Research Thesis for MSc BA SIM Version 1.00
CHANGING THE NETWORK: TRANSFORMING DYADIC PARTNERSHIPS INTO A MULTI-LATERAL ALLIANCE, HOW IS IT ACTUALLY DONE?
Supervisor: Dr. I. Estrada Vaquero Co-assessor: Dr. J. Oehmichen
Hand-in date: 13-06-2019 Document word count: 11666
Student name Student ID
Jorrit Postmus S3479919
On the basis of an explorative case study between the Ministry of Defense and three knowledge institutions, I develop a better understanding how networks change from a constellation of dyadic partnerships into a multi-lateral alliance. I discover that network change occurs in different phases. The ability and willingness to share knowledge across organizational boundaries coevolve over time, influencing the structure of the alliance and vice versa. Second I introduce a network-level dynamic capability. A strong tie network has the potential to increase both knowledge exploration and knowledge exploitation in the multi-lateral alliance. Finally, mutual dependencies combined with prior established social capital acts as a substitute for forming a joint venture to minimize appropriability hazards.
2 INTRODUCTION
“ Innovation is key to maintaining our military advantage into the future. We must continue to adapt to stay ahead, finding ways to be more innovative in the ways we think, the ways we develop capabilities and the ways we operate ourselves, whilst developing the ability to harness private sector entrepreneurship and ingenuity quickly and affordably” (Ministry of Defence United Kingdom, 2015, p. 2)
The complexity of technological innovation projects has increased the number of private sector involvements through public partnerships (Sabol & Puentes, 2014). Evidence is gathered that alliances improve innovative capability by tying different sources of knowledge together (Ahuja, 2000). Today, innovation asks for more resources and capabilities than that reside in a single organization (Wassmer & Dussauge, 2011). Dyer and Nobeoka (2000) go a step further, defining the multi-lateral alliance as the locus of innovation, increasing the diversity of knowledge compared to a single organization or dyadic partnership. A multi-lateral alliance can be defined as the voluntary participation of three or more organizations in an interconnected network, resulting in unique network capabilities (Gulati, 1998). While the essence of changing dyadic partnerships into a multi- lateral alliance is widely acknowledged, a gap in research is emerging.
First, while we know much about the structures and desired outcomes of alliances, we know very little about the process how networks change from constellation of dyadic alliances into a multi- lateral alliance. The formation of a multi-lateral alliance is not an empty canvas, but affected by the social environment in which the partners are positioned (Gulati, 1995). Prior market ties and existing dyadic alliances are the external network predecessors (Abancens, Castiglioni & Gonzalez, 2015), influencing the structure of the future multi-lateral alliance (Hernandez & Menon, 2019). Most literature conceptualizes inter-organizational networks as static events linking strategy to structural outcomes (Ahuja, Soda & Zaheer, 2012). But, how the process of changing the old network of dyadic partnerships into a multi-lateral alliance actually occurs has not been fully explored. An observation how organizations engage in such a network change has the potential to provide great insights.
Second, how the dynamics of network change affect the nature of ties remains unexplored, resulting in a limited understanding of the phenomenon. Changing dyadic partnerships into a multi- lateral alliance does not only have an effect on the structure of the inter-organizational network, but also on the nature of the ties holding the network together (Hernandez & Menon, 2019). In other words, perusing network change will alter the way partners operate within the network.
Transforming a constellation of dyadic partnerships into a multi-lateral alliance will increase the complexity associated with the governance of the direct and indirect ties between partners (Dyer, Kale, & Singh, 2001). The relational view of the firm and social network theory identify multiple
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challenges concerning the nature of ties (Dyer & Singh, 1998), such as the complexity of learning how to collaborate (Corsten, Kale, & Schreiner, 2009), the ability and willingness of partners to share knowledge cross organizational boundaries (Gulati & Singh, 1998), the tension between contract and trust (Poppo & Zenger, 2002), and how to manage coopetition between partners (Estrada, Faems, &
de Faria, 2016). The nature of ties evolves over time and is a strong determinant how the multi- lateral alliance will succeed in increasing innovation potential.
It is important to get a better understanding of this phenomenon. The necessity to form multi-lateral alliances to innovate is increasing. Prior network structures and the nature of ties influence the network transformation process, making the creation of a successful multi-lateral alliance challenging. A better understanding of how this process unfolds will eventually enable managers to incorporate these insights in their innovation strategy, learning how the process of cooperating for innovation evolves, and by that increasing innovation output. To address this gap in literature, in this study I seek to answer two research questions:
1. How do networks change from a constellation of dyadic alliances into a multi-lateral alliance?
2. In this process, how does the nature of ties alter?
The Dutch Ministry of Defense offers a unique opportunity to conduct explorative research.
The Defense Material Organization (DMO), part of the Ministry of Defense, has taken the initiative to transform the existing dyadic partnerships with knowledge institutions into a single multi-lateral alliance. The knowledge institutions and the DMO will jointly collaborate in a multi-lateral alliance to accelerate innovation, seek intensive knowledge exchange, increase learning potential, and find more resource recombination possibilities. The multi-lateral alliance has to encourage speed, flexibility, and efficiency of innovation.
Analyzing the case, I will make a first step in mapping this uncharted domain in research.
Literature about the dynamics of network change is still immature, but the relational view (Dyer &
Singh, 1998), focusing on both the organizing and governance side of alliances assists in gathering evidence how networks change and how it alters the ties in the network. I discover that the process of changing dyadic partnerships into a multi-lateral alliance consists out of three distinctive phases before a mature network status is being reached. I find insights into the existence of a network-level dynamic capability. Finally, I learn that there are more ways to nurture a relationship or minimize misappropriation than immediately establish a joint venture when forming a multi-lateral alliance.
Besides providing explanations of the phenomenon, I identify future research directions that fuel the interest of academics to continue research in this under lighted research field. For managers I provide guidance how to translate the dynamics of network change in their innovation strategy.
4 THEORETICAL BACKGROUND
The understanding of a multi-lateral alliance to increase firm performance is growing (McEvily & Zaheer, 1999). An alliance is a: “voluntary arrangement between firms involving exchange, sharing or co-development of products, technologies, or services” (Gulati, 1998, p. 293). When three or more partners voluntarily participate in an alliance with shared goals, we talk about a multi-lateral alliance (Eden, Garret, Hitt, Ireland and Li, 2012). An alliance consists out of a network of nodes and ties. A node represents the position and role of the organizations in the external network, creating the structure of the alliance (Hernandez & Shaver, 2019). The structural approach on network formation focuses on strategy and the outcomes of the desired state of the network (Ahuja, Soda &
Zaheer, 2012), and not on the changing process involved.
Network change. Yet, organizations already have an external network in place. The transformation of a constellation of dyadic partnerships into a multi-lateral alliance is the change of the distribution of ties and nodes in the network (Hernandez & Menon, 2019). Prior market ties, or existing dyadic alliances are the external network predecessors of the multi-lateral alliance.
Transforming the dyadic partnerships into a multi-lateral alliance will increase the number of partners in a single alliance, breaking the dyadic knowledge flows between partners (Thorgren, Wimcent & Eriksson, 2011). The chain-based relationship alters in a net-based relationship, creating indirect reciprocity in the network (Eden et al., 2012). Changing dyadic partnerships into a multi- lateral alliance will bend past competition between partners into cooperation, only the ability and willingness to share knowledge in this cooperation is not yet established (Abancens, et al., 2015).
Thus, changing the structure of an alliance is a dynamic process evolving over time.
The governance of a multi-lateral alliance is extra challenging, because of the absence of an authority relationship (Dyer & Nobeoka, 2000). The position of a central hub in the alliance has the ability to fill this gap by orchestrating the ability to flow knowledge over multiple organizational boundaries, stimulating the willingness to share knowledge by establishing an appropriability regime, and balancing the alliance network by creating reciprocity (Dhanasai & Parkhe, 2006). A hub organization could compensate for weaker ties in the network, but an asymmetric interdependence between partners has also the potential to disturb the balance within the alliance ecosystem. The partnership will follow the course of the firm with the most authority, which could lead to a decrease firm performance for the followers (Adner, 2016).
We see that the phenomenon of network change is emerging in literature. Changing the structure of a network is challenging, because changing the role and position of the partners in the network does not hold all the answers how a constellation of dyadic partnerships actually changes into a multi-lateral alliance. Is a hub organization in the middle of a multi-lateral alliance a structural
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design of the multi-lateral alliance, or just a phase substituting for weaker ‘new’ ties? When these ties are grown strong will the hub organization still have a function, or will it oppose risks because of maintaining an imbalanced ecosystem? Current literature cannot answer these questions. The nature of ties could hold answers as they are Inseparable connected to the structure of the alliance.
The nature of ties. A tie is the dyadic relationship between nodes in a network that hold a network together (Hernandez & Menon, 2019). When the number of partners increases, so will the risk of dysfunctional ties within the network, undermining the results of the alliance (Ahuja, 2000). It is clear that a multi-lateral alliance has its own challenges compared to a dyadic alliance and that the organizations participating in the alliance need to organize themselves to effectively exploit their unique value creation capability (Barney, 2001). How the dynamics of network change affect the nature of ties remains unexplored. Changing the structure of a network will ultimately alter the way people work together, altering the willingness and ability to share knowledge. Social capital and routines, influencing the willingness and ability to cooperate, need to evolve over time, which could have a significant influence on the process of changing dyadic partnerships into a multi-lateral alliance. Dyer and Singh (1998) have identified four structural determinants influencing the nature of ties.
Partner specific assets. Partners have to make specific investments into the alliance to create a joint value that they could not achieve with only their own resources and capabilities (Dyer &
Hatch, 2006). Through site specificity investments, an alliance can capitalize on the benefits of geographical proximity (Williamson, 1985). Spatial propinquity in a network will increase innovation by stimulating knowledge creation through frequent direct social interactions and knowledge flows.
(George, Zahra, 2002). Physical specific asset investments are capital investments of an organization that can lead to a higher level of product or process differentiation that could improve quality through specialization (Winter & Bryce, 2007). This high level of differentiation will create an activity locus that increases the interdependence between partners (Dyer, Hesterly, & Singh, 2018). Human asset specific investments are investments that increase experience, reducing misinterpretations, and can create an openness of sharing knowledge (Anand & Khanna, 2000).
Knowledge sharing routines. The knowledge that resides in a multi-lateral alliance creates a need for evolving knowledge sharing routines in order to create inter-organizational resources and capabilities. This makes inter-organizational learning capability within the partner organization critical to success (Koput, Powel & Smith-Doerr, 1996). Not only the frequency of interaction is of great importance to enable the transfer of ‘sticky’ knowledge, but also the ability of the organization
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to identify, assimilate and apply the knowledge of the alliance partners in the network. The organizations in the network have to develop mechanisms to create an inter-organizational capability when accessing the alliance partners’ resources. These mechanisms, or knowledge sharing routines, consist out of the ability to value and interpret prior knowledge through experience, and the ability to combine the alliance resources with their own (George & Zahra, 2002).
The complementarity of shared resources and capabilities. The structure of the alliance has to create the possibility for tying resources to each other via an overlapping knowledge base (George
& Zahra, 2002). A greater overlap of the knowledge base, by investing in relation specific assets and knowledge sharing routines, improves internalization of the partners’ resources. (Dyer, et al., 2018).
The complementary of resources is not static in an alliance network. When there is a great overlap of the shared resources and knowledge base of another partner, and this partner has absorptive capabilities, the complementarity will decrease when the knowledge of the shared resources is internalized by the partner (Sampson, 2005).
Alliance governance. Multi-lateral alliances are extremely complex to govern because of the exponential increase of ties when the number of alliance partners growths. This also increases the level of complexity and costs of contracts, as they need to be more customized to align all the expectations, deal with contingencies, and eliminate the possibilities for opportunistic behavior (Poppo & Zenger, 2002). Contracts safeguard against the chances of opportunistic behavior and contingencies, but also give room for relational management to act as a compliment to safeguard for bounded rationality and unforeseen contingencies in contracts by fostering trust between parties.
(Faems, Janssens, van Looy & Madhok, 2008).
RESEARCH METHODOLOGY AND SETTING
The objective of my explorative research was to identify the process how a constellation of dyadic partnerships changes into a multi-lateral alliance, and how this affects the nature of ties in the network. Since this construct of interest is underdeveloped in academic literature, a theory building approach is recommended (van Aken, Berends, & van der Bij, 2012). I chose to study the phenomenon in a real-life event, because it will contribute to the understanding of the topic by investigating the comprehensive characteristics and dynamics in a case setting (Eisenhardt, 1989). I combine multiple sources of evidence by drawing my data from interviews and archival data, so that I was able to increase reliability by triangulating my findings.
Case selection. The current transformation of the dyadic partnerships between the DMO and the knowledge institutions into a multi-lateral alliance was the perfect candidate for my explorative
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research as it was a real-life event and in the middle of transformation. It ensured relevant and actual information, not being biased by fading memories. The access to all the key players in the management of the network transformation created the possibility to gain a comprehensive image of the process of network change. The DMO is responsible for the development, acquisition and system management of Defense materiel. The organization consists out of 3000 employees and stands for a reliable, adequate and innovative organization (DMO, 2018). To remain an innovative organization, the DMO relies on knowledge institutions as strategic partners. To boost innovation, DMO has taken the initiative to transform the long-standing dyadic strategic alliances into a multi- lateral alliance network. Following the work of Corbin and Strauss (1990), I used theoretical sampling as an appropriate qualitative research technique to create explanatory theory. After selected the case based on theory building, the final sample size was determined when theoretical saturation was reached.
Data collection strategy. At the time I conducted my interviews (Jan 2019 – May 2019), the DMO and three knowledge institutions were in the process of changing the dyadic partnerships into a multi-lateral alliance. I conducted a total of 15 interviews. Three exploratory interviews to identify the suitability of the research case and to identify the relevant stakeholders involved in the process of network change. Ten core interviews with the relevant stakeholders were necessary to reach theoretical saturation. I interviewed multiple key informants of all the alliance partners to ensure validity of the data collected by incorporating the different viewpoints in the changing alliance network. Triangulating the descriptions with other interviewees enabled me to double check and complement information across informants. Finally two interviews were conducted with a quality assurance focus group containing two experts checking the reliability and confidentiality of the content of my findings. Figure 1 presents an overview of the interviews conducted.
FIGURE 1 Overview interviews
Interview type Organization Position Duration
Exploratory DMO Executive 0:37
DMO Program manager 0:43
KI-1 Program manager 0:25
Core DMO Executive 1:07
DMO Deputy executive 1:01
KI-1 Senior manager 1:16
KI-1 Program manager 0:50
KI-2 Senior manager 1:05
KI-2 Project manager 0:48
KI-3 Senior manager 0:57
KI-3 Project manager 0:36
DMO Program manager 0:48
DMO Project manager 0:36
Focus group DMO Executive 0:58
DMO Legal officer 0:40
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The semi-structured interviews were organized around six main areas of interest. The first topic contained guiding questions about the structure and organization of the current dyadic network to identify the ties and nodes of the original network. The second topic steered the interview towards information about the desired structure and organization of the multi-lateral network, including the incentive to change the network. The last four topics had the goal to establish in-depth insights in the process of network change, consistent with the relational view perspective:
1)partner specific assets, 2)knowledge sharing routines, 3)complementarity between partners, and 4)governance mechanisms. The interviews were conducted in the Dutch language, audiotaped and transcribed. The transcripts contain the data of more than 12 hours of interviews.
To verify and extend the data from the interviews conducted, I collected archival data. The archival data consisted out of the presentation slides of three decisions making meetings. I used this data as a measurement instrument to see if there were changes and deviations in practice over time (Webb, 1981). The availability of archival data created the possibility to compare the interview data with the archival data to check for biases. For example, when interview data did not match the content of the presentation slides of the decision-making meetings, it could point to a misunderstanding between partners. When I found discrepancies between the different sources of data I conducted further interviews and deepened my archival study to discover the causes of the discrepancies. I finished my data collection when I noticed that I had reached saturation and that extra input did not led to new insights (Corbin and Strauss, 1990).
Data analysis strategy. What emerged from my interpretation of the data were insights that helped me to understand the phenomenon of the process how dyadic partnerships change into a multi-lateral alliance. The findings of my research emerged via an iterative analysis of the interview and archival data. To increase my confidence in the interpretation of the data, I used the technique of constant comparison between and within the data (Suddaby, 2006). Although the interviews were organized around the six main areas of interest, the semi-structured interviews gave the possibility to switch between topics during the interviews, and to elaborate on interesting insights when they emerged. To identify all the useful data per interview, I started with the process of open coding of the collected data. I labeled the data that could provide a contribution to conceptualizing the phenomenon. I ran the labeled data through the focus group, which checked if the data was free to use, or that some parts of the data were restricted for use because of confidentiality or security regulations. I categorized the labeled data using the axial coding process. I identified the categories by focusing on the six main areas of interest that I also used as the basis structure of the interviews I conducted. After I categorized the data, strong quotes emerged that indicated the presence of useful insights in the aggregate themes of my research. To gain in-depth insights within the categories, I
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used selective coding. I Identified patterns by using an iterative process of slicing and aggregating sections, and cross checking the data within the different interviews. The patterns of useful data were labeled with selective codes and formed the storyline of the main findings of my research. I controlled my findings through a reading session by the focus group to ensure there were no misinterpretations of data and to conduct a final check on confidentiality. Finally, I used the archival data to triangulate the findings of my interview with the content of the presentations. Checking between these two different sources gave me the final confidence in the completeness and interpretation of the data. Figure 2 shows an overview of my coding process.
FINDINGS
Transforming the dyadic partnerships of the DMO into a multi-lateral alliance has the potential to increase innovation potential and flexibility within the network of the DMO. Altering the structure of the network should create multi-dimensional flows of knowledge within the alliance, and eliminate the rigid governance structure of the dyadic partnership. Only changing the structure of a network will not do the trick. Also the changing nature of ties will determine if the network change of the DMO will be a success. In this section, I will present the findings of my research by describing the network change between the DMO and the knowledge institutions.
Three dyadic alliances at the foundation of the network change. The DMO has long standing strategic dyadic partnerships with three different knowledge institutions. The main goal of the strategic partnerships is aimed to build new knowledge and to create innovative products and services on behave of the DMO. Figure 3 shows the structure of the dyadic alliances network of the DMO. Familiarity within the strategic partnerships resulted in strong fixed structures of cooperation between the knowledge institutions and the DMO. These fixed structures are characterized by multiannual cycles in which monetary rewards flow from the DMO towards the knowledge institutions. Within the multiannual cycles the DMO defines the projects and research fields in which the knowledge institutions will build or expand their knowledge. A small part of the development subsidies granted to the knowledge institutions can be used autonomously, but the largest part of the subsidy allocation remains in control of the DMO and will be deployed at their best insights. The current dyadic partnerships represent a strong principal/agent relationship. Although the structures of dyadic partnerships look alike, the nature of the ties differ between them. Figure 4 shows the nature of ties in the dyadic network of the DMO.
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Knowledge institution 1 (KI-1) is the largest in size and most intertwined with the DMO. KI-1 has a dedicated business unit focusing on Defense and safety, founded in 1947. Not common for that time, but with an innovative foresight, the Ministry of Defense decided to outsource its scientists to KI-1 to let them strive in an environment most suited for knowledge building and innovation. To remain in control of the allocation of assets and to determine the focus areas for research, different boards of the institution are occupied by a majority of high-ranked military officers or the civilian equivalent. KI-1 has also employed multiple ex-military personnel to secure military domain expertise. KI-1 acts as a knowledge broker that introduces new technological trends within the DMO.
Knowledge institution 2 (KI-2) can be characterized as an institution oriented around technology watch, following trends in technology domains applicable in a specific military operational field. When new technology trends are identified, KI-2 will build a general knowledge base as a sort of option into the future. When the technology domain becomes relevant, KI-2 will be equipped to further develop the technology and make it applicable for Defense purposes. KI-2 also uses his broad knowledge base to advice the DMO in which domains it should extent their knowledge and create Defense material solutions. Besides having the DMO as their main employer, KI-2 also has multiple public and commercial trajectories with other Departments and industry partners.
Knowledge institution 3 (KI-3) is, like KI-2, a knowledge institution operating in a specific technological niche. There are interfaces between the knowledge bases of the other two knowledge institutions and KI-3, but they are very limited. 75% of the turnaround of KI-3 is based on commercial activities within the industry, and only 25% of the turnaround is created by the DMO, giving KI-3 a distinctive position relative to the other knowledge institutions. The commercial, service oriented, governance results in a different culture and mindset than that of the other knowledge institutions.
Being aware of their more detached mindset, KI-3 is trying to adapt a mindset and culture that better fits the future network. As with the other knowledge institutions, KI-3 has basic and applied science trajectories to build new knowledge, and assists in the realization of material projects of the DMO.
The incentive to restructure. Recently, the speed of technology development is increasing in an accelerating pace. The development of new technologies goes hand-in-hand with the need to create new knowledge or recombination of current knowledge domains. New technologies also change the threat landscape of the Ministry of Defense and can oppose risks for national and international safety. The rapid technology development creates a diffuse arena in which it is hard to predict which technologies will become relevant to oppose future threats, resulting in high uncertainty. One way to handle this volatile and uncertain environment is to have an adaptive alliance between knowledge partners and the DMO that is built around processes that facilitate speed in their operations. The fixed structures in which the current dyadic partnerships operate are
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Dyadic alliances DMO
Alliance network
DMOO
KI-1 KI-2
KI-3
Network change
Managerial level Operational level
DMO + KI-1
DMO + KI-2
DMO + KI-3
Multi-annual research development
• Strong informal ties because of path dependency
• Strong formal ties by positioning Generals on steering boards KI-1
• Core business KI-1
Project execution
• The long-standing dyadic partnerships have created strong informal ties between project team members. The DMO and KI’s have established routines how to work together.
• The intensive collaborations established an informal social basis between personnel of the organizations which resulted in higher levels of trust within the dyadic relationships
• Turnover of personnel of the DMO towards the knowledge
institutions strengthened the foundation of working together by the creation of a shared culture based on norms and values of the Defense organization.
Multi-annual research development
• More a commercial oriented formal relationship
• Only 25% of total business KI-3 within dyadic network
Multi-annual research development
• Strong informal ties as basis of advisory relationship
• KI-3 has multiple commercial and public trajectories outside dyadic network
not suited to facilitate this desired state. Second, the abundance of knowledge in the world makes it less effective to organize in dyadic relationships, because it is impossible to have all the necessary knowledge available between just two partners in an era where technologies become more fused together in an increasing speed.
“I need a flexible situation, so that when a new threat arises, or a relevant technology emerges, I can adapt quickly and take the immediate necessary actions” (interview 1/1/19)
FIGURE 3
Overview dyadic partnership network DMO
FIGURE 4
Overview nature of ties in dyadic network DMO
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Dyadic alliances DMO Multi-lateral alliance DMO Future ecosystem DMO
Alliance network
DMOO
DMO KI-1
KI-2 KI-3
DMO O
KI-1 KI-1
KI-2 KI-2
KI-3 KI-3
Transforming the dyadic partnerships into a multi-lateral alliance. Forming a multi-lateral alliance between the four partners will not only be the creation of a new structure, but also a transformation of the old network into a new network. Path dependencies, such as prior experiences, will have an influence on the establishment of the multi-lateral alliance. The first step in the evolution of the network between the DMO and the knowledge institutions will be to establish direct ties between all the partners, creating a multi-lateral alliance. Creating direct ties between all the partners should enable knowledge flows that stimulate knowledge recombination possibilities between the partners. The role of the partners will shift from being a consumer or provider of knowledge to equal consumers and providers of knowledge within the alliance.
The alliance partners hope that the network alliance will evolve into an ecosystem in the nearby future. The knowledge institutions and the DMO have their own external networks as well.
Networks with other knowledge institutions, universities and industry partners. When enough trust is established within the multi-lateral alliance it should be possible to establish ties between one of the partners and the external network of another partner. The ideal end state would be that also the external networks of the partners establish direct ties with each other, creating an innovation cluster within the Netherlands. Figure 5 shows the different phases of the network change.
“It’s a future state, but I think it is the best we can offer to the Dutch society, and we should do the best we can to establish such an ecosystem” (interview 1/1/19)
FIGURE 5
Overview of how network change alters the structure of the network
The emerging structure of the multi-lateral network. Transforming the network will change the way partners operate within the network. The current dyadic partnerships are built on a principal/agent relationship governed by single contracts for each project. Every dyadic partnership has its own strategy formation and operational execution of projects with the DMO determining
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which strategy to follow and which projects to execute. Knowledge flows between the dyadic partnerships are very limited and hard to govern. The multi-lateral alliance will bring change in the nature of how the partners work together in the network.
At the core of the network alliance will be the so-called knowledge roadmaps. Knowledge roadmaps are multi-annual strategic plans in which the DMO, together with the three knowledge institutions, determines in which technological trends and future threats they will invest to build new knowledge. Jointly they will determine which partner will be responsible for which part of knowledge building. Out of the multi-annual roadmaps, a year-plan will be distillated. New technology and threats that become eminent will be translated into concrete projects for applied science, prototyping, and implementing into the Defense organization. The multi-lateral network makes it possible to execute projects with the involvement of multiple knowledge institutions. A partner can also join a project just to learn, or when it expects that it can add value down the line of execution of the project. The network alliance facilitates a supplier and consumer of knowledge roll for all the partners. In the beginning, the DMO will maintain a centered position in governing the alliance, holding the funds, responsible for the allocation of budgets, having the duty of transparency towards the taxpayers, and assess the value created by the knowledge institutions for the Ministry of Defense. Figure 6 shows the basic architecture of the nature of ties in the multi-lateral alliance.
To facilitate the joint activities within the network, the bureaucratic contractual relationship of the dyadic partnerships will shift to a more facilitating role. Now, every project initiated in one of the dyadic partnerships has his own contract in which the goals and expectations are specified in detail. Drafting a new contract can take multiple months up to a year. These long lead times result in project delays, which can lead to loss of added value of the knowledge investments of the partner institutions.
“The output of the projects is not what we wanted anymore. It was relevant years ago, but not anymore” (interview 2/1/19)
The goal of the network alliance is to boost innovation by cooperation between knowledge institutions instead of competing for the same assignment, or not being aware of each other’s operations. This only works when the partners do not lose any time drafting contracts. One big contact will overarch all the parties involved, facilitating knowledge flows without the limitations opposed by the boundaries of formal contracts between the partners in the network. Figure 7 shows how the network change altered the nature of nodes in the network.
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Double role as central
hub;
coordinator and facilitator
network
Multi-lateral network
Managerial level
Operational level
Managerial synchronization of resources and capabilities
Roadmaps
• Multi-annual joint
explorative research agenda
Operational synchronization of project task division Year plan
• Research exploitation plan
• Project definitions
Project executions
• Applied science projects
• Materiel realization projects
KI-1 KI-2 KI-3 DMO
KI-1 KI-2 KI-3 DMO
Joint effort
FIGURE 6
Overview nature of ties multi-lateral alliance DMO
The nature of ties. The goals and objectives of the alliance network form the basis for the structure of the multi-lateral alliance between the DMO and the knowledge institutions. The structure is the foundation of how the partners will work together. In practice, the prior ties of the old network also influence the nature of ties in the multi-lateral network. Past experiences between partners can have effects on the willingness and ability of working together. Knowledge protection mechanisms, security policies and trust between the employees of the different organizations can influence the installment of the desired state of the alliance. To make the network efficient and to enable knowledge sharing routines it is important that the partners “start to speak the same language” (interview 1/1/19). Transforming the nature of ties is thus also a process of doing and learning, aside of creating desired structures. Figure 8 gives an overview of the main findings.
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Network change
Equal partners as supplier and consumer of
knowledge
Dyadic alliances network DMO Multi-lateral network DMO
DMO
Governance
Knowledge Institutions
Position in network:
• Central hub Role in network:
• Coordinator knowledge development
• Guardian of balance of power
• Facilitator monetary investments
Position in network:
• Principal Role in network:
• Contract awarding authority
• Initiator multi-annual research cycles
Position in network:
• Agent Role in network:
• Technology watch
• Knowledge creator
• Supplier of knowledge
Position in network Rigid contractual definitions of:
• Project research objective
• Awarded party
• Fixed pre-calculated costs
Overarching contract as facilitator of:
• Knowledge sharing processes
• Network learning
• Cooperation within network
Other dyadic alliance between the DMO and
knowledge institution Other knowledge institution within multi-lateral
network
Coopetition within network Cooperation within network
Position in network:
• Partner Role in network:
• Technology watch
• Knowledge creator
• Supplier of knowledge FIGURE 7
Overview of how network change alters the structure of the alliance network
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Relation specific assets Knowledge sharing routines Complementarity
between partners
Governance mechanisms
Inside the ties between the DMO and KI’s in their multi-lateral
network
‘A relational view perspective’
Formal contract
• Overarching contract as facilitator of cooperation between partners.
Rewarding KI’s based on
recalculation enabling knowledge creation and sharing in network
• DMO as quality assessor of the deliverables
• IP protection mechanisms of existing IP will remain in place.
• Protection mechanism of intentions for when trust fails or new management arises
• Contract built on previous ties and processes
Human asset investments
• Exchange personnel between the DMO and KI’s to create knowledge assimilation ties
• Exchange personnel between KI’s challenging. Commitment on managerial level, but fear for unintentional knowledge spillovers on operational level
• Assignment of ambassadors to alliance management with the task to identify and implement improvements of network ties
Trust
• Trust between partners on managerial level is well
established and acts as the basis to form the multi-lateral alliance
• Operational trust not yet in place.
Personnel of KI’s have to start working together to build trust Historical events, such as past competition, or bad past
experiences, create. PR campaign by partners initiated
Knowledge ownership
• Free use of knowledge of partners within network
• Focus on cooperation and avoiding competition by central coordination DMO
• Four constructions of IP sharing mechanisms aimed on
facilitating knowledge recombination and creation possibilities between partners to enable knowledge sharing
• Knowledge transfer in joint project teams on neutral terrain DMO to built trust on
operational level within the alliance
Identification and Assimilation
• Identification of knowledge in network by the joint creation of roadmaps and year plans
• Knowledge identification on operational level by joint seminars and presentations, creating network opportunities
• Assimilation opportunities by personnel rotation between partners on managerial level Physical proximity investments
• Shared infrastructure difficult to realize. Organization security policies form bottleneck
• Joint introduction days and educational programs organized by a partner to create shared culture
Relation specific investments
• DMO as a central hub could coordinate and balance relation specific investments, but mechanism not yet in place
Complementarity between partners
• Dyadic partnerships in the past have created niches in technology as basis of complementarity management in multi-lateral network. But areas with overlap and discussion do exist
• Mechanisms not yet in place. Suggestions are to use roadmaps to manage
complementarity, coordinated by DMO as central hub in network
• On operational level complementarity can be managed by creating joint project teams built on joint project definitions in which partner contributions are aligned
FIGURE 8
The nature of ties, inside the ties
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Relation specific assets. Physical proximity investments can be as simple as the organization of joint introduction days, and joint education programs, organized by one of the partners. Creating these joint programs are an effective way to get to know each other, establish a shared culture, and transfer these shared norms and rules to new employees. The creation of shared infrastructure facilities proofed to be much more difficult. The processes of getting infrastructural facilities assigned, together with the necessary office equipment and IT connections, are difficult and time consuming. The desired end-state will be that there are joint facilities throughout the country that are dedicated for joint use by the DMO and the knowledge institutions.
“Things that look the easiest from the outside, end up being the most difficult” (interview 2/1/19
A physical specific investment is the investment in specialized laboratory equipment or machinery necessary for the operations of the projects. With multiple partners investing and receiving out of a single project, mechanisms have guide how to handle relation specific investments.
When specific machinery or equipment is necessary, the first step will be to check if these attributes are available somewhere within the partnership. If so, the machinery or equipment can be used by all the partners. At the end of the project the costs of use will be settled by the DMO. When the project requires a new specialized investment, within the partnership will be determined which partner is best equipped to handle such an investment based on available knowledge and infrastructural possibilities.
Human capital investments will consist out the exchange of employees across the different organizations and the use of so called ambassadors. The DMO has identified specialist employees to work at different positions within the organization of the knowledge institutions. The goal of this exchange is to transfer knowledge of the own organization to the other organization, and vice versa.
Knowledge about the structure of the organization, the processes, and culture can discover areas where there is a good fit between partners and in which areas adaptation is needed. A deeper understanding of each other’s organization will strengthen the ties within the network.
“The more you know about each other’s organization, the stronger the ecosystem will become”
(interview 1/1/19)
Another benefit of the exchange of personnel is that the employees enlarge their networks and creating opportunities for working together. Exchanging personnel between the knowledge institutions is more challenging. Attempts are being made to exchange personnel between locations,
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supported by the management of the knowledge institutions. Only, there is still a lot of skepticism on the work-floor. On the work-floor, employees are afraid of unintentional knowledge spillovers and misappropriation, so trust must evolve on this level. Another investment is the assignment of two ambassadors by every partner to the central network alliance management. Ambassadors have the full-time duty to search, identify and implement new and better ways of working together and find opportunities to expand the network.
“I think that when we start circulating personnel between knowledge institutions on the physical location of the DMO, we make a big step forward” (interview 4/2/19)
Knowledge sharing routines. One of the main goals of forming a multi-lateral alliance is to increase knowledge building potential and efficiency by creating a joint knowledge base. Having so much knowledge available within the network, certain mechanisms have to be in place to allow for efficient knowledge sharing. The identification of useful knowledge starts when jointly compiling the multi-annual roadmaps together. At strategy level, the high-over complementarities of each knowledge institution will be discussed to achieve maximal results in the development of new knowledge. On tactical level, jointly defining and approving the projects within the year-plans will do identify useful knowledge. On operational level the organization of symposia will create a network effect, enabling knowledge identification between employees.
“This is an emphatic request of the knowledge institutions to be more involved in strategy forming based on the knowledge they collectively possess” (interview 2/1/19)
“I would like to see fixed dates in which we discuss projects, including goals and everything, in which all the parties have a vote to approve the project after we have discussed who brings in what
knowledge to achieve the best results” (interview 3/2/19)
“It is an informal way of knowledge sharing on the work floor, employees can meet each other, network, and establish ways to find each other when executing a project” (interview 4/2/19)
One way to assimilate the partners’ knowledge is the exchange of employees between organizations. The exchange of personnel has to increase the understanding of each other’s organization and knowledge base. When you often circulate personnel, the potential to assimilate knowledge of another partner will increase. Transformation, Implementation and ownership of knowledge discussions are closely related in the multi-lateral alliance. Recombination of knowledge
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of multiple partners is encouraged in order to create the best possible solutions in the fastest possible way. An understanding over knowledge sharing procedures can be managed by the right governance mechanisms such as formal contracts and trust, but first there needs to be a single understanding how to distribute knowledge and ownership within the network. In general, the DMO is not interested in the ownership of knowledge. The DMO only wants the free right of use of the knowledge created, but is not equipped to handle the protection and evolvement of the knowledge created. The knowledge institutions are and continue to be the owner of the knowledge created. The DMO will guard the distribution of knowledge within the multi-lateral alliance.
“Knowledge creation is the essence of their existence, and the ownership of this knowledge fits well into the role of the knowledge institutions” (interview 1/1/19)
All The partners have the freedom of use of the knowledge created within the network alliance. The ownership of jointly created knowledge will be determined by the investments that are being made by the partners into the creation of this new knowledge. The partner with the largest share in the creation of knowledge will be granted the ownership of the new knowledge. This becomes challenging when more than one partners has a significant share in the creation of knowledge, “Solutions to this particular situation are now being discussed” (interview 3/02/19).
When combining existing IP protected knowledge of multiple partners, the original owner of a certain part of knowledge will remain the owner and the formal knowledge protection mechanisms stay in place. The alliance wants to minimize joint IP, because of the associated administration costs and interdependencies between partners.
Complementarity of resources and capabilities. The limited size of the Netherlands has the downside that it is often not profitable to develop different knowledge bases in the same knowledge domain, because of the absence of a market to push the new knowledge to. The upside is that the three knowledge institutions have built specific expertise in their own domains with limited overlap between each other, but “there are areas where we complement each other very well, but there is also some overlap that has been subject to discussion for years now” (interview 4/2/19). With the creation of the network alliance there is an opportunity to even better align and limit the overlap of knowledge. The DMO has the ability to manage complementarity out of a central position within the network, but “this has to evolve in practice, these mechanisms are not yet in place” (interview 1/1/19). Suggestions by some of the managers are to start managing complementarity and knowledge overlap discussions when forming the roadmaps. The year-plans could be used to manage the complementarity of current available knowledge. In the old dyadic relationships the knowledge
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institutions became aware of each other’s research when results were presented. In some projects or research objectives the same research was conducted as already done by one of the partners. By discussing every project with all the partners before execution can avoid new overlap due to duplication of existing knowledge.
Governance mechanisms. The governance of the multi-lateral alliance has two layers. The first layer is built around the processes of the overarching network structure. The second layer applies to the operational management of the daily projects of the alliance. The formal and informal governance mechanisms are built around the importance of having the DMO functioning as a central spill within the network. DMO can act as the mediator, coordinator, facilitator, and sometimes referee of the alliance because the outcomes of the alliance have to be beneficial for the DMO. The DMO has the final say in determining the areas of research, assigning projects to the partners, and assessing the quality of delivered work by the partners. The DMO also has the control over the monetary means that can be distributed over the partners to cover the costs of research and project participation. For a significant part, the knowledge institutions depend on the financial payments by the DMO to survive. The DMO is not interested in the ownership of knowledge but in the strategic and operational benefits of this knowledge, which creates an independent position when aligning the input and output of research between the knowledge institution partners.
“It is essential that the DMO has a central positioning within the network, acting as a guardian and coordinator of the balance of the alliance” (Interview 3/2/19)
Keeping this objective position will be challenging because of bounded rationality and liability, because “in the end managers are also just people having their own preferences based on what they know and who they like. We should be aware of this” (Interview 4/2/19). The central positioning of DMO in the network can mitigate the threats of competition between partners in the network. Competition will lead to “frustration” (interview 5/3/19) within the network. Even though the knowledge institutions are in some areas competitors outside the alliance, within the alliance they need to cooperate. Competition within the network will arise when there is no balance in the division of work between the partners. The knowledge institutions think that a strong central role by the DMO is essential for success to avoid opportunistic behavior by one of the partners and
“managing the grey areas” (interview 3/2/19), where the division of input and output is unclear.
The formal overarching contract of the multi-lateral alliance needs to facilitate the ease and speed of knowledge sharing. In the old dyadic partnerships, separate contracts created fragmentation of knowledge building and high administration costs. One big overarching contract in
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which the efforts of the knowledge institutions are financially compensated based on recalculation creates the possibility to act swift on new threats, initiate projects, and assemble teams between multiple partners. This overarching contract will decrease administration costs significantly and increase the possibilities of quick decision-making by shorter bureaucratic processes. The second function of the formal contract is to manage intellectual property. It gives guidance to the process of sharing protected knowledge by clear and transparent rules. The third function of the contract is to acts as a communication mean. Managers shift positions, and with that new insights and the absence of understanding of the original intentions of the network arise. The contract protects the intentions and avoids turbulent management of the alliance. The final task of the contract is to be prepared for lesser times. As in every relationship, tensions will be eminent. These tensions can be created by a breach of trust, or a decrease in government budgets that can be divided among the knowledge institutions.
The trust established between the management of the knowledge institutions and the DMO forms the foundation of the willingness to form a multi-lateral network.
“It is my trust in the DMO that makes me feel secure enough to enter this new alliance”
(interview 6/3/19)
On operational level, the trust within the network has to grow. There are areas where working together goes very well, but there are also areas where cooperating with each other remains challenging. These challenges are often based on previous experience between people when working together. Complex, sticky knowledge resides within people. To share this knowledge, employees have to learn how to work together. Also project managers have to build trust in the new situation.
“Do I have to manage a more complex project team now there are more knowledge institutions involved in a single project?” (interview 10/5/19), or “do I lose my freedom to choose which knowledge institution and persons of that institution I want to work with”(interview 9/5/19). It takes time to build this trust. It has to be established by working together more often and by slowly fitting the different cultures into a more joint knowledge sharing culture. A public relation campaign has to increase enthusiasm throughout the organization, by providing a better understanding of the benefits that the network alliance provides to the organization and the people involved.
“It has to grow, this collaboration has to grow” (interview 5/3/19)
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Phase 1: Dyadic structure Phase 2: Central hub structure Phase 3: Mature multi-lateral network
Network structure
DMO O DMO
O
KI-1
KI-1 KI-2 KI-2
KI-3 KI-3
DMOO KI-1
KI-2 KI-3
DISCUSSION
The relevance of performing complex technological innovation activities in partnerships is increasing (Dyer & Nobeoka, 2000). The steep pace of technology development and technology fusion possibilities create an environment in which a single organization cannot hold all the necessary resources and capabilities to innovate and survive (Wassmer & Dussauge, 2011). To increase the explorative capacity of alliances, it is essential to create network openness by tying multiple sources of knowledge together, changing the dyadic network into a multi-lateral alliance (Ahuja, 2000). Although the phenomenon of network change is increasingly relevant, in practice we do not know much about how the process of changing dyadic partnerships into a multi-lateral alliance actually occurs and how this process alters the nature of ties that hold the network together.
By examining the transformation of dyadic partnerships into a multi-lateral alliance in a real-life case setting, I have gathered new empirical insights that the process of network change occurs in phases and that the nature of ties not only alter because of a change in the network structure, but also influence the process of changing the network itself. In this section I will discuss these insights and give clear contributions to both literature and practice.
The process of network change. My first research objective is to identify how networks actually change from a constellation of dyadic partnerships into a multilateral alliance. Current literature examines network change as a static event, linking strategy to structural outcomes (Ahuja et al., 2012). In other words, changing dyadic partnerships into a multilateral alliance should immediate increase innovation potential. Literature does not take into account that network change is actually a dynamic process in which the new multi-lateral alliance has to mature to reach full potential. In my research I have collected empirical insights that the process of network change can be divided in at least three different phases. Figure 9 shows the identified phases of changing a constellation of dyadic alliances into a multi-lateral alliance.
FIGURE 9
The process of network change
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Phase one represents the original network state, the constellation of dyadic partnerships.
The partnerships are long-standing relationships between a focal organization and his partners. The relationships are characterized by transactions between partners. The ties between the focal firm and his partners are strong, but dyadic. Through intensively working together, a high threshold of trust has been established and working routines have been optimized. Contracts are drafted to scope the assignments and facilitate the bureaucratic process. There is cooperation between the focal organization and the dyadic partners, but competition between the dyadic partners. Trust in the strong position of the focal organization initiates the transformation of the alliances.
In phase two challenges arise. The transformation of network does not immediately alter the role of the alliance members into equal suppliers and consumers of knowledge through the network.
I gained insights that the role of the DMO changes from a principal in the dyadic partnerships to a facilitator in the multi-lateral alliance. This can be explained by two reasons. First, a multi-lateral alliance is extremely difficult to govern because of the increasing ties and nodes, and the absence of an authority relationship (Dyer & Nobeoka, 2000). Second, the trust established between the focal organization and the partners cannot be copied to the new direct ties between partners. The prior experiences in the dyadic partnerships are not easily transferred, and the transition from a competitive position between partners into a cooperative environment is challenging (Abancens et al., 2015). Changing the position of the focal organization from being a principal into a central hub within the network has the role to fill these gaps by orchestrating knowledge flows, the appropriability regime, and the balance within the alliance network, to compensate for the new
‘weaker’ ties between the knowledge partners (Hacki & Lighton, 2001).
Phase three is the end-state in which all the actors in the network participate as an equal supplier and consumer of knowledge in a balanced ecosystem. The ties between partners have grown strong because of intensive social exchange and efficient knowledge sharing routines. Strategy forming, operations, and consistency in the network are a result of joint efforts.
The alteration of the nature of ties to strengthen the multi-lateral network. The second objective of my research is to discover how network change influences the nature of ties between partners. The identification that network change is a dynamic process, evolving in different phases, is already a significant contribution to literature. But to fully understand the phenomenon, it is also essential to know how the nature of ties alters during the network change. The ties between partners do not only hold the network together, my research identifies that the nature of ties also determines the ability and willingness of partners to share knowledge within the network, and by that influencing the pace in which the dynamic process of network evolution occurs. In phase two of the network change new ties are being formed and existing ties are altered. Consistent with existing
