STRATEGIC ALLIANCES IN THE FESTIVAL INDUSTRY
EXPLORING THE IMPACT OF FORMATION MOTIVES ON PERFORMANCE
A commercial versus non-profit analysis
Master Thesis Strategic Innovation Management
Author: Margit Stokkel Student number: S2399407
E-mail address: margitstokkel@gmail.com Telephone: +31 (0)6 17509714
First supervisor: Dr. R. A. van der Eijk Second supervisor: Dr. J. Q. Dong
June 2014
Word count: 22.852
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ABSTRACT
This study identifies motives for alliance formation in the Dutch music festival industry together with the impact of these motives on organizational performance. This research builds further on festival management studies, which constitute an emerging subfield within the festival literature. Besides identifying the motives for alliance formation and the relationship with organizational performance, this study also examines whether this relationship is moderated by the organizational type (i.e. non-profit versus commercial). A hierarchical regression method shows that motives for alliance formation have no impact on organizational performance. However, when the organizational type is taken into account, the results demonstrate that strategic formation motives have a positive impact on the performance for commercial festivals, while a slightly negative impact of these motives on the performance of non-profit festivals was demonstrated. On the other hand, organizational formation motives have a negative impact on the performance commercial festivals, and a minimal effect on the performance of non-profit festivals. This study provides several insights for festival managers and suggestions for further research regarding formation motives in the festival industry and the impact of organizational type.
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PREFACE
Despite the fact that I had made the right choice regarding the field of study with my previously achieved higher education in Leisure Management, I wanted to develop my educational skills to an academic level. During this two-year study Strategic Innovation Management, I build an interest in strategic alliances. I never thought it would be possible to combine my interests in leisure management and my recently developed interests in inter-organizational collaboration into one research, but this thesis proves the opposite. I sincerely hope that my interests and knowledge developed in these fields will bring me to new challenging projects in the future.
The end result of this thesis would not have been accomplished without the help of several people, for which I would like to thank them. Firstly, I am grateful for all the people who made the effort to fill in the questionnaire that made this research possible. I would like to thank my supervisor Rene for sharing his wisdom and critical view, which has lifted this thesis certainly to a higher academic level. Thank you for always providing me quickly with feedback, even during the weekends. This made me able to continue my progress immediately. I am further thankful for dr. McCarthy for providing me with advice during the starting up struggles and data analysis. Also dr. van der Bij was of great help by explaining me the details of statistical analysis, wherefore many thanks.
Furthermore I would like to thank my friends Floor and Daphne, who also went through this rollercoaster process of writing a master thesis, for all the conversations on and off-topic, for reviewing my thesis and for providing me with new insights. Furthermore I am grateful for Jeroen, who has provided me with continuous support and always believed in me. Lastly, I would like to thank my parents for their encouragement in my academic activities and for their moral and financial support.
I hope this thesis provides you with interesting insights and that you enjoy reading it.
Margit Stokkel
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EXECUTIVE SUMMARY
In the last few years festivals have become an increasingly popular phenomenon and have extensively grown in numbers. Besides this, it has been found that festivals are able to strengthen cities and regions in multiple ways. The purpose of this study is to extend the literature on festival management studies, by examining the motives for alliance formation in the Dutch music festival industry and exploring a relationship between these motives and organizational performance.
As a result of external developments such as changing customer needs, globalization and increased competition, festival organizations are forced to differentiate themselves in novel ways. Furthermore, cuts in subsidies for the cultural sector by the Dutch government require many festivals to generate income in new ways. One method that could be used for this, which increasingly plays a role in firm’s strategies, is the use of strategic alliances.
This research investigates to what extent strategic alliances are used in the festival industry and which motives play a role for these alliances. More importantly, the relationship between alliance formation and organizational performance is explored. By incorporating both commercial and non-profit festivals, insights are given in the degree to which motives differ between these categories. The focus herewith lies on how the relationship between formation motives and organizational performance may be influenced by organizational type (i.e. non-profit versus commercial).
After common motives for alliance formation that could play a role in the festival industry had been derived from the literature review, a questionnaire was distributed among more than 600 Dutch festival organizers. In total 106 festival organizers filled in the questionnaire. The results demonstrated that the fifteen formation motives tested in this study differed not significantly between non-profit and commercial festivals. In addition, social formation motives scored in both groups relatively high which confirms the social elements that characterise the festival industry.
A multiple regression analysis showed that alliance formation motives do not have an impact on organizational performance. However, when the organizational type was included, the results demonstrated that strategic motives have a significant positive relationship on the organizational performance of commercial festivals. In contrary, organizational motives had a negative impact on the performance of commercial festivals. For non-profit festivals the effects of these formation motives on organizational performance were minimal.
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TABLE OF CONTENT
1. INTRODUCTION ... 6
1.1 Research description ... 8
1.2 Research domain and scope... 9
1.3 Research guide ... 9
2. LITERATURE REVIEW ... 10
2.1 Music festivals: what do they entail? ... 10
2.1.1 Industry characteristics ... 10
2.2 Defining strategic alliances ... 11
2.3 Strategic alliances and organizational performance ... 13
2.4 Motives for alliance formation ... 14
2.4.1 Theories explaining alliance behaviour ... 14
2.4.2 A selection of common motives for alliance formation ... 15
2.4.3 A classification of alliance formation motives ... 17
2.5 Non-profit versus commercial: distinguishing features ... 18
2.6 Conclusion literature review... 19
3. CONCEPTUAL MODEL AND HYPOTHESES ... 21
3.1 Motives for alliance formation and organizational performance ... 21
3.2 Organizational type as a moderating variable ... 24
4. METHODOLOGY ... 26
4.1 Sample and data collection ... 26
4.2 Development of the questionnaire ... 26
4.2.1 Adopting variables from the literature ... 27
4.2.2 Making the variables fit the industry ... 27
4.2.3 Adding variables of non-profit motives ... 28
4.2.4 Pilot studies ... 29
4.2.5 Classifying the selected motives ... 29
4.3 Variables and measures ... 31
4.3.1 Independent and moderator variables ... 31
4.3.2 Dependent variable ... 32
4.3.3 Control variables ... 32
4.4 Data analysis ... 36
4.5 Quality criteria ... 38
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4.5.2 Reliability ... 38
4.5.3 Validity ... 38
5. RESULTS ... 40
5.1 Exploring the data ... 40
5.2 Correlations ... 42
5.3 Hypothesis testing ... 44
6. DISCUSSION ... 47
6.1 Alliance formation motives ... 47
6.2 Control variables ... 47
6.3 Alliance formation motives and organizational performance ... 48
6.4 The moderator effect of organizational type ... 48
6.5 Additional findings ... 49
7. CONCLUSION, LIMITATIONS AND IMPLICATIONS ... 52
7.1 Conclusion ... 52
7.2 Theoretical implications ... 52
7.3 Managerial implications ... 53
7.3 Limitations and suggestions for future research ... 53
REFERENCES ... 55
APPENDICES ... 62
Appendix 1: Classification formation motives by Todeva and Knoke (2005) ... 62
Appendix 2: Questionnaire (originally in Dutch) ... 63
Appendix 3: Original questionnaire (in Dutch) ... 66
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1.
INTRODUCTION
The amount of music festivals in Europe has made a sharp increase in the last ten years (Leenders et al, 2005). Festivals exist since ancient times, but the current festival explosion is perceived as a present-day phenomenon. Even small municipalities are able to stage huge events nowadays, involving internationally known artists and extensive media attention (Karlsen & Nordström, 2009).
Festivals can deliver great social and economic impacts to cities or regions where they are performed. They can strengthen community ties, enhance the development of the base infrastructure and raise income through spending activities of residents and visitors (Pegg & Patternson, 2010). Furthermore festivals can function as an attraction, image-maker, or serve as a catalyst for further development of a city (Yeoman et al, 2004). According to the municipality of Amsterdam, festivals contribute to the liveability, stimulate new initiatives of people, promote the city, increase coherence between residents, give an economic impulse to the region, promote tourism and contribute to a valuable and attractive supply of art and culture (Gemeente Amsterdam, nd).
Scholars writing about music festivals essentially focus on the economic (Cela et al, 2007) and cultural (McIntyre, 2003) impacts that festivals bring to cities or regions. In addition, studies examined visitors’ motivations to attend a festival (Pegg & Patternson, 2010) or what a successful music festival constitutes (Leenders et al, 2005). An emerging subfield in the festival literature is festival management (Getz, 2010). Studies within this subfield are examining innovation in the festival industry, stakeholder management strategies and festival-stakeholder relationships. The aim of this study is to extend the literature on festival management by identifying the motives for inter-organizational collaboration within this industry and examining the impact of these motives on organizational performance. In the last few decades strategic alliances increasingly play a role in firm’s strategies (Kale & Singh, 2009; Mitchell & Canel, 2013).
7 As well as most industries, the Dutch festival industry is affected by the financial crisis, resulting in cuts in government subsidies for the cultural sector (De Rijksoverheid, nd; NRC, 2013) and a decreased amount of sponsorship (Muziek Centrum Nederland en Theater Instituut Nederland, 2011). In addition, the industry faces increased competition (Leenders et al 2005), and not only on national level. Jan Smeets, organizer of the well-known Pinkpop festival, experiences increasing competition from international festivals (Oitmann, 2014). These developments suggest that the festival industry currently faces resource pressure.
Although gaining resources is mentioned as main driver for alliance formation (Dias & Magrico, 2011), it is not clear whether this sector is characterised by a large number of strategic alliances. Literature on alliance behaviour within this creative industry is scarce. Studies on inter-organizational collaboration within the festival industry have emerged only recently and particularly refer to stakeholder relationships. Karlsen and Nordström (2009) found that institutionalized festivals have reasonable room for action regarding cooperation and negotiation with stakeholders. Getz and Andersson (2008) argue that institutional status and a long-term sustainability might be achieved through strong ties with the government, but this also requires conforming to public-sector goals and pleasing external stakeholders. In addition, festivals prefer collaboration partners that have the same identity (Andersson & Getz, 2008). Lastly, stakeholder strategies identified in the festival industry include transforming suppliers into sponsors, getting powerful regulators onto the festival board, developing long-term sponsorships and working together with organizations that eventually will co-produce the festival (Andersson & Getz, 2008).
Literature on strategic alliances in the festival industry is emerging, but it is still unclear to what extent inter-organizational collaboration takes place within this industry and which motives play a role. Moreover, the festival industry can be regarded as a mixed industry involving commercial, non-profit and public organizations, whereby it is unclear how formation motives differ between these types of organizations. Furthermore, literature on the relationship between alliance formation motives and organizational performance is scant and is restricted to the alliance performance (Lin & Chen, 2002). Motives for alliance behaviour in general are extensively covered in the literature, but it is unclear to what extent formation motives can be applied to the festival industry. As Getz (2010) argues, festival management should be similar to organizing other forms of events, but this only holds for general concepts and methods.
8 Besides identifying the motives for alliance formation in the music festival industry and the relationship with organizational performance, this study seeks to examine if the impact on performance depends on the organizational type (i.e. non-profit or commercial). To the knowledge of the researcher, no study exists that incorporates both non-profit and commercial organizations in one research on alliance formation motives. A mixed industry as the festival industry therefore lends itself well to search for potential differences in formation motives and the effects on performance resulting from the organizational type. Commercial and non-profit organizations possess important differences, which may result in different motives to collaborate with distinct effects on organizational performance.
1.1 Research description
Summarized from the introduction, it can be concluded that literature on strategic alliances in the festival industry, and in particular on the motivations for allying, is scarce. It can be questioned to what extent existing literature on strategic alliances can be applied to the festival industry. In addition, it is unclear whether a relationship between alliance formation motives and organizational performance exists, since this is not covered in literature yet. Besides this, it is questionable to what extent alliance formation motives of non-profit and commercial organizations in one single industry differ and how this influences the impact on performance.
Therefore, the aim of this study is three-sided: (1) this study aims to identify the motives for inter-organizational collaboration in the festival industry; (2) it attempts to indicate a relationship between these motives on organizational performance and (3) it aims to specify if this relationship is moderated by the organizational type of a festival (i.e. non-profit or commercial).
As a result, the main question of this research reads as follows:
What is the effect of alliance formation motives on organizational performance of Dutch music festivals, while comparing non-profit with commercial festivals?
In order to be able to answer this question, the following sub-questions are developed:
1. How can a music festival be defined and how can the Dutch music festival industry be characterised?
2. What common motives for alliance formation can be identified in the literature and which seem relevant for the music festival industry?
3. How can these motives be classified in order to examine a relationship with performance and to predict differences between non-profit and commercial festivals?
9 5. What are the main differences between commercial and non-profit organizations relevant for
this research?
6. What is the relationship between alliance formation motives and organizational performance?
7. How is the impact of alliance formation motives on organizational performance moderated by the organizational type?
By providing an answer to these questions, this study aims to contribute to the literature on festival management by the provision of insights into motives for alliance formation in the festival industry. Hereby a distinction is made in commercial and non-profit formation motives. To the knowledge of the researcher, an examination of non-profit and commercial formation motives in a single research does not exist yet. Next to that, this study adds to the literature on strategic alliances by the examination of the relationship between formation motives and organizational performance. This is beneficial, as strategic alliances are characterised by instability and high failure rates (Das & Teng, 2000; Dyer & Singh, 2001). Due to the earlier described current developments in the festival industry, the provided insights in inter-organizational collaboration and the effects on performance are highly relevant for festival managers to help coping with these turbulent times.
1.2 Research domain and scope
This study focuses on music festivals, meaning that film, sport or art festivals are not included in this research. A festival is regarded as a music festival when the core business involves music, with or without the provision of side activities beyond the music itself. Next to that, the focal country of the research is the Netherlands. In 2012, 514 music festivals with more than 3000 visitors took place in this country. In total these 514 music festivals attracted 13.5 million visitors and were arranged by 414 different festival organizers (Respons, 2013). In this study festivals of any size are included.
In addition, the aim of this study is to identify motives for alliance formation and the effects of these motives on organizational performance. It is not within the scope of this research to examine which alliance types are used by festival organizers or with which partners they commonly collaborate.
1.3 Research guide
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2.
LITERATURE REVIEW
This chapter goes into the literature on inter-firm collaboration, motives for alliance formation, the relationship between strategic alliances and firm performance, and relevant characteristics of non-profit and commercial organizations. Furthermore this chapter provides definitions of the key concepts. With the aid of this literature review the first five sub-questions can be answered.
2.1 Music festivals: what do they entail?
Festivals are already held for hundreds of years which make them certainly not a new phenomenon (Finkel, 2009). They are typically held for public celebration and generally have a purpose to strengthen cohesion and civic pride (Getz, 2008). According to Buch, Milne, and Dickson (2011) citizens always have been celebrating cultural identity or recreational activities. Besides this unique characteristic of celebration, festivals are also distinctive due to the involvement of a large amount of different stakeholders from varying fields (e.g. social, economic, and cultural) with a diversity of goals (Getz, 2010). Within the festival domain a range of different themes can be identified, such as arts, music and sports.
This study focuses on music festivals, which entail, again, a set of unique characteristics. Music festivals, for example, typically provide a diverse line-up of artists, in contrary to a general concert (Mair & Ling, 2012). Furthermore they can compromise one genre or a number of genres and thus are not restricted to one specific style. Next to that, these festivals often provide activities or workshops in addition on the music itself. Moreover they can take place both indoor and outdoor on for example large camping sites (Mair & Ling, 2012).
Kruijver (2009) provides a definition on music festivals which reads as follows: “A festival is an often publicly accessible and entrance charging, cultural event presented under one name. A diversity of performances is given by artists, on diverse locations in- and/or outside that are connected to each other or are at a walking distance from each other”. However, research indicated that in 2012 a percentage of 45 of the pop festivals did not ask for an entrance fee (Vereniging Nederlandse Poppodia en –Festivals, 2013). In addition, several Dutch music festivals only use only one location or stage for their festival. Consequently, the definition of a music festival is adjusted and refers in this research to: “A festival is an often publicly accessible, cultural event presented under one name. A diversity of performances is given by artists, on one or more locations in- and/or outside that are connected to each other or are at a walking distance from each other”.
2.1.1 Industry characteristics
11 Firstly, creative industries often deal with the “nobody knows principle”, involving that the producers work in high uncertainty about the eventual demand for the product or service (Caves, 2001). This uncertainty also holds for consumers. It is difficult to determine the value of experience goods, such as festivals, before purchase. This increases uncertainty for consumers, with the consequence that consumers are more relying on secondary sources during the selection process (Gemser et al, 2007). The result is that festival organizers have less control on customer demand.
Secondly, festivals fall within the category of luxury goods, which has according to Parkin, Powell, and Matthews (2008) an elastic demand. This means that when prices change, this will influence demand, resulting in a higher degree of uncertainty for producers compared to products with inelastic demands. In addition, the Dutch music festival industry in particular is facing increased uncertainty due to several developments as has been described in the introduction.
Lastly, the event industry in general increasingly deals with factors as globalization, technological innovations and evolving customers needs (Pegg & Patternson, 2010). Concluding, all these industry characteristics clearly ask for new strategies and organizational activities to cope with this turbulent business environment.
2.2 Defining strategic alliances
Before exploring drivers for alliance formation in the literature, it is important to firstly determine what an inter-organizational collaboration constitutes. A literature review shows a wide variety of definitions used for inter-organizational collaboration. Strategic alliances, inter-firm collaborations, firm relationships, organizational relationships, and strategic partnerships are used inter-changeably. As Philips, Lawrence, and Hardy (2002) correctly indicate, one of the first problems in trying to understand a complex phenomenon as collaboration, is to define it.
12 The before mentioned authors refer explicitly to collaboration. Other authors obviously refer to strategic alliances instead of collaboration. Authors writing on strategic alliances also provide definitions among a continuum from more simple to more specific ones, which show many similarities compared to the definitions on collaboration. Pansiri (2009, p.144) defines strategic alliances as “purposive arrangements between two or more independent organizations that form part of, and is consistent with participants’ overall strategy, and contribute to the achievement of their strategically significant objectives that are mutually beneficial”. A simpler definition of an alliance, used by Gulati and Singh (1998, p.781) is as follows: “any voluntarily initiated cooperative agreement between firms that involves ex- change, sharing, or co-development, and it can include contributions by partners of capital, technology, or firm-specific assets”.
Since various interpretations of a strategic alliance exist, Yoshino and Rangan (1995) define it as having the subsequent three necessary and sufficient attributes:
It entails two or more independent firms that join to accomplish several goals and that remain independent after the alliance is formed;
The partners have shared benefits and control over the activities and performance;
The partners continuously contribute to one or more strategic operations.
As the definition of Philips, Lawrence, and Hardy (2002) on collaboration, the definition of Yoshino and Rangang (1995) on a strategic alliance also includes the relationship between two or more independent firms and thus mergers and take overs are ruled out. Secondly, simple market contracts like buyer-supplier relationships are with this definition also excluded since partners must continuously contribute to strategic areas.
Following from this, the terms strategic alliances, inter-organizational collaboration and strategic partnerships, will be used interchangeably in this study, but continually referring to the subsequent definition that is created on the basis of the above described definitions: “a close collaboration between two or more independent organizations to jointly accomplish a set of mutually beneficial goals that are difficult to achieve by a single partner, characterized by continuous contributions and shared control of the partners on the tasks and performance”. Deriving from this definition, all kinds of organizations rather than only companies with a business perspective are accounted for in this research. Furthermore, a strategic alliance can be formal or informal, but it has the purpose to remain for the long-term (O’Farrell & Wood, 1999).
13 Figure 1: The range of inter-firm links by Yoshino & Rangang (1995).
2.3 Strategic alliances and organizational performance
A large amount of studies has researched the effect of alliance behaviour on firm, organizational, or innovative performance (Jiang & Li, 2008; Sampson, 2007; Shrader, 2001; Stuart, 2000). Stuart (2000) found evidence for the positive relationship between strategic alliances and firm performance (measured by patents and sales growth) and Jiang and Li (2008) found positive effects of knowledge sharing and creation by alliance partners on innovative performance.
The relationship between strategic alliances and organizational performance can be measured in various ways. Some researchers examine the relationship between alliance capabilities and performance, others the degree of technological diversity between partners and performance, while another research stream measures performance on an alliance portfolio level, involving the amount of alliances a firm has (Duysters et al, 2012; Sampson, 2007; Sluyts et al, 2011). Studies measuring the direct relationship between the motives for alliances formation and performance are scant and restricted to alliance performance. This study responds to this by exploring the link of formation motives with organizational performance instead of alliance performance.
14 As Osland and Yaprak (1994) clearly state, performance criteria can be whatever is considered important for the person performing the evaluation.
2.3.1 Festival performance
The festival industry is characterized by a large amount of non-profit festivals (Getz, 2010; Getz & Andersson, 2008), for which distinct performance measures are appropriate (Vázquez et al, 2002; Pakroo, 2013). Specifically, we are dealing with a mixed industry in which both non-profit and commercial organizations operate, which makes assessing performance a great challenge (Andersson & Getz, 2008). The aim of commercial organizations is to earn profits, while non-profits pursue to fulfil missions in a public interest. Because of this non-profits’ drive of fulfilling missions unrelated to aiming for profit, different success measures are used (Pakroo, 2013). A measure that can be used to determine the success of non-profit organizations is the extent to which the organization’s mission is fulfilled (Pakroo, 2013; Vázquez et al, 2002).
A performance measure typically used in the event and festival branch is visitor attendance (Biaett, 2007) or growth in visitor attendance (Leenders et al, 2005). Leenders (2010) pointed customer loyalty as an indicator for festival success, as it is regarded as a key driver for customer equity. Although visitor attendance can be considered as an important performance measure, these studies do not take into account that some festivals have a desire to stay small and intimate. Furthermore, what do growth numbers say about performance when a festival is sold out each year?
Finally, a prerequisite for the service industry to be competitive is customer satisfaction (Tkaczynski & Stokes, 2010). Customer satisfaction is defined as “the psychological state that results from the degree of overall pleasure or contentment felt by the customer, resulting from the ability of the service to fulfil the customer’s desires, expectations, needs and prior feelings in relation to the service transaction” (Tkaczynski & Stokes, 2010, p.71). Satisfaction is according to these authors essential for festivals to measure, as it positively influences repurchase intentions of festival visitors.
2.4 Motives for alliance formation
A wide variety of theories is applied by researchers to examine the motives of firms for entering into an alliance. This section firstly describes the most important theories with their main contribution to explaining alliance behaviour. Secondly, a collection of frequent motives deriving from and in addition on these theories will be discussed. Finally, a classification of the motives is presented.
2.4.1 Theories explaining alliance behaviour
15 From this perspective the choice to collaborate rather than to make or buy results from the argument that a collaborative form is more efficient for the government of economic activities (Chen & Chen, 2003). The willingness to reduce transaction costs is the most cited motive for alliance formation in the literature (Dias & Magriço, 2011).
Two other theories that add to the explanation of alliance behaviour are institutionalization theory and network theory. The former states that organizations enter into inter-organizational partnerships to improve their reputation. According to institutionalization theory a partnership is established to build the legitimacy of the organization, by which organizational values and cultural roles play an important role (Concha, 2014). In addition, deriving from this theory, partnerships may be established because it is seen as desirable behaviour or it may be required by influential actors (Gazley & Brudney, 2007). A network perspective on alliance formation focuses on the factors of a social network that provides opportunities to form partnerships with specific partners, but which at the same time creates constraints on potential partnerships. In short, this theory does not refer to certain needs for alliancing, but on the opportunities and constraints that derive from the social network, which directs to certain partners to collaborate with (Gulati, 1998).
Theories that also provide important contributions to the literature on alliance formation are the resource-based view and the resource dependence theory. On the one hand, the resource-based view assumes that organizations are well endowed in their resources and that they want to exploit these resources to gain additional value and increase their competitive advantage, by pooling their assets with partners that have complementary resources (Dias & Magriço, 2011). The resource dependence theory on the other hand, argues that firms can, besides vertically integrating or diversifying, engage in inter-firm relationships to cope with interdependence. Dependence involves the lack of required resources that are controlled by only a few firms (Pfeffer & Salancik, 1978). Thus, these firms ally to gain resources that they lack internally but which are needed to sustain (Dias & Magriço, 2011).
In addition on the before described theories that explain motives for alliance formation, the organizational learning theory emphasizes the knowledge element, or in other words, the possibility to learn from partners as motive for collaboration. Relationship marketing deals with offering superior customer value, while the strategic behaviour perspective concerns the motivation to maximize profits (Dias & Magriço, 2011).
Deriving from and in addition on the motives described by these theories, a wide variety of motivations for alliance formation has occurred in the literature. A selection of the most common motives will now be delineated.
2.4.2 A selection of common motives for alliance formation
16 literature. For the generation of the most prevalent formation motives in the literature, both studies that examine commercial formation motives and studies that investigate non-profit formation motives are consulted.
Organizational Learning
Firms often establish inter-organizational relationships to learn from a partner (Varadarajan & Cunningham, 1995). Knowledge which is too costly to develop internally, but which is present in the technologies, systems and workers of another firm, is attractive to gain through an alliance (Pansiri, 2009). In many cases the intention is to learn as fast as possible, while protecting the own capabilities for imitation. This results in a learning race, wherein the fastest learner wins and will end the partnership (Varadarajan & Cunningham, 1995).
Sharing Risk
By spreading activities and costs over more firms, alliances serve well as a tool to reduce risk. In most of the cases, one firm executes the operational activities, while the partner absorbs some risk by providing capital for the execution. Risk sharing through strategic alliances can be achieved in several ways, such as through spreading risk among more firms, through diversification in order to prevent relying on one single product, or through faster market entry (Glaister & Buckley, 1996).
Cost Efficiency
Strategic alliances often lend themselves for achieving cost advantages. By sharing resources firms have to make smaller investments and intensive use of resources may become better possible (Pansiri, 2009). For example, by the use of a partner’s distribution channels or warehousing facilities, a firm can deliver products or services more efficient (Varadarajan & Cunningham, 1995). In addition, production can take place in larger volumes, resulting in economies of scale (Pansiri, 2009). Furthermore, costs can be reduced by using the comparative advantage of partners (Glaister & Buckley, 1996).
Access to (Complementary) Resources and New Markets
17 Shaping Competition
Strategic alliances can be used as a defence mechanism to reduce competition. For example, when firms pool their resources, they can put pressure on the market share of a major competitor. Alliances can strengthen positions in a market that are impossible to reach as a firm operating alone (Glaister & Buckley, 1996). Next to that, forming alliances can raise entry barriers for new firms by making it impossible for potential entrants to achieve the required volume base. Lastly, future competition can be reduced by forming alliances with potential rivals (Varadarajan & Cunningham, 1995).
Non-profit Motives
Besides the common motives identified by the majority of studies on drivers for alliance formation, a few additional motives can be found within the field of non-profit organizations. Concha (2014) found the willingness of workers of community-based organizations to fulfil a social mission as motivation to establish inter-organizational relationships. Gazley and Brudney (2007) mention the possibility to improve services and create a stronger sense of community with inter-organizational partnerships in the non-profit sector. Additionally, legal requirements, building a stronger city, and building relationships may be reasons to collaborate for non-profit organizations (Gazley & Brudney, 2007).
External Drivers
In addition on the internal motives for alliance formation, external developments may bring firms also into alliances. Globalization, governmental restructuring, and technological developments are all evolutions that may require firms to establish partnerships in order to cope with these circumstances (Pansiri, 2009). Fast-changing business environments can also require firms to form alliances when they are not able to establish markets in such a short time (Pansiri, 2009). Besides addressing internal motives for alliance formation in this study, several external drivers are incorporated as well.
2.4.3 A classification of alliance formation motives
In order to create some overview of the wide range of existing motives for alliance formation, using a classification seems useful. For this, the categorization of Todeva and Knoke (2005) is adopted. These authors made a classification with four main motives, including strategic, organizational, economic and political motives. These categories will now be briefly discussed.
18 motives are about engaging in strategic positioning and shaping competition. Strategic motives entail for example gaining a competitive advantage to increase profits, collaborating with competitors for pre-emption, and developing new products or diversifying into new markets (Todeva & Knoke, 2005). Collaborating because of legal regulations or to develop technical standards is classified by Todeva and Knoke (2005) under political motives. The classification of Todeva and Knoke (2005) with these four main motives and their corresponding individual motives can be found in appendix 1.
As can be noted from this categorization, any typical non-profit motives that were apparent in the previous section are not included. Therefore an additional construct is added; ‘social motives’. Motivations that can be classified within this category entail motives for collaboration to pursue social goals such as bringing people closer together.
2.5 Non-profit versus commercial: distinguishing features
When distinguishing between non-profit and commercial festivals with exploring formation motives and the effects on performance, it is important to firstly examine if these organizational types carry distinguishing characteristics that must be taken into account in order to conduct a meaningful analysis. Since the majority of business studies focuses on the commercial domain, this section discusses the non-business district. In a research about market orientation in the private non-profit sector, Vázquez, Álvarez, and Santoet (2002) highlight several important characteristics of non-profit organizations that should be taken into account when examining organizational activity and measuring organizational performance.
Firstly, the offer of a non-profit organization mostly contains a service. Even when a tangible product is offered this often serves as a tool to achieve a certain social practice with (Vázquez et al, 2002). Next to that, the behaviour of non-profit organizations is often not determined by the market. Non-profit organizations commonly have a product-oriented culture, implying that they design programs without paying much attention to what extent these programs fit customers’ needs. Consequently, benefit criteria set by customers are not predominant in the strategy of a non-profit organization (Lovelock & Weinberg, 1984; Vázquez et al, 2002). Lovelock and Weinberg (1984) argue that despite the shrink of governmental funds and volunteers, and increased costs through inflation, sufficient demands from customers exist by the offered programs. However, more cost-effective ways to meet this demand are required.
19 contradict with customer satisfaction. Besides this, non-profits often extensively deal with external pressures such as legal regulation (Vázquez et al, 2002). In addition, generally a wide variety of stakeholders is involved in the management (Vázquez et al, 2002). This is also highlighted by Getz (2010) who mentions the many different stakeholders involved in the organizational process of a festival, all deriving from different fields (e.g. cultural, economic and marketing) which can hamper the organizational process. Moreover, it is strongly needed that a balance between achieving the organizations’ mission and financial sustainability is achieved (Lovelock & Weinberg, 1984).
In conclusion, it can be argued that due to the involvement of many different stakeholders it is expected that non-profit festivals extensively participate in inter-organizational collaboration. In addition, non-profit festivals seem to focus less on customer benefits compared to commercial festivals. Lastly, as indicated in section 2.4, when measuring organizational performance of non-profit festivals the organizational mission should be taken into account.
2.6 Conclusion literature review
20 Table 1: Concepts and definitions
Concept Definition
Music festival “A festival is an often publicly accessible, cultural event presented under one name. A diversity of performances is given by artists, on one or more locations in- and/or outside that are connected to each other or are at a walking distance from each other”
partially adopted from Kruijver (2009)
Inter-organizational collaboration / Strategic alliance “A close collaboration between two or more independent organizations to jointly accomplish a set of mutually beneficial goals that are difficult to achieve by a single partner, characterized by continuous contributions and shared control of the partners on the tasks and performance”
Main motives for alliance formation: 1. Strategic
2. Organizational 3. Economic 4. Political
5. Social motives
1. “Engaging in strategic positioning”
2. “Addressing internal organizational problems” 3. “Considering economic benefits”
4. “Political manoeuvring with governments and competitors”
Todeva and Knoke (2006)
5. “Fulfilling a social mission”
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3.
CONCEPTUAL MODEL AND HYPOTHESES
“Collaboration is important not just because it's a better way to learn. The spirit of collaboration is penetrating every institution and all of our lives. So learning to collaborate is part of equipping
yourself for effectiveness, problem solving, innovation and life-long learning in an ever-changing
networked economy” - Don Tapscott After discussing the elements of music festivals and the industry they belong to, the theory section
explained what a strategic alliance constitutes, which relationships between alliances and performance are found, and which motives for alliance formation are identified in the literature. These concepts have been integrated in a conceptual model presented in figure 2, whereupon several hypotheses are developed. In summary, the purpose of this study is to identify the motives for inter-organizational collaboration within the Dutch music festival industry and indicate the relationship between these motives and organizational performance. A distinction in non-profit and commercial festivals is made to examine if the relationship between alliance formation motives and organizational performance is moderated by organizational type.
Figure 2: Conceptual model
3.1 Motives for alliance formation and organizational performance
A series of studies have examined the relationship between strategic alliances and firm or innovative performance, but studies examining the direct relationship between alliance formation motives and organizational performance are not found. However, one study has examined the link between formation motives and alliance performance (Lin & Chen, 2002). Moreover, scholars have devoted extensive research to the advantages and risks deriving from strategic alliances.
22 Advantages belonging to organizational motives for alliance formation typically include quality improvements and the willingness to learn from partners (Todeva & Knoke, 2005). Strategic alliances established to learn from each other contribute to product development or the imitation of effective processes (Osland & Yaprak, 1994). Furthermore these authors state that firms that are learning from their partnerships perform better in achieving and sustaining a competitive advantage and at the same time strengthen their long-term financial performance. The reason Osland and Yaprak (1994) suggest for this, includes that organizations that have learning alliances are better able in responding to a dynamic environment and changing customer demands. Festivals entering strategic alliances in order to learn from partners and to improve their services are thus likely to be better able in meeting customer demands and become more attractive for visitors. This leads to the first and following hypothesis:
H1: Organizational motives for alliance formation have a positive effect on organizational performance.
Economic motives, on the other hand, relate to cost efficiencies and risk reduction (Todeva & Knoke, 2005). Organizations establishing partnerships with economic motives can achieve economies of scale through the opportunity to produce in larger volumes (Pansiri, 2009) or gain cost efficiencies by sharing distribution or warehousing facilities (Varadarajan & Cunningham, 1995). Furthermore, by using the comparative advantage of both partners, the best of both can be obtained (Glaister & Buckley, 1996). Besides this, firms can reduce risks with the establishment of alliances by spreading costs and risks among more firms or by diversifying into new products or services (Glaister & Buckley, 1996).
When a festival organization achieves cost savings due to the establishment of a strategic partnership, more financial resources stay available for improving the quality of the festival or to invest for example more intensively in marketing activities. Besides this, when a festival organization can reduce risks associated with certain projects or investments by the establishment of partnerships, it has more opportunities to exploit these projects that have a high potential for attracting customers. Consequently, this leads to the following hypothesis:
H2: Economic motives for alliance formation have a positive effect on organizational performance.
23 amount of paperwork such as an organization scheme, an event script et cetera (Gemeente Groningen, 2010). It is expected that motives for entering strategic alliances to meet legal requirements do not impact organizational performance, as it can be regarded as a requirement to let a festival take place rather than to increase the festival’s performance in terms of e.g. customer satisfaction, visitor attendance, or financial performance. As a result, the following hypothesis is developed:
H3: Political motives have no significant effect on organizational performance.
Strategic motives are related to strategic positioning and shaping competition (Todeva & Knoke, 1995), such as partnering with an organization that has a strong brand name or following industry trends to keep track with competition. Firms may form alliances to reduce competition by pooling resources of diverse firms in order to create more effective competitors or by collaborating with potential future competitors (Glaister & Buckley, 1996). Since the Dutch festival industry faces increased competition (Leenders, 2005), strategic motives are likely to play a role in this industry. According to Leenders (2010), brand and reputation building are highly important for music festival success in terms of customer loyalty, even more than the festival program and ticket price. This author suggests that a well known name, a strong image and emotional elements may be the decisive factors for customers to buy a festival ticket. Collaborating with firms that have a strong brand name or to maintain or improve the focal firm’s image thus may be fruitful for festival organizations. Furthermore it is expected that firms entering strategic alliances in response of globalization, industry trends or technological changes are more attractive for potential visitors and therefore achieve a higher organizational performance. Therefore, the following hypothesis will be tested:
24 H5: Social motives for alliance formation have a positive effect on organizational performance. 3.2 Organizational type as a moderating variable
The theory section revealed that common motives for alliance formation in the commercial sector were largely similar to the motives of non-profits for establishing partnerships. Organizational, economic, and political motives are commonly referred to in studies explaining alliance formation in both commercial and non-profit sectors (Glaister & Buckley, 1996; Pansiri, 2009; Varadarajan & Cunningham, 1995). In these sectors alliances are formed in order to reduce risks, build relationships, gain access to resources and meet legal requirements (Gazley & Brudney, 2007; Pansiri, 2005). Whether the main goal of an organization is to make profits or address social elements, in both cases the organization wants to sustain. Reducing risk or gaining access to resources to become more efficient can indirectly be related to maintaining financial sustainability. In addition, in the studies of both Gazley and Brudney (2007) and Pansiri (2009) legal requirements were identified as driver for inter-organizational collaboration. Whether a festival is commercial or not, it must conform to legal requirements. Hence, it is expected that both types of organizations establish partnerships to address internal organizational problems, consider economic benefits, and manoeuvre with governments in order to sustain, whether to maintain making profits or fulfilling social missions. As a result, it is predicted that the effect of these motives on organizational performance does not considerably differ between commercial and non-profit organizations, since they are expected to dedicate a similar degree of attention to these motives. This has lead to the following hypotheses:
H6: The effect of organizational motives for alliance formation on organizational performance shows
no significant differences between commercial and non-profit festivals.
H7. The effect of economic motives for alliance formation on organizational performance shows no
significant differences between commercial and non-profit festivals.
H8: The effect of political motives for alliance formation on organizational performance shows no
significant differences between commercial and non-profit festivals.
25 Buckley, 2007; Varadarajan & Cunningham, 1995). Furthermore firms can ally to gain a competitive advantage or to follow industry trends (Todeva & Knoke, 2005). Festivals with the aim to make profits are expected to have strategic motives for collaboration in order to stay ahead of competition and attract customers. These motives were not identified in research on non-profit organizations’ motives for inter-organizational collaboration. Notwithstanding the increased competition and decreasing subsidies in the Dutch festival industry, it is expected that non-profit organizations do not take strategic motives into account when deciding to form alliances. Non-profit organizations usually have a social mission they want to, successfully, fulfil (Pakroo, 2013; Vázquez et al, 2002). Therefore it is expected that shaping competition is of less relevance for non-profit festivals. As non-profit festivals are expected to have less strategic motives for alliance formation, it is predicted that the effect of strategic motives for alliance formation on organizational performance is stronger for commercial festivals, leading to the following hypothesis:
H9: The impact of strategic motives for alliance formation on organizational performance is stronger for commercial festivals compared to non-profit festivals.
In addition, in the literature on drivers for alliance formation in the non-profit sector, several ‘social’ motives came forward, such as fulfilling a mission, building city relations and building a stronger city (Gazley & Brudney, 2007). Also Concha (2014) found that workers of community-based organizations were motivated by their social mission in establishing collaborations. The identified social motives were not found in the literature on commercial organizations. For festivals these social missions can involve strengthening community ties to build cohesion, learning about cultural traditions (van Aalst & van Melik, 2012) or the willingness to offer young talent a stage (Canal Company B.V.). Since commercial organizations have the aim to make a profit and non-profit organizations have more social goals, it is expected that non-profit festivals have more social motives for alliance formation compared to commercial festivals. Therefore the effect of these motives on organizational performance is predicted to be stronger for non-profit festivals. Consequently, the following and last hypothesis will be tested for.
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4.
METHODOLOGY
This study makes use of quantitative data, gathered via a self-administered questionnaire. This research medium is chosen since a questionnaire provides insights into numbers and opinions of a large quantity of people and organizations (Verhoeven, 2011). By using a quantitative method it can be more accurately determined to what degree strategic alliances are used as a strategy in the music festival industry and which motives for alliance formation are on average indicated as most important. Next to that, quantitative research is appropriate since it provides for determining the relationship between independent variables (motives for alliance formation) and a dependent variable (organizational performance).
4.1 Sample and data collection
A sample was created through an internet-search, by which festivals were selected if their core business contained music. In addition, an excel-worksheet with festival names was received from Festivalinfo.nl. The aim was to generate a sample as large as possible with a wide variety of Dutch music festivals; small and large, commercial and non-profit, and spread throughout the country. In the end, 605 festivals were asked to participate in this research. However, it must be noted that a small amount of these festivals are organized by the same companies. In 2012 a number of 514 music festivals (with more than 3000 visitors) took place in the Netherlands (Respons, 2013), thus it can be considered that the majority of the Dutch music festivals has been approached.
The questionnaire was created and diffused via the online survey platform Qualtrics. Respondents received the questionnaire by e-mail or, when no e-mail address was available, Facebook or a contact form on their website. To create motivation respondents were ensured with confidential use of their answers and the possibility to receive the survey results afterwards. In case of no response two reminders were sent, and a telephone call was made when telephone data was available. This has resulted in a final sample consisting of 106 respondents, entailing a response rate of 17.5%. Festival organizers who indicated that they would not fill in the questionnaire said in most cases that they were currently at the peak of their festival activities and therefore did not have time. Other reasons included that the questionnaire involved too many items and that the questions were not applicable to their festival organization.
4.2 Development of the questionnaire
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4.2.1 Adopting variables from the literature
To obtain valid answers that can be compared with earlier studies, the questionnaire is largely built on variables and measures from existing research. Variables of alliance formation motives were mainly adopted from the study of Pansiri (2009) because this author identified the motives for a service industry as well and selected these motives after an extensive literature review. Furthermore, this author does not specifically focus on motives for international alliance formation (although these were neither excluded), in contrast to many other studies on alliance formation motives. The motives for alliance formation used by Pansiri (2009) are showed in table 2 below.
Table 2: Motives for collaboration: commercial sector
Motives for inter-organizational collaboration – commercial sector Pansiri (2009)
1. Reputation and corporate image 2. Strength of personal relationships 3. Developing/creating new markets 4. Economies of scale
5. Learning from each other 6. Rapid technological change 7. Volatility in the tourism market 8. Brand names
9. General economic uncertainty 10. Legal requirements
11. Globalization of the tourism industry 12. Entering new domestic markets 13. Entering new international markets
4.2.2 Making the variables fit the industry
The motives adopted from Pansiri (2009) were examined for their fitness to the festival industry, and when necessary be adjusted or removed. This process took place on the basis of a literature research and has resulted in the following adjustments.
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4.2.3 Adding variables of non-profit motives
The variables of Pansiri (2009) were identified in a commercial sector, in which typical non-profit motives for inter-organizational collaboration were lacking. Therefore, several variables of Gazley and Brudney (2007) were added, who investigated motives for alliance formation in a non-profit sector. The motives used by these authors are shown in table 3.
Table 3: Motives for collaboration in the non-profit sector
In total five motives of Gazley and Brudney (2007) were adopted, including: improving service quality, gaining resources, fulfilling a mission and building a stronger city. These variables were chosen on the basis of a literature review, after overlapping motives with the variables of Pansiri (2009) were removed. ‘Legal requirements’, a variable in both studies, is adopted from Gazley and Brudney (2007), since hereof the survey question was available which ensured the right interpretation of the variable.
‘Improving the service quality’, adjusted in ‘improving the quality of the festival’ in which the festival concerns a service in its whole, was added since festivals can be considered as a service or experience rather than a product. Furthermore, in these turbulent business times organizations must, regardless their size, improve their services to keep fulfilling the holistic needs of customers (Pegg & Patternson, 2010). ‘Building a stronger city’, translated into ‘creating a stronger sense of community’, was added since festivals are known by their capability to build and strengthen community ties (Pegg & Patternson, 2010). Fulfilling a non-profit mission was selected because festivals are perceived as community celebrations (Pegg & Patternson, 2010), or as Getz (2010) calls it, social-cultural constructs. Lastly, ‘gaining resources’ is added since the Dutch music festival industry is confronted with a decrease in government subsidies (De Rijksoverheid, n.d.; NRC, 2013) and sponsorships (NRC, 2013) and therefore expected to face resource pressures.
Motives for inter-organizational collaboration – non-profit sector Gazley & Brudney (2007)
1. Legal requirements 2. Improve service quality 3. Improve city access to service 4. Build relationships
5. Improve city relations 6. Gain professional experience 7. Reduce environment uncertainties 8. Gain resources
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4.2.4 Pilot studies
The variables were tested for their applicability through pilot studies with festival organizers and peers. Survey questions were reviewed by four festival organizers1 who considerably differed in size, program and business aim, including two non-profit and two commercial organizations. Due to these pilots the survey questions had been increasingly adjusted and improved to optimally fit the festival industry. Furthermore, the variable ‘Expanding to international markets’ seemed irrelevant for this industry and thus had been removed. Besides this, insights into the time length for completing the survey and difficulties with using the online survey program were given. In total fifteen motives for alliance formation were adopted and modified that will be tested for in this research.
4.2.5 Classifying the selected motives
Besides testing the fifteen motives separately for their importance in the festival industry, they have also been classified under five main motives to gain additional and more consistent insights. This classification is mainly based on the supporting notions of the table provided by Todeva and Knoke (2005), shown in appendix 1, and partly on a literature review. The justification of the latter is shortly described.
‘Improving the quality of the festival’ was added to the organizational category, as it can be regarded as a translation of improving performance, headed under organizational motives (Todeva & Knoke, 2005). ‘Economic uncertainty’ was added to the economic category as this can be perceived as a motive for collaboration to reduce (economic) risk. ‘Strengthening personal relationships’ was added to the economic category based on the paper of Pansiri (2009). Quotations of interviewees about the motive of personal relationships with alliance partners referred to: “the opportunity to call a key person in the partner organization and saying that you need help because your customers are stranded and you ask to look after them” or “sharing ideas in these friendships and realizing you share costs with these ideas, resulting again in opportunities of scale”. Furthermore, Pansiri (2009) argues that organizations prefer to choose alliance partners whereof they already know the reputation. These comments can be translated into risk reduction and economies of scale. Consequently, this variable is added to the economic category. The classification of a ‘strong brand name’ of the alliance partner(s) under the strategic category is based on the argument of Pansiri (2009) involving that establishing alliances with powerful brand names differentiate the organization from competitors, which is in this study argued to be related to gaining a competitive advantage. The improvement or maintenance of a ‘strong reputation or corporate image’ is added to the strategic motive, as Brunk (2010) argues that a positive reputational capital can set an organization apart from its competitors, and by creating crucial points of difference this may result in a source of competitive advantage.
1
30 The framework of Todeva and Knoke (2005) was expanded with the addition of the social category, in response of the social motives identified in the literature review. The variables of fulfilling a non-profit or social mission and creating a stronger sense of community are added to this additional social category. These motives are based on the motivation to improve social aspects without an economic aspect involved. The outcomes of the development process of the questionnaire are shown in table 4. For sake of clarity, definitions of the formation motives used in this study are given in table 5.
Table 4: Final motives and classification
Construct Item
1. Organizational 1. Learning from partner(s)
2. Improving the quality of the festival
2. Economic 3. Creating economies of scale 4. Entering new domestic markets
5. Gaining more resources (financial or non-financial) 6. Reducing risk
7. Economic uncertainty
8. Strengthening personal relationship with external parties
3. Strategic 9. Globalization of the festival industry 10. Rapid technological changes
11. Due to a strong brand name of the partner(s)
12. To improve or maintain a strong reputation or corporate image
4. Political 13. Legal requirements
5. Social 14. To fulfill a non-profit/social mission 15. To create a stronger sense of community
Table 5: Motives and explanation or definition
Motive Explanation or definition Reference
1. Learning from partner(s)
'Organizational learning refers to the process by which the
organizational knowledge base is developed and shaped”. (Tsang, 1999, p. 213)
2. Improving quality
Improving:
(1) Technological quality: quality determined by measures that indicate to what extent technological specifications are
met. (2) Relative quality: quality judged by the market as the
extent to which the needs of the target group are satisfied. Includes besides technological aspects also elements as delivery time and after-sales service.
(Marcus & van Dam, 2005)
3. Economies of scale
“When the cost of producing a unit of a good falls if its output rate increases”
(Parkin et al, 2008: p. 207)
4. Entering new
domestic markets Expanding across provincial borders
