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THE USE OF EXPLOITATION AND EXPLORATION IN DIFFERENT DOMAINS OF
STRATEGIC ALLIANCES BY FIRMS WITH A MECHANISTIC ORGANIZATION
STRUCTURE
Author: Chris van Turennout
This thesis is submitted in fulfillment of the requirements for the thesis for the MSc Business Administration - Strategy and Innovation Management
University of Groningen Faculty of Economics and Business
Student number: s1710818 Supervisor: P. de Faria
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This paper introduces the important role of the organization structure of a firm in the way firms organize their activities in strategic alliances. Prior research revealed that the use of exploration and exploitation differs across different domains of an alliance . This paper extends this multi-domain theory by presenting that the firm’s organization structure directly affect the use of exploration and exploitation in strategic alliances. A distinction is made between an organic organization structure and a mechanistic organization structure. The findings of this paper reveals that firms with a mechanistic organization structure do not balance their tendencies to exploit and explore across domains but tend to prefer a more exploitative approach.1
March(1991) wrote a pioneering article about exploration and exploitation in organizational learning. The concepts and difference between exploration and exploitation wereincreasingly come to
dominate organizational analyses of innovation studies(Andriopoulos and Lewis, 2009; He and Wong, 2004), organizational learning(Crossan et al. 1999; Kane and Alavi, 2007), organizational
design(Raisch et al. 2009), organizational survival(Benner and Tushman, 2003; Lewin et al.1999), organizational adaptation(Siggelkow and Levinthal, 2003) and strategic alliances(Lavie and
Rosenkopf, 2006; Rothaermel and Alexandre, 2009)after its publication. Some scholars assumed that there is a trade-off between exploration and exploitation(Koza and Lewin, 1998; Uotila et al. 2009), while other scholars assumed that firms can also find a balance between these two(Lavie and Rosenkopf, 2006; Raisch et al. 2009; Rothaermel and Alexandre, 2009). Exploration is the discovery and adaptation of new knowledge while exploitation is about exploiting existing knowledge(March, 1991). Ambidexterity is the term for balancing and executing explorative activities and exploitative activities at the same time(He and Wong, 2004; Rothaermel and Alexandre, 2009).
One of the organizational forms where it is possible for an organization to exploit or explore their activities is in a strategic alliance.Strategicalliances have emerged as an importance mechanism for discovering new capabilities or for exploiting existing capabilities(Vasudeva and Anand, 2011). Strategic alliances could be used as a fast and flexible way to access complementary resources and skills that resides in another company(Dyer et al. 2001). There are conflicting results about which of the concepts of exploration, exploitation or ambidexterity works the best for strategic alliances. For instance Andriopoulos and Lewis(2006) and Raisch et al.(2009) found evidence that balancing
1 Acknowledgements:
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exploration and exploitation yield the best results for the long- and short term. Parallel literature revealed on the other hand that, because of its different nature, firms should choose between exploration or exploitation in alliances(Koza and Lewin, 1998; Nielsen and Gudergan, 2012). Hence, there is mixed evidence whether a firm should explore, exploit or seek a balance between these options.
Lavie and Rosenkopf(2006) recognized this confusion and argued that this mixed evidence exist because the bulk of the studies focus on the strategic alliance as just one single entity while it is more relevant to split the characteristics of an alliance into three different domains: the value chain function(function), the network structure(structure) and the partner profile(attribute). Focusing on one entity means that researchers only measure the use of exploration/exploitation as one
measurement. Lavie and Rosenkopf(2006) found evidence that firms tend to explore the network structure, exploit the partner profile and find a balance for the value chain function. Altogether, firms strive toward balance across domains and over time(Lavie and Rosenkopf, 2006).These interesting outcomes have only been tested in the US software industry and since organizational pressures in other industries may vary and produce different patterns across domains, it is very relevant to test their framework in other industries(LavieandRosenkopf, 2006). This article attempt to fill this gap by offering evidence in how firms in a differentindustry with different characteristicsuse exploration and exploitation across the different domains. For this study six firms from the oil and gas industry were selected. It is expected that the use of exploration and/or exploitation in the different domains for the alliances in the oil and gas industry will be different in comparison with the software industry. This is mainly because the firms in the oil and gas industry are more mechanistic structured instead of the organic structured firms in the software industry. The focus in this research is on firms with a mechanistic organization structure.Therefore the research question for this article is: How do firms with a mechanistic organization structure use exploration, exploitation or a balance between these two across different domains in an alliance?
To test how firms use exploration, exploitation or a balance between these two across different domains, a sample of six oil and gas firms is selected that entered into 568 alliances with 827 partner firms in the seventeen year period between 1995 and 2012. The SDC database is used for gaining data about the characteristics of these alliances. Different variables are used to measure the different domains. The outcomes indicates, based on these variables, how firms with a mechanistic organization structure use exploration and/or exploitation in different domains for an alliance. The analysis is based on descriptive statistics to develop a more in-depth understanding of different characteristics that affects the use of exploration and/ or exploitation in alliances.
This study shows that firms with a mechanistic organization structure tend to focus on exploitation in general. However, mechanistic firms not only use exploitation in the different alliance domains they also make use of exploration. The main reason for this is that mechanistic firms do not want to suffer from the risk of investing only on exploitation because this could harm the long term innovative and financial performance of an organization.
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for this study. Then, the methodology chapter explains how the research is conducted. After that, the results of the research will be examined and presented, followed by the discussion of these results and its managerial implications. In the final section the limitations and possible future research areas will be examined followed by the conclusions of this article.
Theory development
This study use the multi-domain theory of Lavie and Rosenkopf(2006) as a foundation for this study and adapt it in a different context. The study of Lavie and Rosenkopf (2006) has a big influencein the way how the use of exploration and exploitation in strategic alliances is measured. As described later on in this chapter, the authors argue that a strategic alliance should be measured based on three different domains instead of focusing on strategic alliance as one entity. The focus in this study is on organizations with a mechanistic organization structure(mechanistic firms) instead of organizations with an organic organization structure. This different view give insight how mechanistic firms use exploration and exploitation in different domains of strategic alliances.
The multi-domain theory of Lavie and Rosenkopf(2006) is based on a study which is conducted in the software industry. Firms with an organic organization structure are dominant in the software
industry (Eisenhardt and Tabrizi, 1995; Santoro, 2002). An organic structure means that a structure is based on flexibility and it is adapted to unstable circumstances. Formal rules and hierarchy are less important in an organic organization structure in comparison with a mechanistic organization structure (Burns and Stalker, 1961). A mechanistic organization structure is characterized with a high level of formalization and is based on rules, routines, guidelines, strict job descriptions and
hierarchy(Burns and Stalker, 1961). The big difference between these two types is that a mechanic structure is more appropriate for an organization operating under relatively stable conditions while an organic structure is more appropriate for conditions of change(Burns and Stalker, 1961; Sine and Kirsch, 2006). This different mindset implicates that the different industries have a different
approach for collaboration. An organic structure is more focused on flexibility, while a mechanistic structure emphasized the role of routines, hierarchy and strict job descriptions. Faems et al.(2005) support this statement by arguing that the use and performance of inter-organizational collaboration such as a strategic alliance, is influenced by the nature of the structure of the firms. For this reason it is expected that the structure of the organization also influences the form and use of strategic alliances. Hence it is relevant to test the multi-domain theory of Lavie and Rosenkopf(2006) in an industry with mechanistic firms to get a broader perspective of the use of exploration and exploitation in strategic alliances.
According to the exploration-exploitation framework, firms can have the choice in what kind of activities they will be involved(Anand et al. 2009; March, 1991). The choice is to focus on exploiting existing knowledge and experiences or to focus on learning new knowledge and creating variety in experience. The first is defined as exploitation, the latter as exploration(March, 1991).
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experimentation, play flexibility, discovery and innovation is mostly based on new knowledge’(March, 1991:74).
The choice for exploration or exploitation is interrelated with knowledge(Gupta et al. 2006; Miller and Calantone, 2006).In the case that a firm choose to execute explorative activities, one of the objectives is to use and discover new knowledge. When exploitation occurs, a firm exploit its existing knowledge(March, 1991). This has an impact not only for intra- but also for inter-organizational learning because collaboration with partners for instance in an alliance means an exchange of knowledge(Holmqvist, 2004; Lane and Lubatkin, 1998). Within a strategic alliance, two or more parties voluntary share resources, such as knowledge, with the objective to learn from each other. The advantage of such collaboration is that it could create an outcome that neither of the exchange parties can easily attain at its own(Greve et al. 2013; Gulati, 1998;Mohr and Spekman, 1994). This implicates that when partners decide to execute explorative activities, an alliance can help to gain knowledge and discover new opportunities. For firms that decide to exploit existing knowledge, an alliance can help to get access to complementary resources to better exploit existing knowledge(Dyer et al. 2001; Koza and Lewin, 1998). Strategic alliances have emerged as an important structure for building new capabilities but also for exploiting existing capabilities(Vasudeva and Anand, 2011). From that perspective, strategic alliances can be a very effective mechanism to explore new knowledge or exploit existing knowledge. An alliance is strategic when it is a mean by which a firm tries to implement elements of the firm strategy(Hamel and Prahalad, 1989).Firms can overcome resource constraints and achieve superior firm performance not only by using internal resources but
also by acquiring knowledge-based capabilitiesfrom alliance partners(Zhang et al. 2010). Eisenhardt
and Schoonhoven (1996) found that firms form strategic alliances not only for saving costs and enhancing efficiency but also for social opportunities and strategic needs. Firms start to engage in a strategic alliance to improve a vulnerable market position by experience and knowledge from other parties. Since the 1990s, strategic alliances became a well-known organizational instrument through which firms increase their capabilities. Hagedoorn and Duysters(2002:167)also see the importance of studying strategic alliances: ‘Strategic alliances have grown in numbers, expressing the importance that this form of organization has for the strategy of many companies’.
The relevancy of studying strategic alliances in combination with exploration and exploitation is also recognized in the literature. Exploration and exploitation has been studied in a wide variety of literature such as organizational learning (Levinthal and March, 1993), organizational design (Tushman and O’Reilly, 1996), adaptation(Eisenhardt and Brown, 1997) and thus also in strategic alliances(Beckman et al. 2004; Lavie and Rosenkopf, 2006; Nielsen and Gudergan, 2012; Rothaermel and Deeds, 2004).The use of exploration has different consequences in comparison with the use of exploitation also within strategic alliances. With a focus on exploration, the likelihood that new knowledge will be discovered is higher than with a focus on exploitation. On the other hand, with a focus on exploitation, the likelihood that existing knowledge will be exploited is higher than with a focus on exploration(March, 1991). This is because exploration focuses on the ability to learn new knowledge and exploitation focus on the ability to exploit existing knowledge. Firms make use of both different mechanisms in strategic alliances(Rothaermel and Deeds, 2004). To give two
examples, firms in a strategic alliance could aim to share existing marketing experience, which is an example of exploitation, or they could aim to share R&D activities to explore new
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strategic alliances can be found in the contingency theory and organizational behavioral theory. The contingency theory argues that organization react differently in different events because of the different contexts(Drazin and Van deVen, 1985). The organizational behavioral theory notes that firms do the things what they think is the best thing to do in that specific situation, which differs per situation (Cyert and March, 1963).Firms form strategic alliances to improve their strategic position and firm performance(Eisenhardt and Schoonhoven, 1996). Firms perceive that it is sometimes needed to explore new opportunities to get a competitive advantage and in another situation it is needed to exploit existing knowledge to improve their strategic position and firm
performance(Douglas and Judge, 2001; March, 1991). For instance when a firm sees the need to explore a new technology they can decide to collaborate with a specialized firm to join forces to generate more knowledge, a form of exploration. On the other hand when a firm wants to introduce their product on a new market, they can decide to collaborate with a local firm to get access to the local market. In this scenario, the firm exploit existing knowledge to gain a better performance, an example of exploitation. These circumstances differ per situation and therefore firms react
differently because of the different contexts. To maximize the firm performance, the firms change between the use of exploration and exploitation in strategic alliances.
Regarding the difference between exploration and exploitation, most studies focused on the use of exploration and exploitation in strategic alliances on project level(Lavie and Rosenkopf, 2006; Rothaermel and Deeds, 2004). The traditional viewfocus mostly on external industry forces, suggesting that market uncertainty and turbulence can stimulate exploration, exploitation or a balance between these two(Andriopoulos and Lewis, 2009; Beckman et al. 2004). But the outcomes of the studies generated mixed evidence for in which situation exploration or exploitation is
preferred. For instance Rothaermal and Deeds (2004) argued that the use of exploitation increases with firm size, while Beckman et al. (2004) noted that the firm size has a positive effect on the use of exploration. Gilsing and Noteboom(2006) argues that exploration and exploitation are
interconnected and these components builds on each other. This ‘cycle of discovery’ contains
different stages and starts with explorative activities, next stage are the exploitative activities and the last stage because of new discoveries is again the use of explorative activities. On the other hand other studies argue that because of their complete different nature, firms should choose between exploration and exploitation and these two are not mutually related(Nielsen and Gudergan, 2012). A lot of other studies examined that it is possible to balance exploration and exploitation within one firm. This is called the ambidexterity theory(Andriopoulos et al. 2006; Lavie et al. 2010;O’Reilly and Tushman, 2004;Rothaermal and Alexandre, 2009).
LavieandRosenkopf(2006) recognized the confusion between the use of these concepts and argued that focusing on just one single domain of an alliance is too short-sighted and it produces just inconsistent evidence regarding the use of exploration or exploitation. They argue that different organizational pressures influence organizational learning in various domains and therefore research on the antecedents should not only focus on an organization as a single domain but separate this into three different domains: function, structure and attribute. Focusing on just one of these
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attributes. This is not taken into account when one focus only on one aspect of an alliance. Lavie and Rosenkopf(2006) make a distinction in the value chain function of the alliance(function domain), the history with the firm partner(structure domain) and the extent to what the firms partner differ from prior partners(attribute domain) to better recognize the use of exploration and/or exploitation within alliances.
An alliance could serve different value chain functions.The motivation for firms to participate in strategic alliances is to learn from each other and profit from each other contributions(Koza and Lewin, 1998). Partners hope to learn and acquire from each other technologies, products, skills and knowledge(Lei and Slocum, 1992). A separation can be distinguished between alliances whereby firms want to exploit existing knowledge or alliances whereby firms want to explore new
opportunities(Koza and Lewin, 1998; Lavie and Rosenkopf, 2006). In the first case the focus of the function of the alliance is on exploitation because the purpose of the alliance is to leverage existing knowledge. The focus of the latter is on exploration because its purpose is to generate knowledge. An example of a knowledge leveraging alliance is an alliance whereby two firms with the same product and/or knowledge join forces to share their marketing opportunities to make more profit(Rothaermel and Deeds, 2004). An example of a knowledge generating alliance is when two firms share their knowledge and join forces to develop a new product. In this case the two firms create a R&D agreement to develop new opportunities(Lavie and Rosenkopf, 2006). This means that a knowledge generating alliance deals with upstream activities of a value chain, making it possible that firms share tacit knowledge and develop new knowledge. On the other hand, a knowledge leveraging alliance is more involved with downstream activities like production, commercialization and marketing that combines existing knowledge from the partner firms(Rothaermel, 2001).
The structure domain of exploration-exploitation takes into account the network positions of a firm’s alliance partners. The network position of a firm is important to reap benefits from resources outside the firm(Yang et al. 2011). A firm can choose to form an alliance with a partner with prior ties to the firm or to form an alliance with new partners. The implication of the first one is that integration is less difficult and at least in the beginning the alliance will work more efficient. The reliability and predictability is higher when a firm forms an alliance with familiar partners because they can rely on prior experience(Li et al. 2008). The reason why firms form alliances with new partners is the
possibility to learn and acquire more new knowledge then they would do when they form an alliance with existing partners(Beckman et al. 2004; Lavie and Rosenkopf, 2006). When a firm choose to collaborate with existing partners it is a form of exploitation because the focal firm and the partner firms can rely on existing arrangements, interaction and experiences and it strengthen existing relationships to employ its actual knowledge base(Beckman et al. 2004). In contrast,forming an alliance with new partners is a characteristic of exploration because of its newness and the ability to enhance its knowledge base with knowledge that is not available in the current network of the focal firm(Beckman et al. 2004).Cooperating with existing partners, close firms, is more beneficial for efficiently transferring knowledge while working with new partners, distant firms, could offer more distinct and novel knowledge(Cohen and Levinthal, 1989; de Faria and Noseleit,2013)
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choose to form an alliance with a partner with the same size and industry focus, or with a different partner in terms of attributes. In the first case the likelihood that new opportunities will be explored is less likely in comparison with a total different partner because of an overlap of similar experiences and industry focus(Lavie and Rosenkopf, 2006). Collaborating with partners who have the same attributes as the focal firmis more suitable for exploiting existing knowledge than discovering new knowledge because of the low integration costs and the high predictability(Hoang and Rothaermel, 2005). Also transferring knowledge between partner firms with similar organizational attributes, close partners, is not very complex(Cohen and Levinthal, 1989). On the other hand, firms can form an alliance with a new partner which differs from prior partners and the focal firm in their organizational attributes. Because of these differences it is more complex to integrate and work efficiently. Cohen and Levinthal (1989) showed that firms with a distinctive attribute profile, distant firms, creates a more diverse knowledge base however the integration and transferring of knowledge is more complex. However the likelihood is higher that new opportunities will be discovered(Li et al. 2008). When a firm choose for this option, its focus is on exploration.
The choice between exploration and exploitation is been presented as a strict trade-off but this is not a realistic representation(Uotila et al. 2009). Its more accurate to note that firms tend to be more explorative or tend to be more exploitative. This does not mean that these concepts are mutually exclusive(Gupta et al. 2006). It is even possible to find a balance between these two concepts, this optimal balance depends upon environmental conditions(Uotila et al. 2009). According to the ambidexterity theory, organizations could form an alliance to explore new opportunities with new knowledge and at the same time, exploit existing opportunities with existing knowledge(March, 1991; Andriopoulosand Lewis 2009; O’Reilly and Tushman, 2004).The advantage is that balancing on both exploration and exploitation also means that the performance for the long- and the short-term is balanced. The focus with exploitation is mainly on the short term performance by focusing on exploiting existing knowledge and resources while with exploration the focus is mainly on the long term performance with discovering new knowledge and opportunities(Raisch et al. 2009). But the results are ambiguous because other studies revealed that for strategic alliances it is only possible to specialize on either exploration or exploitation. These studies argue that for maximizing the results, firms should focus their strategy on exploration or exploitation because it is too complex to focus your resources on both(Gupta et al. 2006; Nielsen and Gudergan, 2012; Wadhwa and Kotha,2006). Focusing on one aspect is mentioned as choosing for punctuated equilibrium(Lavie et al. 2011). Hence there is mixed evidence in the literature about the use of exploration, exploration or ambidexterity in strategic alliances. Lavie et al.(2011) explains this by the fact that the bulk of researches focused on the organization as one single domain while it is more relevant to split the firm into three different domains to get consistent results. According to Lavie et al.(2011), firms can deploy both ambidextrous alliance strategies and punctuated equilibrium alliance strategies. This implicates that an ambidextrous alliance strategy is possible for the total alliance type while having a punctuated equilibrium within a domain. However, this still means that a firm can also find a balance within a single domain(Lavie and Rosenkopf, 2006; Lavie et al. 2011).
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Lavie and Rosenkopf (2006)used a sample of software firms for their multi-domain theory. They argued that in general firms balance between exploration and exploitation by saying that ‘The tendency to explore(exploit) in one domain will be compensated by the tendency to exploit(explore) in some other domains’(Lavie and Rosenkopf, 2006:804).For the function domain they concluded that firms find a balance between the focus for exploration and exploitation. This means that firms balance the value chain function of an alliance between a knowledge leveraging function and a knowledge generating function. Generating new knowledge through alliances helps firms to see new opportunities and future needs (Hoang and Rothaermel, 2010; Lavie et al. 2011). Firms not only need to discover new opportunities, they also need to exploit expertise in existing knowledge(Hoang and Rothaermel, 2010; Lavie et al. 2011; Lichtenthaler and Ernst, 2012; Yli-Renko et al. 2001). However they only studied an industry which is dominated by firms with an organic organization
structure(Hagedoorn and Duysters, 2002; Nowak and Grantham, 2000). A difference is expected for mechanistic firms because of its different nature. Mechanistic firms are less open for change and more focused on the execution of current activities and routines instead of being focused on new opportunities(Burns and Stalker, 1961).These firms are characterized by rigidity in administrative relations, formality and strong adherence to bureaucratic norms and values. The underlying reason for this is that this way of structuring should avoid uncertainty(Covin and Slevin, 1988). Avoiding uncertainty is more important for mechanistic organizations than focusing on opportunities,
therefore mechanistic firms are more risk-averse than firms with an organic structure(organic firms). Hence mechanistic firms take less risks in collaborations with other partners than organic firms the mechanistic firms are more risk-averse(Covin and Slevin, 1989). A knowledge generating alliance contains more uncertainty than a knowledge leveraging alliance because the outcomes are less clear and the contribution is more complex to measure and to predict. For these reasons it is expected thatmechanistic firmswill tend to exploit the function domain of its alliance portfolio by making more use of knowledge-leveraging alliances than knowledge-generating alliances.
The structure domain is about the network structure of an alliance. In this domain, organic firms tend to have a focus for exploration instead of exploitation(Lavie and Rosenkopf, 2006). The implication is that these firms prefer the possibility to discover new opportunities with new partners over the reliability and predictability of collaborating with prior partners. In addition to that, Hitt et al.(2000) noted that firms select their partners based on the expectation whether the collaboration will yield a lot of novel and complementary knowledge or not. It is more likely that these new and
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Mechanistic firms tend be more internally focused than organic firms and thus tend to collaborate more with prior partners in comparison with organic firms.
Organic firms tend to form alliances with a partner whose organizational attributes are similar to those of the focal firm,(Lavie and Rosenkopf, 2006). In that case, most of the firms choose to form alliances with partner who has more or less a similar partner profile as their self. Firms have a focus for exploitation when they collaborate with firms with similar organizational attributes while firms focus on exploration when they collaborate with firms with distinct organizational attributes. What pleads for collaboration with partners with similar organizational attributes is that in that case, it can apply effective governance mechanisms for assimilating external knowledge(Darr and Kurtzberg, 2000;Lane and Lubatkin, 1998; Lavie and Rosenkopf, 2006).For focal firms it is relatively easy to transfer knowledge and make more efficient use of R&D efforts when the firm collaborates with such close partner firms(Cohen and Levinthal, 1989). On the other hand partners with different
organizational attributes ,create, because of their diversity, more opportunities to learn from each other and to assimilate new knowledge(Dussauge and Garrette, 1995; Das and Teng, 2000).
However, like mentioned before, mechanistic firms tend to avoid uncertainty and are risk-averse in nature(Burns and Stalker, 1961). Collaborating with firms with different organizational attributes contains more uncertainty than collaborating with firms with similar organizational attributes. Mechanistic firms prefer to collaborate with firms with the same organizational attributes because this reduces uncertainty, complexity of integration and risks of failure(Burns and Stalker, 1961; Covin and Slevin, 1988). Altogether, mechanistic firms prefer to focus on exploitation in general because it contains less risks and reduces environmental uncertainties.
H1: Firms with a mechanistic organization structure prefer in general to focus on exploitation in their alliance portfolio.
From the first hypothesis it is expected that in general, mechanistic firms prefer to use exploitation in their strategic alliances. Due to the different characteristics some variety in the outcomes could be expected within the different domains. Mechanistic firms are risk-averse and try to avoid uncertainty but this does not mean that these firms only focus on opportunities inside their firm or their close environment(Miller and Friesen, 1982). Focusing only on exploitation is also risky because it reduces the tendency to explore new opportunities and it emphasizes only the short term performance. Only focusing on the short term performance is not sustainable for the firm performance on the long term(Lin et al. 2007; Parkhe, 1993). Sampson(2007) argues that alliances contribute most to firm innovation and firm performance when diversity in organizational attributes is moderate.
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According to the previous hypothesis and related arguments, mechanistic firms focus more on exploitation across domains in general. But because of the risks of focusing fully on exploitation and the advantages of having a more diverse alliance portfolio it is expected that mechanistic firms not only focus on exploitation within the different domains.
H2: Firms with a mechanistic organization structure balance the use of exploration and exploitation across the different alliance domains.
Methodology
The strategic alliances between 1995 and 2012 of the six largest oil and gas companies in the world in 2012(Platts Institution, 2012) are used for this study. These companies are BP, Chevron, Exxon, Gazprom, Shell and Statoil. All the strategic alliances of these companies between 1995 and 2005 were used for this research. Information is drawn from the SDC alliance database on alliances announced between January 1, 1995 and December 31, 2012. The final population consisted of 568 strategic alliances. The strategic alliances were conducted in 61 countries from all around the world. This article focused on the strategic alliances of the six largest oil and gas companies in the world because this gives a good indication for the total oil and gas industry. There is a well-established body of literature on the prominent role that large firms play in forming strategic
alliances(Eisenhardt and Schoonhoven, 1995; Gulati, 1999; Hagedoorn and Duysters, 2002). Studying the behavior of these companies gives a good indication for the rest of the industry(Hagedoorn and Duysters, 2002).
Oil and gas industry
Lavie and Rosenkopf(2006) published an influential paper which offered a general view of the use of exploration or exploration in different domains of an alliance. They focused their research on the software industry. This research will focus on the oil and gas industry because of their different characteristics in comparison with the software industry.The oil and gas industry is characterized by a high level of new product developments especially the development of new methods to improve productivity (Aboody, 1996; Sagar and Van derZwaan, 2006). The industry is characterized as
hierarchical, mechanistic structured and conservative(Matos and Hall, 2007) and it is dominated by a few major players (Platts, 2012). On the other hand, the software industry is characterized as
dynamic, fragmented, non-hierarchical, organic structured and it consists of a lot of small
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industries. This study fills the gap that the multi-domain theory is only tested in an industry which is characterized as organic. Now it is also tested in an industry that is characterized as mechanistic in nature. Mechanistic firms tend to be more conservative and risk-averse than organic firms(Covin and Slevin, 1988). This affects the decision how the activities in a strategic alliance will be shaped and executed(Covin and Slevin, 1988; Parkhe, 1991).
Data source and data collection
Data is gathered from the SDC database. This database contains information about the strategic alliances of the six largest oil and gas companies in the world. Different variables from this database gave information about the use of strategic alliances by the firms in the population. This database is used as the foundation for this study. In total 94 different variables of all strategic alliances of all the companies in the world are presented in this SDC. These variables reveals the characteristics of the alliances like the industry, geographic background of the participants and the aim of the alliance. First, the six largest firms from the oil and gas companies were selected according to research of the Platts Institution(2012). These firms are BP, Chevron, Exxon, Gazprom, Shell and Statoil. All the alliances between these firms and other firms between 1995 and 2012 were selected and used for this study. These alliances were separated from the rest of the SDC database. The rest of this
database is not used for this study. The different variables gave information about the characteristics of the alliances. Especially a few variables were usable for this paper to study the different domains of an alliance. The methodology of Lavie and Rosenkopf(2006) is used as an indicator to select the variables because this study replicates their study in a different industry. The variable whether there is an exploration agreement or a R&D agreement signed in the alliance is used toexamine the value chain function of an alliance. The network structure of the alliances is examined by the prior
experience with the partner firms. And finally to study the partner profile of the partner firms, three different variables are used. These are the firm size, the industry of the partner firm and the
geographic location. All the alliances of the selected companies were analyzed on the earlier mentioned variables. All the alliances and variables were marked with a 0(which is an indicator for exploitation) and a 1 (which is an indicator for exploration). All these data were separately compared for every year and every company. This was necessary to present the evolution of the use of
exploration and exploitation for the different domain throughout the different years. The results of the three different domains were compared and taken together to create an average score for the use of exploration and exploitation by mechanistic firms in their alliances. The evolution and use of exploration and exploitation by the different firms were separately explained in the results section. Thus except for a general view of the use of exploration/exploitation in the alliance portfolio of mechanistic firms, this study used this aggregated data to explain the use of exploration/exploitation in alliances on individual level. This study used descriptive statistics. The reason for this is that this kind of study allowed the author to get an in-depth understanding of the use of exploration and exploitation by mechanistic firms. It also gives a picture of the main actors of the industry.
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The objective of this study is to investigate the characteristics of strategic alliances in the oil and gas industry. This research follows the domain theory of Lavie and Rosenkopf(2006) which states that to explain the use of explorative activities or exploitative activities, one should distinguish three domains in strategic alliances, in which exploration and exploitation can be pursued and balanced. These three domains are the function domain, this is the value chain function of an alliance,
structure domain, the network structure of an alliance, and the attribute domain, the partner profile of an alliance. Different variables are used for examining the use of explorative or exploitative activities in these different domains. For all the variables, which are later on explained in detail, alliances could receive an indicative score of 0 or 1. The score of 1 means that for that variable, a strategic alliance focus on exploration, while for the score of 0, a strategic alliance focus on exploitation.
Function domain
The focus of this domain is the alliance type and explains the value chain function of an alliance. Firms can form a knowledge-generating R&D alliance, this means a focus on exploration, or they can form a knowledge-leveraging alliance, this means a focus on exploitation. Two variables from the SDC database are used for investigating the alliance type. Firms within a strategic alliance could have an alliance exploration agreement which basically means that the different parties want to put effort, time and money to explore new opportunities. Strategic alliances with an alliance exploration
agreement tend to focus on exploration while strategic alliances who do not have such an agreement tend to focus on exploitation. A categorical indicator is used for this variable whereby having an alliance exploration agreement is coded as 1 and not having such an agreement is coded as 0. To further clarify the use of exploration or exploitation in the function domain also another
variable is used. The variable alliance research development flag(R&D flag) means that when an alliance has such a flag means that all the parties of an alliance invest in shared research development. If this is the case within a strategic alliance, it indicates that an alliance focus on explore new opportunities and therefore is coded as 1. The other way around when there is no shared research development within a strategic alliance the value chain function of an alliance is to leverage existing knowledge, which means a focus for exploitation and therefore is coded as 0. Structure domain
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Attribute domain
The organizational attributes of the partner firms examines the profile of a focal firm’s alliance partners. Three different organizational aspects of the partner firms are researched in this domain namely: Firm size, industry of the partner firm and the geographic location of the partner firm. A firm can choose to collaborate with partner firms with similar or distinct organizational attributes. When a firm forms an alliance with a partner whose organizational attributes differ from those of prior partners it has a focus for exploration because of the attribute differences. This means a more complex integration of activities but bigger diversity to explore new opportunities and to learn(Gulati et al. 2003; Lavie and Rosenkopf, 2006). When a firm forms an alliance with a partner whose
organizational attributes are similar from those of prior partners is has a focus of exploitation because of its similarity in the organizational attributes. Forming an alliance with firms with similar organizational attributes leads to repetition-based improvement and more efficient accumulate existing knowledge which is associated with exploitation(Levinthal and March, 1993).
Different variables are used to measure the organizational attributes. First of all the number of employees is an indicator of the organizational attributes. Firms can cooperate with firms with the similar amount of employees or with firms with total different amounts of employees. For measuring the different firm sizesthe classification of Miller (1983) is used for determining to which firm size category the partner firm belongs. Micro firms contains less than twenty employees, small sized companies contains between twenty andhundred employees, while medium sized contains between hundred and two hundred fifty employees, large sized companies are companies contains between two hundred fifty one and thousand employees and very large sized companies employs more than thousand employees (Miller, 1983). When a firm have alliances with companies from a different firm size group, it indicates that the focal firm collaborates with a firm with different organizational attributes. Therefore this is measured as a focus for exploration and is therefore coded as 1. It is a case of exploitation when a firm collaborates with partner firms within the same organizational size group because of the similarity in organizational attributes. This is labeled as 0.
Another indicator for the difference or similarity in organizational attributes is the industry focus. Firms can cooperate with firms within the same industry or from a different industry. When working with firms from different industries, the firm cooperate with firms with different organizational attributes. For these reasons when a firm cooperates with a firm from another industry, this is coded as 1, because of its difference in organizational attributes. When a firm cooperates with a firm from the same industry it is coded as 0, because of its similarity in organizational attributes. The
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exploration or exploitation in the attribute domain of their alliance portfolio. The three outcomes for an alliance(0 or 1 for the three variables) were compared. The attribute domain for an alliance is labeled as exploitation(exploration) when two or three of the variables scores a 0(1).
Measurement
A 1 or 0 is counted for all the independent variables to measure the use of exploration and
exploitation. If the total outcome of the independent variables is close to 0, exploitation is dominant while an outcome close to 1 means that exploration is dominant for that variable. An outcome in the middle, close to 0,5 means that a firm balance between exploitation and exploration.
Results
The results provide support for both hypothesis. This chapter explains the results and how the testing of the hypothesis is conducted. As mentioned in the methodology chapter, there are 568 strategic alliances with 6 focal firms(BP, Chevron, Exxon, Gazprom, Shell and Statoil) and 827 partner firms. The partner firms are from 61 different countries all around the world. Below an overview of the results of the use of exploration and exploitation in the three different domains of a strategic alliance are presented. An outcome close to 1 stands for exploration, close to 0,50 stands for a balance between exploration and exploitation, and an outcome close to 0 stands for exploitation. The calculations for these results are presented in appendix I. Table 1,2 and 3 shows the outcomes of the three different domains for the whole time period between 1995-2012. The last column in all the three tables shows the difference between the domain outcome for that particular company and the average outcome for that domain in the whole sample. Figure 1 on page 20 shows the evolution of the use of exploration and/or exploitation for the three different domains for all the years between 1995 and 2012.
Name Continent Amount of alliances Amount of firm partners Function 1995-2007 Function 2008-2012 Function overall Difference from sample average BP Europe 103 166 0.19 0.09 0.17 -0.04 Chevron North America 79 123 0.39 0.15 0.35 0.14 Exxon North America 102 151 0.25 0.13 0.23 -0.02 Gazprom Europe/Asia 113 144 0.24 0.09 0.19 0.02 Shell Europe 119 170 0.14 0.16 0.15 0.06 Statoil Europe 52 73 0.14 0.44 0.23 -0.02
Table 1 Calculation of Function Domain
Name Structure
1995-2007
Structure 2008-2012
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Statoil 0.73 0.64 0.69 -0.10
Table 2 Calculation of Structure Domain Name Attribute-Firm size Attribute-Industry Attribute-Geographic location Attribute 1995-2007 Attribute 2008-2012 Attribute overall Difference from sample average BP 0.54 0.53 0.18 0.44 0.36 0.42 -0.02 Chevron 0.43 0.46 0.29 0.41 0.43 0.41 -0.01 Exxon 0.51 0.55 0.27 0.40 0.49 0.44 -0.04 Gazprom 0.30 0.37 0.18 0.28 0.28 0.28 0.12 Shell 0.43 0.47 0.36 0.41 0.44 0.42 -0.02 Statoil 0.58 0.37 0.33 0.38 0.44 0.42 -0.02
Table3 Calculation of Attribute Domain
Previous tables(table 1-3) shows that there is some variety between the different mechanistic firms in how they use exploration and exploitation in the different alliance domains. For the function domain, Chevron make more use of exploration or R&D agreements than the rest of the population. The results of table 2 shows that Exxon collaborated more with existing partners than the rest of the population while Statoil collaborated with new partners than the other mechanistic firms.
Remarkable are the results of table 3. Gazprom worked much more with partner firms with similar organizational attributes than the rest of the population. The rest of the population more or less balance between exploitation and exploration in the attribute domain.
BP
From 1995 till 2012, BP was involved in 103 strategic alliances. In 18 alliances references was made to having a R&D agreement or an exploration agreement. This is 17 per cent of the total amount of the BP alliances. Having a R&D agreement or an exploration agreement indicates that the focus of an alliance is on knowledge generating instead of knowledge leveraging. So, a minority of the alliances of BP has been focused on knowledge generating. In comparison with the time period of 1995-2007, the last five years BP focused their alliances even more on knowledge leveraging. Only 9 per cent of the alliances of BP between 2008 and 2012 had a R&D agreement or an exploration agreement and thus was focused on knowledge generation instead of knowledge leveraging. This means that by far most of the alliances of BP, focused on knowledge leveraging. Having a focus for knowledge
generation indicates that the value chain function of an alliance is on exploration while having a focus for knowledge leveraging indicates that the value chain function of an alliance is on exploitation.
The network structure of the alliances of BP is a bit more balanced between exploration and
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36 percent of the partner firms of BP in the last five years where new to the firm in comparison with 37 percent in the period between 1995 till 2007.
The attribute domain consists of the variables firm size, industry and geographic location. When the attributes are largely different than the attributes of the focal firm, then the focal firm works with different kinds of organizations. Like earlier mentioned, working with different kind of organizations will result in more complex integration of activities but also create more diversity and opportunities to explore new knowledge. BP balanced their alliance activities between partner firms that have the same firm size and partner firms with a different firm size. In 53 percent of the alliances(55 in total), BP cooperated with partner firms with a different size as BP versus 47 percent of the alliances whereby BP cooperated with partner firms with the same firm size as BP. Also in 53 percent of their alliances(55 in total), BP participated in alliances with partner firms from other industries than the oil and gas industry. Hence, BP also largely balance their choice of partner firms in alliances between firms from the same industry and firms from different industries. However for the third variable, the geographic location, BP doesn’t balance their alliance portfolio between partner firms from the same continent as BP and partner firms from different continents. BP cooperated with a partner firm from a different continent than the focal firm in only 18 percent of their alliances(19 in total). Thus in 82 percent of their alliances, BP cooperated with a partner firm from the same continent. Taking the three variables together indicates the partner profile of partner firms in alliances. On average, in 42 percent of their alliances, BP collaborated with partner firms with a different partner profile than BP versus 58 percent of their alliances whereby BP cooperated with partner firms with the same partner profile like BP. This means that BP largely balance the partner profile of their partner firms in alliance with a little preference for firms with the same partner profile.
Chevron
The American oil and gas company Chevron, formed 79 strategic alliances in the time period between 1995-2012. A R&D agreement or exploration agreement is ratified in 28 alliances. This implicates that in 35 percent of the total amount of the Chevron alliances, the function of the alliance is focused on knowledge generating instead of knowledge leveraging. Also the majority of the
alliances (65 percent) of Chevron is focused on knowledge generating which means a focus for exploitation. Remarkable to observe in this study is the difference of the value chain function of the Chevron alliances between 1995-2007 and 2008-2012. In the last five years, only 15 percent of the strategic alliances had an explorative value chain function in comparison with 39 percent in the time period between 1995 and 2007.
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Chevron cooperated more with partner firms with the same firm size than with partner firms with a distinctive different firm size. In 57 percent of their alliances(45 alliances), Chevron collaborated with partner firms with the same firm size as Chevron. However, in a large minority(43 percent/34
alliances) of the total amount alliances, Chevron cooperated with partner firms with a distinct different firm size. The choice for the industry of the partner firm is a little bit more balanced between firms from the oil and industry and firms from other industries. In 54 percent of their alliances(43 alliances), Chevron participated with firms from the oil and gas industry opposite to 46 percent of their alliances(36 alliances) whereas Chevron collaborated with firms from other
industries. Chevron preferred to collaborate with partner firms from the same continent. In only 29 percent of their alliances, Chevron cooperated with partner firms from a different continent. According to their alliance history, Chevron largely balance their alliance portfolio between partner firms with the same organizational attributes and partner firms with different organizational
attributes, with a little preference for cooperating with firms with the same organizational attributes. On average, in 41 percent of their alliances, Chevron collaborated with partner firms with different organizational attributes opposed to 59 percent of the alliances where Chevron collaborates with partner firms with the same organizational attributes.
Exxon
The other American oil and gas company in this study, Exxon, formed 102 strategic alliances with 151 partner firms in the time period between 1995 and 2012. Exxon confirmed to have an R&D
agreement or an exploration agreement in 23 of these alliances(23 percent of the total amount of Exxon alliances), which means that they didn’t focus on knowledge generation in 79 alliances(77 percent of the total amount of Exxon alliances). Hence, by far most of the function of the Exxon alliances focused on knowledge leveraging instead of knowledge generating. Exxon prefer to exploit the function of their alliances. Remarkable is that also with the alliances of Exxon, the last five years, Exxon tend to make more use of knowledge leveraging alliances than the years before. In the last five years, Exxon confirmed to have a R&D agreement or an exploration agreement in just 15 per cent of the alliance opposed to 39 per cent in the time period between 1995 and 2007.
Exxon is the only company in this study that collaborates more with partner firms that has prior ties to the firm than with partner firms that are new to the firm. Exxon collaborated with 151 partner firms in alliances between 1995 and 2012. Out of these 151 partner firms, 71 of them were new to the firm(47 percent of the total amount of partner firms) versus 80 partner firms that has prior ties with the firm(53 percent of the total amount of partner firms). Thus there is a little majority for forming an alliance with firms that has prior ties to the firm. However, because of the small
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Exxon clearly balance their alliance portfolio between partner firms with the same size as Exxon and partner firms with a different firm size. In 52 of their alliances(102 in total), Exxon collaborated with partner firms with a different firm size in comparison with Exxon. Exxon also largely balanced their alliance portfolio between firm partners from the oil and gas industry and firm partners from other industries. Exxon participated in 56 alliances(this is 55 percent of the total amount of Exxon alliances) with firm partners from other industries vis-à-vis 46 alliances(45 percent of the total amount of Exxon alliances) whereby Exxon only collaborated with firm partners from the oil and gas industry. Exxon had a clear preference for collaborating in alliances with partner firms from the same continent. In 27 percent of their alliances, Exxon collaborated with partner firms from a different continent versus 73 percent whereby Exxon collaborated with partner firms from the same continent. Overall, Exxon balance the partner profile of their partner firms in alliances between partner firms with the same organizational attributes and partner firms with different organizational attributes. In 44 percent of their alliances, Exxon collaborated with partner firms with more or less the same organizational attributes vis-à-vis 56 of their alliances where Exxon collaborated with partner firms with different organizational attributes. Because these figures are close to each other one can say that Exxon prefer to balance the partner profile of their partner firms in strategic alliances.
Gazprom
The Russian oil and gas company Gazprom, formed 113 strategic alliances with 144 partner firms in the time period between 1995 and 2012. Gazprom used a R&D agreement or an exploration agreement in 21 of these alliances, which is 19 percent of the total amount of strategic alliances of Gazprom. This makes clear that Gazprom prefer to exploit the value chain function of the alliance because in 81 percent of their alliances they focus on knowledge leveraging instead of knowledge generating. In the last five years, Gazprom even more focused on knowledge leveraging because only 9 percent of the alliances in the last five years make use of a R&D agreement or an exploration agreement, which indicates a focus for knowledge generating. And in comparison, in the period between 1995-2007, 24 percent of the Gazprom alliances used a R&D agreement or and exploration agreement.
Gazprom balance their network structure between new partner firms(exploration) and partner firms that has prior ties to the firm(exploitation). Gazprom collaborate with 144 partner firms in alliances between 1995 and 2012, 78 of them were new to the firm versus 66 partner firms that has prior ties to the firm. This means that only a little bit more than half of the partner firms(54 percent )were new to the firm. However the last five years shows a tendency that Gazprom tend to collaborate with partner firms that has prior ties to the firm. Because in the last five years, 37 percent of the partner firms were new to the firm versus 65 percent in the time period between 1995 and 2007. This implicates that over the time period between 1995-2012 balance the network structure between exploration and exploitation however it is likely this will change in the future according to the tendency in the last five years that Gazprom prefer to from an alliance with partner firms that have prior ties to the firm.
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choice for the industry of the partner firm is a little bit more balanced between partners from oil and gas industry and partners from other industries but also for this variable Gazprom prefer to
collaborate with firm partners with the same organizational attributes as Gazprom. In 63 percent of their alliances(71 alliances), Gazprom collaborated with partner firms from the same industry. While in only 37 percent of their alliances (42 alliances), Gazprom collaborated with partner firms from the same industry. A clear preference for Gazprom is visible for the geographic location of partner firms. Only in 18 percent of their alliances, partner firms from a different continent (in comparison with the geographic location of Gazprom), cooperate with Gazprom. Gazprom clearly prefer to form alliances with partner firms from the same continent. Taking together, Gazprom prefer to collaborate with partner firms with the same organizational attributes as Gazprom. On average, in 72 percent of their alliances, Gazprom collaborate with partner firms with the same organizational attributes.
Shell
Shell is a Dutch/British oil and gas company and formed 119 strategic alliances with 170 partner firms between 1995 and 2012. In 18 of these alliances, Shell used a R&D agreement or an exploration agreement, this is 15 percent of the total amount of Shell alliances. In contrast in 85 percent of their alliances, Shell didn’t make use of a R&D agreement or an exploration agreement which indicates that by far most of their alliances were focused on knowledge leveraging instead of knowledge generating. There is not much difference in the focus of knowledge leveraging or knowledge generating between the alliances in the last five years and the alliances between 1995 and 2007. In the last five years, 16 percent of the alliances, Shell make use of a R&D agreement or exploration agreement versus 14 percent in the time period between 1995 and 2007. Hence by far most of the alliances of Shell focused on knowledge leveraging which is a characteristic for exploiting the value chain function of an alliance. Therefore, Shell prefer to exploit the value chain function of an alliance. A smaller difference is visible in the structure domain of an alliance. Shell collaborate with 170 partner firms of which 90 were new to the firm. This is 65 percent of the total amount of Shell’s partner firms. The rest, 35 percent were partners that have prior ties to the firm. There is not a big difference in the choice of the partner firm visible between the last five years and the period between 1995 and 2007. In the period between 1995 and 2007, 69 percent of partner firms in Shell alliances were new to the firm versus 62 percent of the partner firms in the last five years. The majority of the partner firms of Shell are new to the firm. Hence Shell prefer to form an alliance with partner firms that are new to the firm instead of collaborating with firms that has prior alliance experience with Shell.
Shell collaborated the last seventeen years a little bit more with firms with a comparable firm size than with firms with a different firm size. In 57 percent of their alliances(68 alliances), Shell
cooperated with firms with a comparable firm size versus 43 percent(51 alliances) of their alliances where Shell cooperated with firms with a different firm size. Shell balanced their alliance portfolio between firms from the same industry and firms from different industries. In 51 percent of their alliances(61 alliances), Shell worked with firms the oil and gas industry versus 49 percent(58
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percent with firms from a different continent. When assembling the results of these variables
together it becomes clear that Shell largely balance the partner profile of their partner firms between partner firms with different organizational attributes and partner firms with same organizational attributes. In 58 percent of their alliances, Shell collaborate with firms with the same organizational attributes in contrast to 42 percent of the alliance where Shell collaborate with firms with different organizational attributes. Hence there is a small majority for exploiting the partner profile of the partner firms in Shell’s strategic alliances.
Statoil
Statoil, a Norwegian oil and gas company, has the smallest alliance portfolio in this study. They formed 52 strategic alliances with 73 partner firms in the period between 1995 and 2012. Statoil utilized a R&D agreement or exploration agreement in 12 strategic alliances, this is 23 percent of their total amount of alliances. Because in 77 percent of their alliances, Statoil didn’t make use of a R&D agreement or an exploration agreement one can say that in the majority of the alliances, Statoil focus on generating leveraging as the function of their alliances instead of knowledge generating. A preference for knowledge leveraging function of an alliance means a exploitative focus for the function of an alliance. Therefore Statoil prefer to exploit the function of an alliance.
Statoil collaborated with 73 partner firms in alliances between 1995 and 2012. Fifty of the 73 partner firms, were firms that were new to the firm, this is 69 percent of the total amount of Statoil’s partner firms. Choosing to collaborate with firms that are new to the firm is an indication for a focus of exploration while collaborating with firms with prior ties to the firm is an indication for a focus of exploitation in the structure domain(Lavie and Rosenkopf, 2006; Beckmann et al. 2004). The rest of the partner firms, 23 in total, had prior ties to Statoil. This is 31 percent of the total amount of Statoil’s partner firms. The choice between new partners and old partner firms is largely stable. In the time period of 1995 till 2007, 73 percent of Statoil’s partners were new partners versus 67 percent in the last five years. Therefore Statoil slightly prefer to explore the structure of and alliance. In their alliances, Statoil cooperates more with partner firms with a distinct different firm size than with partner firms with a comparable firm size. In 58 percent of the alliances(30 alliances), Statoil cooperated with partner firms with different firm sizes versus 42 percent(22 alliances) where Statoil cooperated with partner firms with the same firm size. In 63 percent of their alliances, Statoil
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Figure 1 The evolution of the different domains in the alliances
For all the six oil and gas companies, the alliances were studied on three different domains: the function-, structure- and the attribute domain. Like what is mentioned before, this is based on the study of Lavie and Rosenkopf(2006). The difference is that Lavie and Rosenkopf (2006) focused on firms with an organic organization structure while this study focused on mechanistic firms. Figure 1 shows the results of the use of exploration and/or exploitation in the different domains by
mechanistic firms. An outcome close to 1 means exploration, an outcome close to 0 means
exploitation and an outcome in the middle means that there is a balance between exploration and exploitation.
The six focal firms prefer to exploit the function domain of an alliance. The total amount of studied alliances is 568. The participated firms signed an exploration agreement or a R&D agreement in 120 alliances.The score for the function domain never surpass the 0,4 score line. This means that for the function domain, mechanistic firms tend to exploit the value chain function of an alliance. These firms prefer to form a knowledge leveraging alliance over a knowledge generating alliance.
Interesting to see is that from 2004 till 2009, the use of knowledge generating alliances is diminishing every year. Especially in 2008, 2009 and 2010 the use of knowledge generating alliances was very low. In these years, the function of 10 percent(or less) of the total alliance portfolio, was to explore new knowledge. The outcome of the question with whom the firm partner collaborate results in a more balanced answer because 59 percent of the partner firms were new to the six firms versus 41 percent which had prior ties to the firm. A small majority of the total sum of 827 alliance partner firms were new to the firm and thus the mechanistic firms slightly prefer to explore the structure domain of an alliance. However, this difference in comparison with the amount of alliances where the partner firms had prior ties with the focal firm is not very large. Therefore the alliance portfolio is largely balanced between collaborating with new partner firms and partner firms with prior ties with the focal firm with a little preference for collaborating with new partners in alliances. Over the years,
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the amount of collaboration with new partners is diminishing. Between 1995 and 2000, new partners were involved in 67 percent of the alliances in vis-à-vis 50 percent in the time period between 2007 and 2012. Remarkable is that during economic crisis(2001-2002, and 2008-2009) mechanistic firms prefer to collaborate with prior partners in their alliances.
The attribute profile of the partner firm is also largely balanced in the alliance portfolio between firms that has similar organizational attributes as the studied firms and firms that has different organizational attributes. The attribute variable consist of three variables: size of the partner firm, industry of the partner firm and the geographic location of the partner firm. On average, in 60 percent of the alliances, the studied companies formed an alliance with partner firms with similar organizational attributes. Thus in 40 percent of their alliances, mechanistic firmsformed an alliance with distinct organizational attributes. A small majority of the studied alliances consist of partner firms with similar organizational attributes. But because of the small difference between the two options, in total the choice between partner firms with similar organizational attributes and partner firms with distinct organizational attributes is largely balanced. The score for the attribute domain is considerably linear to the overall score of the alliance domains. The results shows a tendency that in the period between 1995 and 2012 a diminishing amount of mechanistic firms collaborated with partner firms with distinctive organizational attributes. Mechanistic firms more and more prefer to collaborate with partner firms with similar organizational attributes. From 1995 till 2000, 45 percent of the partner firms of mechanistic firms have evidently different organizational attributes in
comparison with the focal firm in contrast with a percentage of 35 percent in the time period between 2007 and 2012.
Year Overall Score
1995 0,55 1996 0,39 1997 0,51 1998 0,43 1999 0,39 2000 0,44 2001 0,50 2002 0,33 2003 0,33 2004 0,44 2005 0,35 2006 0,47 2007 0,33 2008 0,33 2009 0,31 2010 0,25 2011 0,37 2012 0,34 1995-2012 0,39
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Table 4 presents an overview of the overall scores of the three domains together for the alliance portfolios of mechanistic firms in period between 1995 and 2012. In three years of the seventeen years, the overall score of the use of exploration and/or exploitation is above or equal to 0,50. Which is an indication for balancing exploration and exploitation. The results shows that the overall score of the majority of the years(11 years out of 17 years) is lower than 0,40. This indicates that in these years, the alliance portfolio on general had a more exploitative character. In general mechanistic firms, do not balance their alliance portfolio but tend to focus more on exploitation since the score of the majority of the years is lower than 0,40. However the difference between organic firms and mechanistic firms is not very large. Organic firms balance their alliance portfolio by having a score of 0,50 on average while mechanistic firms score 0,39 on average. Thus in general, mechanistic firms are more focused on exploitation in their alliance portfolio than organic firms.
Since 2002 the average score for the three domains is less than 0,40 in comparison with a score higher than 0,40 in the time period between 1995 and 2001. This indicates that alliances in the time period between 2002-2012, on average tend to have a more exploitative character in comparison with the time period between 1995 and 2001. Noteworthy to mention is the fact that during economic crisis(2001-2002, 2008-2009)the overall score diminished and thus tend to had a more exploitative character than during periods without global economic downturn.
After comparing the use of exploration and exploitation in the different domains for all the year during the period between 1995 and 2012, results shows that there is a tendency to have cycles in the use of exploration or exploitation. When a mechanistic firm make in a sudden period relatively less use of exploration (exploitation) in one domain, it will be compensated over the years so that in other years the mechanistic firm make relatively more use of exploration (exploitation) in that particular domain. Other studies underline this observation by arguing that on general, firms balance between exploitation and exploration but change between these two over the years (Gilsing and Nooteboom, 1996; O’Reilly and Tushman, 2008; Raisch et al. 2009).
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Figure 2 The focus of Mechanistic firms in the different domains of alliances
Figure 2 presents the focus of mechanistic firms in the different domains of alliances. There are almost no alliances where the mechanistic focal firm focus completely on exploration. Mechanistic firms complete focus on exploitation in a small minority of the alliances, with a percentage that yearly never exceeds 18 percent of the total amount of alliances. Therefore it is noteworthy to mention that mechanistic firms only in a small minority of their alliances fully focus on exploitation or exploration across the different domains. In the vast majority of the alliances of mechanistic firms, the major or complete focus is on exploitation. Mechanistic firms only in 1995 and 2000 focus more on exploration in their alliances then on exploitation. Till 2001, mechanistic firms largely balance between a major focus on exploitation and a major focus on exploration. After 2001, mechanistic firms focus slightly more on exploitation then on exploration. This variety, between the use of exploration and exploitation across the different domains, underlines the second hypothesis that firms balance between exploration and exploitation across the different alliance domains. Discussion
To better understand the multi-domain theory of Lavie and Rosenkopf(2006), this study identified the use of exploration and exploitation in strategic alliances by mechanistic firms. The studied industry is the oil- and gas industry, which is characterized as an industry with a lot of companies working with a mechanistic structure instead of an organic structure. Lavie and
Rosenkopf(2006)studied the software industry to develop their multi-domain theory. Firms in that industry mainly have an organic organization structure. The difference in organizational structure will bring different results regarding the use of explorative or exploitative alliances. According to Hoang and Rothaermel (2010:752), recognizing explorative and exploitative alliances is critical because ‘it highlights how leveraging external experience is related to characteristics of the knowledge
exchanged, demands for knowledge integration and differences in organizational contexts between partners’. This study supports the idea that mechanistic firms who cooperate in strategic alliances,
0 10 20 30 40 50 60 70 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Complete focus on Exploitation
