agreement has to be signed which contains extensive agreements on coordination and the intellectual property for example. Normally, alliances that are part of the SPRINT consortium also sign a collaborative agreement which contains more elaborate sections on publications and liability. However, for the focal alliance, only a short document was written for the application for financial support. This only contains a short description of the alliance, the responsibilities and the budget planning. Furthermore, broad goals are defined. The lack of a formal contract makes this alliance an interesting case.
Table 2: Case description Case description: Part of SPRINT project: Alternative wheelchair propulsion mechanisms: levers and exercise strain Number of people involved Industry partner: 3 University partner: 2, and multiple students Objective: Improve an existing ergometer to perform measurements, practice and training exercises for wheelchair users. Starting year: 2011 End year first phase: 2015 Current phase: Prototype testing Type of innovation: Incremental 3.3 Data analysis
Once the data was collected the data was analyzed with a within-case analysis approach (Eisenhardt, 1989). A description of the case as well as a timeline was provided.
reinforce each other. When partners are very different, there is a threat of a negative spiral (Doz, 1996). Industry partner `The process was very smooth due to a good fit between the partners, personally and professionally.` University partner `I think that this is the most determining factor, that when you are in a meeting you actually like the company of the other and what they have to say.` University partner `You have to be lucky when it comes to this type of collaborations, that you like the other personally and give them some space.`
In the result section pattern recognition and sense making of the relationships between the concepts has occurred and is illustrated by evidence from the interviews.
3.4 Research quality
To ensure the quality of this research which is threatened by inter-subjectivity, the quality criteria controllability, reliability and validity were taken into account (Van Aken et al., 2012). To ensure controllability, the prerequisite for reliability and validity, the execution of the research was described step by step in the methodology section. By following these steps a different researcher could perform the research again.
Figure 2: Timeline of the alliance
Overall, the alliance can be regarded as successful. All interviewees are satisfied with what they get in return, would be willing to cooperate with the other partner again and an actual product will be produced for which exists a demand in the marketplace and for which they recently received financial support. The fact that up until now, trust has been used as the sole governance mechanism is highly remarkable about this case. Especially because this contradicts what is stated in current literature. In the following sections, possible reasons for the effectiveness of trust as a tool for coordination in this alliance will be given together with illustrative evidence of the case interviews.
4.1. Trust as governance mechanism
While it seems like a utopia to use trust as the sole governance mechanism this seems to be effective in this alliance. In the literature most authors think of trust as an additional tool to manage alliances next to formal governance mechanisms, such as use of contracts (Gulati & Singh, 1998; Krishnan et al., 2016). As could be read in the theory section, collaborative experiences, interaction and trust decreases the chance of opportunism (Steinmo, 2015). However, the sole use of trust is seen as inadequate. While in this alliance trust seems to work very well to manage the alliance without signing a formal contract. Combining two separate work cultures is difficult. To do this, trust between parties is needed. There wasn’t a real contract, only a document that was necessary for the application for financial support. So, they (both partners) did not discuss what would happen to the intellectual property. (Sprint representative)
All interviewees seem to confirm the assumption and mutual trust can be seen as a clear overlapping pattern in the interviews. The SPRINT representative thinks the trust was established after two years of exploring, when both partners got to know each other and the way of working of the other. However, especially the interviewees from the university would try to agree on a few matters and put that in writing if they would cooperate a next time. Certain matters were discussed during the alliance, such as what the university would get in return. Because of trust this did not result in conflict, but by preference these interviewees would discuss this beforehand. This implies that trust might be primarily effective as a governance mechanism when an alliance is still in the exploratory phase. In the last part of the results section this finding is discussed more elaborately. According to the interviewees, trust can sometimes be threatened. The University partner mentioned that within this alliance, there is sometimes a difference of insights. He claims these differences arise because of the different positions the partners hold and the different needs and responsibilities these positions accompany. This may endanger the established trust in the alliance, but instead is resolved in an adequate manner, because of short communication lines, good communication and individual openness. Trust actually works as a governance mechanism in this alliance. Trust was established between both partners, also trust in the ability of the other, which made communication and coordination quite easy. The trust that currently exists is also visible in effort they make for one another outside of the collaboration, goodwill, for example a contribution during events. But the trust also makes it easier to say no, because you know that it will not immediately endanger the collaboration. (SPRINT representative) This goodwill is also underscored by the university partner: When we ask them (the company) to sponsor an event or symposium, they are always willing to do so. (University partner)
4.3. Mutual adjustment
In this research, mutual adjustment is regarded as the willingness of the partners to look at a matter from the others point of view even though this view is different from their own and genuinely try to find the middle ground. In order to do so, good communication is very important. When partners do not try to place themselves in the position of the other and not pursue a strategy of mutual adjustment, it is less likely that the alliance can be coordinated using only trust. Coordination using more formal mechanisms is needed then to reduce the risk of opportunism. As University and Industry partners are very different in a lot of respects, current literature assumes it is harder for both partners to pursue a strategy of mutual adjustment (Krishnan et al., 2016). In this alliance however, communication seemed to be regarded as very important for the success of the collaboration by both partners. The partners agreed beforehand on when they would have contact and discuss the progress.
When you agree on a certain moment of contact it is easier to monitor the progress both partners are making. (Industry partner) According to the expert interviewees it is sometimes harder to have good contact with university professors because they tend to work in a very autonomous way. One of the expert interviewees mentioned some academics in general can be bad at keeping in touch. However, for this alliance this was not the case.
Contact was always good, both partners replied quickly, which is an advantage of collaboration with a company, because it is more structured than the university. The industry partner is known for being more structured and easier to keep in touch with because they are also more focused on time. (SPRINT representative) The industry partner also described this: Lead time is different for a university in comparison to a company. For a university, it does not matter a lot if it takes a little longer, for a company it usually does. (Industry partner)
Despite the fact that it is common for these different partners to have difficulty in their communication, this was not the case for this alliance. Both partners tried to place themselves in the position of the other and thus pursued a strategy of mutual adjustment as can be read in the illustrative evidence below.
Both partners could understand the others point of view without losing sight of their own interests. (University partner) Different viewpoints are discussed and everybody adds their ‘ingredient’ to the discussion. (SPRINT representative) An informative video that was made about the alliance also shows the ease of the cooperation process. As has been stated in the theory section, if a partner has past experience with alliances, an alliance capability can be developed which will help in future alliances (Bruneel et al., 2010). The industry partner experienced in the past that mutual adjustment is important in this type of collaboration. I have learned by experiencing dysfunctional collaborations in the past that you have to build in checks to see if you are still on the same page. (Industry partner) The experience of the partner in communicating with other partners has most likely aided this communication process as well.
The university partner saw the Industry partner as the perfect partner for the project:
They (company) are the only ones that are interested in producing this product and have the right resources, international infrastructure and network to do so and to reach buyers worldwide. (University partner)
The SPRINT representative describes the complementarity in this alliance as follows:
The company can force the scientist to verbalize what they actually mean and sometimes speed up the process so that an actual product can come out of the collaboration. Scientists on the other hand can ask the right critical questions that companies sometimes hadn’t thought of themselves or have students look at the problem for them. (SPRINT representative) I think the alliance is a success for the company when they get new input and new ideas for products and that they can say with certainty that this is a useful product we can sell to people and eventually make money out of. Next to that, it is probably interesting for them to hear a different view on their products. (SPRINT representative) As is frequently described in existing literature, universities mostly hold scientific knowledge and companies mostly hold marketing knowledge and knowledge on production (Du, Leten & Vanhaverbeke, 2014). Feasibility in terms of production was sometimes hard for the university to determine. Small issues that came up with Company were ideas from the university of which they said, we cannot do this, this already exists. (SPRINT representative)
Partners of an industry-university alliances are very different in a lot of respects. These differences are not always beneficial or complementary. For example, they pursue different goals. This is also the case for the focal alliance.
The interests are different because the partners are after a different purpose. Universities are after the use of a product for their research and companies want to commercialize the product. So, the goals are different. (Industry partner)
According to the university partner another difference is that the university is an open sourced platform and a company is by definition very reluctant in giving a lot of information. The high degree of complementarity resulted in a good learning opportunity for both partners and can be compared to the Type 1 diversity described by Parkhe (1991). For which trust can be effective as the sole governance mechanism. However, because the partners are very different in many ways, Type 2 diversity is also applicable to this case. It is remarkable that even though this type of diversity exists, it is still possible to manage the processes in the alliance without using a formal contract. The complementarity (Type 1 diversity) seems to be so beneficial to both partners that difficulties due to diversity (Type 2 diversity) can be mitigated by trust. 4.5. Outlook on a good outcome Another factor that also seemed to be of high importance is the outlook on a good outcome which resulted in high commitment to the alliance and vice versa. This may also be a facilitating factor of using trust as the sole governance mechanism. Although this reinforcing spiral is in line with the work of Doz (1996), it is remarkable that this is the case in this alliance due to the differences between the partners. Usually these partners have different goals and their perception of the expected outcome is different. For the industry, money plays an important role and for universities, the need to publish can make it difficult to focus on uncertain projects. When the perception of the expected outcome is different and possibly perceived as negative or unclear, it is harder to keep all parties motivated to contribute to the alliance and put a lot of effort into it.
It does take a lot of time in which you cannot work on publications. However, this is worthwhile in the context of valorization and our wish to collaborate with the industry. (University partner) You really have to be convinced that it will be successful and that you can learn a lot from it otherwise it would be hard to spend so much time on it. (University partner) University researchers usually experience more freedom to go out on a hunch and try to explore if a certain idea is worth pursuing. Employees of companies are usually more tied to regulations and justify what they spend their time on. This quote by the SPRINT representative illustrates this:
Thus, in this alliance it was more certain that an actual product could come out of the collaboration and it would not be a waste of money. You can only put in this much effort and financial resources if you think you will earn back your investment, that was the case for this alliance. So, I can imagine it would be much more difficult if this was not the case. (Industry partner) Thus, even though both partners have different goals, the outcome of an actual product was seen as feasible by both partners which caused a positive spiral in which commitment and outlook on a good outcome reinforced each other. It kept them willing to devote enough time to the alliance to make it a success. Because of this circumstance, trust was sufficient as the sole governance mechanism and more formal mechanisms were not necessary. 4.6. Importance of first phase
Another theme that stood out in the interviews was the importance of the first phase of the alliance. In the expert interviews this was already mentioned: All phases are in connection with each other. If the contract is good and expectations and capabilities are clear before the project starts, it is less likely difficulties or disagreements will arise in the operational or termination phase. (Expert interviewee) In the current literature, the prevalence of formal governance mechanisms in the first phase is emphasized due to the difficulties that can arise because of differences between the partners. The first phase already starts by choosing the right partner before the alliance is actually set up. According to the current literature, the selection of partners is critical and is less likely to be existent if partners are very different from one another. (Chan & Harget, 1993).
However, the interviewees of the focal alliance did not regard the use of formal contracts as necessary in the first phase, but referred to a good personal fit which enhanced the establishment of trust between the partners and the possibility to use trust as a governance mechanism.
The process was very smooth due to a good fit between the partners, personally and professionally. But you do not know this in advance. (Industry partner)
The university interviewees formulated a similar statement. How well the partners fit is thus something that has a lot to do with personal interaction and fit between characters of people, not only a professional fit. Even after encouraging questions, the industry partner could not formulate any difficulties in the starting phase which indicates that the process went smoothly. It seems that using trust as the sole governance mechanism is effective when an alliance is in the exploratory phase and is still quite far from reaching the marketplace. Once the innovation is closer to production and reaching the market place, there is a higher need for more formal governance mechanisms, such as contracts. The university partner states that the Graduate School will probably negotiate a bit more on the intellectual property before they start the new project with a PhD. The university partner would like to see that in this type of alliances, contracts are set up by a third party. An independent person that takes care of all the contractual aspects and makes sure the university also gets enough out of the collaboration. With the money of the support that has been given they will also set up a facility focused on these types of alliances and will probably hire someone that can do this. I don’t want to have to watch what I say when I am discussing details of the innovation with the other partner. (University partner) So, the partners would like to arrange a bit more before they would enter in a next collaboration, but preferably not be responsible for this themselves. This corresponds with expert interviewee stating: Most researchers do not want to deal with the legal and regulatory issues, they simply want to do what they were educated to do: perform research. (Expert interviewee) So, there is a need to set up some contractual agreements once the product gets closer to reaching the market. The exploratory and design phase seems most suitable to use trust as the sole governance mechanism.
5. DISCUSSION & CONCLUSION
research in the future. Lastly, managerial and theoretical implications of these propositions will be given.
The main research question in this research was:
Under which conditions can trust be effective as the sole governance mechanism to coordinate difficulties due to inter-partner dissimilarities in IU alliances?
To be able to answer the main research question the following sub questions had been formulated.
1. Which circumstances enhance the possibility of establishment of trust?
2. Which stage of the alliance is most suitable for the use of trust as the sole governance mechanism?
3. What characteristics of partners enhance the possibility to use trust as a governance mechanism?
In the current literature, it is believed that trust cannot function as the sole governance mechanism in alliances of which partners are very different (Gulati & Singh, 1998; Krishnan et al., 2016). More formal mechanisms are necessary to mitigate these changes. However, as can be seen in the focal alliance, coordination can happen entirely without formal contracts. It seems that certain conditions made the sole use of trust as a governance mechanism possible. Partners that are very different from another are likely to have different goals in the alliance. Formal governance methods are perceived as necessary to avoid opportunism and keep partners committed to pursue a mutual goal. However, in this alliance, there was a good personal fit between the partners, they were very considerate with the opinion of the other partner and were willing to listen to thoughts other than their own. Next to listening, they were also willing to mutually adjust and act on this and strived for consensus in decision-making. Keeping each other up to date about recent developments on a regular basis also helped to form trust between the partners. So, even though the partners were very different, a good personal fit, good communication and the willingness to mutually adjust permitted trust to be formed and relied on for coordination. Therefore, proposition one is as follows:
Proposition 1: When partners mutually adjust, it is more likely trust will be established and more likely that trust is effective as the sole governance mechanism in IU alliances.
Managerial implications
This research can be useful for managers in several ways. By knowing in which circumstances trust can be used as an effective sole governance mechanism, managers can determine if the alliance they are involved in is suitable for this type of coordination mechanism. As formal governance mechanisms can require a lot of financial resources, trust is an interesting option to explore. When the preconditions described in this research are not present in the alliance a manager is dealing with, it is most likely wise to make use of formal governance mechanisms and use trust as an additional governance mechanism.
There are several indications for managers to determine whether the alliance would be suitable to be managed by using trust. It already starts with choosing the right partner. Not only the professional fit is important, but especially the personal fit is an indicator that trust would be effective as the sole governance mechanism. When both partners provide the other with a high degree of complementary knowledge, this is an indication that the effectiveness of using trust as a governance mechanism is enhanced. A high degree of flexibility by the industry partner could mean a good possible fit with the university. Firm size can be an indication of a high degree of flexibility, although this does not necessarily have to apply to all firms. However, in general, one can assume it is easier for a smaller company to have a flexible mindset.
In addition, when the outlook on a good outcome is present and very clear, it is more likely managers could make use of less governance mechanisms because partners are more motivated to contribute.
Finally, the exploration phase is most suitable for the use of trust as the sole governance mechanism. However, careful partner selection should be a priority. The partners should also feel a personal connection, not only professionally in order to establish trust.
Implications for research
In the current literature, it is believed that trust cannot be used as the sole governance mechanism in Industry-University alliances due to the high degree of differences between the partners. However, this thesis shows that in certain cases this is possible and thus provides a more nuanced view on differences in these types of alliance. One should not only look at the nature of the partners but also at the presence of other factors that can mitigate these differences. This research gives insights into which factors could influence the performance of an alliance positively. Factors that can mitigate these differences are the similarity in flexibility, Type 1 diversity, mutual adjustment and an outlook on a clear outcome.
6. LIMITATIONS & FUTURE RESEARCH
This research provides the opportunity for future research due to its limitations. In this research one case was analyzed. Future research could benefit from looking at multiple cases to make cross-case analysis possible with cases that are similar in some way, but also have one or more differences. The similarity could lie in the fact that the alliances have one partner in common or both alliances use the same safeguard mechanism. Differences could be that one alliance was successful and the other was not, or one alliance of two partners and another alliance with multiple partners. In this way two or more cases can be compared and one can analyze the effect of the factors the alliances have in common and differ in. In this way, it is easier to see if certain findings are generalizable for more alliances.
Furthermore, future research could benefit from two researchers that analyze the data by themselves first and later on discuss the analyses with each other and reevaluate their view on the findings. Multiple views on the findings will help to interpret the findings in an objective way. In addition, it would also be interesting to analyze an alliance during a longer period of time and interview people involved at different phases of the alliance. This would give a better view on how views of interviewees change over time and the effect of certain factors such as trust can be more closely monitored. It will most likely be more effective to ask interviewees on their current and past thoughts and feelings on the alliance than if they have to recall everything from the past. Using this method researchers can also check if they still look at a past situation the same way as they stated in a previous interview. Next to suggestions for future theory development, another suggestion could be to test the theory that was formulated in this research. Using available databases containing data on industry-university alliances, the propositions made in this research can be tested to see if the findings are generalizable for industry-university alliances.
7. ACKNOWLEDGEMENTS
I would like to thank all interviewees for their time and openness during the interviews. Additionally, I would like to thank my supervisor Isabel Estrada Vaquero for the advice and suggestions on the direction of my thesis.
8. REFERENCES van Aken, J., Berends, H., & Van der Bij, H. (2012). Problem solving in organizations: A methodological handbook for business and management students. Cambridge University Press. Chapter 2 & Chapter 13. Anderson, S.W., Christ, M.H., Dekker, H.C., Sedatole, K.L. (2014). The Use of Management Controls to Mitigate Risk in Strategic Alliances: Field and Survey Evidence. Journal of Management Accounting Research, 26(1), 1-32. Ariño, A. & Doz, Y. Rescuing troubled alliances… Before it’s too late. European Management Journal, 18(2), 173-182. Bishop, K., D’Este, P., & Neely, A. (2011). Gaining from interactions with universities: Multiple methods for nurturing absorptive capacity. Research Policy, 40(1), 30-40. Bloomberg, B., Cooper, D.R. & Schindler, P.S. (2010). Business Research Methods. McGraw-Hill Education, Maidenhead UK, 3rd European Edition, 113-268. Bruneel, J., D’Este, P., & Salter, A. (2010). Investigating the factors that diminish the barriers to university-industry collaboration. Research Policy, 39, 858-868. Chan, P.S., & Harget, C.E. (1993). Strategic Alliance Life Cycle Model: Relevant Key Success Factors. American Business Review, 11(2), 21-29. Chao, Y. (2011). Decision-making biases in the alliance life cycle: Implications for alliance failure. Management decision, 49(3), 350-364. Cohen, W. M. & Levinthal, D. A. 1989. Innovation and learning: The two faces of R&D. Economic journal, 99, 569-596.
Das, T. K. and Teng, B. S. (2001). Trust, control, and risk in strategic alliances: An integrated framework. Organization studies, 22(2), 251-283.
Williamson, O. E. (1991). Comparative economic organization: The analysis of discrete structural alternatives. Administrative Science Quarterly, 36, 269–296. Winckler, N. C., & Molinari, G. T. (2011). Competition, Collaboration, Cooperation and Coopetition: Revisiting the Concepts in Inter-Organizational Strategies. Revista ADMpg Gestão Estratégica, 4(1). Documents Research & Valorization office Groningen. Umbrella agreement. SPRINT. Standard version collaborative contract. SPRINT. Document application financial support focal alliance. Websites Beckerman, S. & Brandenbarg, D. (2016, September 14). Is the RUG becoming Coca-Cola University? Retrieved from www.ukrant.nl. de Hosson, J, T, H, M. (2016, September 20). No pain no gain. Retrieved from www.ukrant.nl. Nederlands Dagblad. (2012, November 22). Geld verdienen aan goedkopere zorg. Retrieved from LexisNexis.
SP Groningen. (2009, August 31). Coca-Cola Universiteit: de toekomst van ons hoger
onderwijs? Retrieved from www.groningen.sp.nl.
Original questions interviews alliance
