Academic journal article Management Dynamics

The Evolution of Alliance Formation in Biotech Firms: An Organisational Life Cycle Framework

Academic journal article Management Dynamics

The Evolution of Alliance Formation in Biotech Firms: An Organisational Life Cycle Framework

Article excerpt

ABSTRACT

This study investigates the evolution of strategic alliances in biotech companies according to an organisational life cycle framework. The study focuses on various attributes of alliance formation patterns, including alliance objectives, partner types, alliance modes, and alliance scopes along the stages of the organisational life cycle. The findings show a different pattern of alliance formation and objectives across life cycle stages, and the results indicate that firms are less likely to form alliances in the growth and maturity stages than in the birth stage. In the early stages, firms tend to focus on exploration and non-equity alliances, which then evolve into "exploitation" and "equity" alliances. Firms are also likely to form alliances with partners of a similar strategic scope in the early stages and later form alliances with partners of different strategic scopes. Overall, the results support the idea that firms generally follow sequential decisions with alliance strategies along the evolutionary process of the organisational life cycle.

INTRODUCTION

As the business environment has become more complex, strategic alliances have drawn the attention of researchers and practitioners. It is known that many companies gain benefits through strategic alliances. First, the ability to capitalise on strategic alliances enables companies to rapidly penetrate new marketplaces by accessing their partners' capabilities. In addition, strategic alliances allow companies to enter a "trial period" before making the substantial commitment of resources that mergers and acquisitions (M&As) involve. At the same time, many firms use strategic alliances as a critical method of sustaining high performance. Strategic alliances help increase the rate of new product development, enhancing a company's chances for survival and success (Deeds and Hill, 1996). In addition, strategic alliances help firms gain market power and move more quickly into new markets and technologies (Hagedoorn, 1993).

Although it is evident that firms benefit from strategic alliances, little is known about why and how a firm's alliance formation process progresses and changes. As a firm evolves from one stage to next, it may require additional resources to support its growth. Firms learn as time passes, and throughout the learning process, they build "alliance capability". In recent years, more researchers have devoted attention to the co-evolutionary aspect of alliance research, which has enabled them to explain the simultaneous development of organisations and their environments (Koza and Lewin, 1998).

Firms use strategic alliances as an adaptive response to a changing environment (Park, Chen, and Gallagher, 2002). However, most studies have focused primarily on external environmental aspects, such as market growth and competitive structure. We suggest that firms should base their decisions on alliance formation in response to internal organisational changes as well. In addition, no empirical evidence was found related to the major problems firms may encounter in each stage and in the overall development of alliance formation. We expect that in the evolutionary process, firms may face different needs.

OBJECTIVES

The present study introduces the organisational life cycle as a way to answer questions on how firms can use and structure alliances in order to adapt to organisational changes.The organisational life cycle framework describes the evolution of a firm, including its progressive stages of emergence, growth, maturity and decline. We have found that this evolutionary perspective is useful in framing the process of strategic alliances, as each stage represents a unique strategic context that influences the nature and extent of a firm's external resource needs and resource acquisition challenges.

Life cycle stages are the clusters of issues or problems that each firm must resolve, and the inherent nature of problems shows a roughly sequential ordering through a firm's cycle. …

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