Anderson & Sedatole

Management Accounting for the Extended Enterpris e

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UniversityPressScholarshipOnlineOxfordScholarshipOnline

ManagementAccountingintheDigitalEconomyAlnoorBhimani

Printpublicationdate:2003PrintISBN-13:9780199260386PublishedtoOxfordScholarshipOnline:August2004DOI:10.1093/0199260389.001.0001

ManagementAccountingfortheExtendedEnterprise

PerformanceManagementforStrategicAlliancesandNetworkedPartners

AlnoorBhimani(ContributorWebpage)

DOI:10.1093/0199260389.003.0003

AbstractandKeywords

Thischapterarguesthatthemulti-facetednatureofallianceformationandalliancemanagementandcontrolcreatesnewdemandsformanagementaccounting.Itconsidersthreekeycomponentsofamanagementaccountingframeworkforstrategicalliances:thegovernancestructure,theperformancemeasurementandcontrolstructure,andtheprocessformanagingthealliancenetworkovertime.Itshowsthatnewpracticesareemergingandoldpracticesareadaptingtomeetthedemandsofmanagementaccountingintheextendedenterpriseofthestrategicalliancenetwork.

Keywords:managementaccounting,alliancemanagement,allianceformation,strategicalliancenetwork

IntroductionFirmboundariesnolongerdefinetherelevantentityforperformancemanagementformanyfirms.Competitiveforces,deregulatedeconomiesandtechnologicaladvanceshave


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reducedthecostsoftransactingwithexternalparties1anddiminishedthevalueofverticalintegration.Atthesametime,thepotentialreturnstocollaborationhaveincreased,asfirmswithuniquecapabilitiesjoinforcestomorerapidlydevelopanddeliverinnovativeproductsandservices.Collaborationmaytaketheformoffranchises,licensingarrangements,jointventures,orminorityequitysharesarrangementsthataligntheinterestsofparticipatingpartiesthroughasharedprofitopportunityandformalprofit-sharingrules(Hansmann1996;HansmannandKraakman2000;Orts1998).Alternatively,theymaytakeamoreamorphousform,usingfewmechanismsfromcontractlawtostructuretheirinteractionsorallocatethegainsfromtrade.Termsthathavebeenusedtodescribetheserelationshipsinclude:strategicalliances,strategicpartnerships,consortia,strategicnetworks,cooperativeinterorganizationalrelationships,embeddedrelationships,extendedenterprises,JITII,andstrategicsupplychains(DasandTeng1998,1999;Dyer2000;DyerandNobeoka2000;Granovetter1973;Granovetter1985;Gulati1995a,1998;GulatiandSingh1998;Gulatietal.2000;RingandVandeVen1994).

Theseorganizationalformspopulatethevastmiddlegroundofhybridsthatliesbetweenmarketsandhierarchies(HarbisonandPekar1998;Williamson1985,1991).IfevidencefromUSfirmsisrepresentative,theyaccountforalargeandgrowing(morethan10,400announcedintheyear2000as(p.37) comparedto3,730in1996)segmentoftheworldeconomy(seeFigure3.1).Accenture,amultinationalconsultingfirm,estimatesthatthetypicallargeUScompanyformed177alliancesfrom1997to2000andthat,foraquarterofthesecompanies,allianceswillaccountformorethan40percentoftheirmarketvalueby2004(www.accenture.comAugust2001).Inasurveyofseniormanagers,morethan80percentoftopexecutivesconsiderstrategicalliancestobeaprimevehicleforfuturegrowthandtheyexpectalliancestoaccountfor25percentoftheircompany'smarketvaluewithinfiveyears(Schifrin2001a).

Theneweconomyhasnotgivenbirthtohybridorganizationalforms.Rather,theneweconomyhasrevealedthemasinstrumentsofcompetitiveadvantage.Thepopularbusinesspressproclaims,theabilitytoattractpartnersandmanagealliances...isthenewcorecompetencyofthenetworkedage(Schifrin2001a)


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(Source:ThomsonFinancialServices).

Fig.3.1. Theformationofcollaborationsthroughjointventureorstrategicalliances,19852000.Ajointventureisdefinedasacooperativebusinessactivity,formedbytwoormoreseparateorganizationsforstrategicpurpose(s),whichcreatesanindependentbusinessentity,andallocatesownership,operationalresponsibilities,andfinancialrisksandrewardstoeachmember,whilepreservingeachmember'sseparateidentity/autonomy.Astrategicallianceisdefinedasacooperativebusinessactivity,formedbytwoormoreseparateorganizationsforastrategicpurpose(s),whichdoesnotcreateanindependentbusinessentity,butallocatesownership,operationalresponsibilities,andfinancialrisksandrewardstoeachmember,whilepreservingeachmember'sseparateidentity/autonomy.

(p.38) andmajorconsultingfirmsaretrumpetingpartneringskillsasthenextcompetitivebattleground(e.g.,HarbisonandPekar1998).Researchersarealsofindingthattheabilitytointeractwithsuppliersinapartnershiparrangement,termedrelationalcapital,isadistinctiveorganizationalcapabilitythatfirmscultivatedeliberately(LorenzoniandLipparini1999).Althoughtheresearchandteachinginsomemanagementdisciplinesreflectthetrendtowardcollaborationasamodeoforganizingeconomicactivity,thefieldofaccountinghasgenerallybeenunresponsivetothesechanges.2InhisPresidentialLectureatthe2000AmericanAccountingAssociationmeetingonthefutureofaccountingresearch,distinguishedaccountingscholar,BillKinneyobserved:Weneedtoconsiderupdatingtheaccountingmodelto...measureandreportonentitieswithcloudyboundaries....howshouldweaccountforanentitywhoseinventoryisownedbyanotherpartyandwhosefixedassetsareownedbyatradingpartner?(Kinney2001).Frustratedbythedifficultyofidentifyingfirmsthatsuccessfullymanagecomplexpartnerrelationships,Forbeseditorsnotedthatmeasuringfinancialperformancefromtheoutsideisnearlyimpossible(Anonymous2001:64)inpartbecauseanalystsdonottrackalliances.Theseexamplesfocusonopacityoffinancialaccountingfortransactionsbetweenpartners.InthischapterweextendremarksbyHopwood(1996)andScapensandBromwich(2001),toarguethatthecaseforanewmanagementaccountingfortheextendedenterpriseisequallycompelling.

Corporatestrategyscholarshypothesizethattheabilitytoleadandparticipateineffectivecollaborationsisadistinctivecapabilityassociatedwithincreasedfinancialreturns(Anand


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andKhanna2000;LorenzoniandLipparini1999;WolffandReed2000;Zaheeretal.1998).Wepositthatnewmanagementaccountingpracticesarefulfillingolddemandsforperformancemeasurementandmanagementcontrolinnewwaystofacilitatethiscapability.Atthesametime,theyarealsofulfillingnewdemandsforpromotinglearningandrichcommunication(AnandandKhanna2000;Bianchi1995)inacoordinatednetworkofpartnerfirms(Gulati1995a,b;Gulatietal.2000).Indevelopingourcase,wereviewtheoryandevidencefromthecorporatestrategyliterature,theorganizationalliterature,andtoalesserdegree,theoperationsmanagementandmanagementaccountingliteratures.Wealsoconductathoroughsearchofthepractitionerliteraturetoidentifycontemporaryaccountsofpartnerrelationships.Ourintentinthelatteristoseewhetheranecdotessupportourintuitionthatdifferentmodesofmanagementaccountingaccompanytheemergenceofhybridorganizationalforms.Ourobjectiveistosuggestanewresearchagendafortheextendedenterprisethatislinked(p.39) towhathastraditionallybeentermedmanagementaccountingresearch,butwhichchallengestheseboundariesusingliteraturesthathavebeguntoexplorethecontoursoftheneworganizationallandscape.

ThesectionentitledTheNewEconomyandtheExtendedEnterpriseprovidesabriefstatisticaldescriptionofthephenomenaofnewlyemergentformsofstrategicalliancesandjointventures.ThesectiononMarkets,Hybrids,andHierarchiesreviewstheoreticalandempiricalstudiesofcontingenciesthatportendtheform,substance,andperformanceoutcomesofinterfirmrelationships.ThesectiononDeterminantsofAllianceSurvivalandStabilityexaminesthedynamicsofthecontingencyrelationship.Virtuallyallcontingencystudiesattempttodeterminethemagnitudeofexogenousshocksthatprecipitatecostlyrealignmentsofstrategyandstructure,andthespeedwithwhichstrategy,structure,andperformancerespondtotheseshocks.However,strategicalliancesaresomewhatuniquebecause,absentexogenousshocks,thecontingenciesthatpredicttheformationandsuccessofarelationshipleavefewexplanationsforthehighrateoffailureoftheserelationships.3Researcherswhostudyalliancefailuresappealtoadifferentsetofcontingenciesassociatedwithrelationaldynamicsthatareendogenoustothepartnership(e.g.AnandandKhanna2000;DasandTeng2000;Doz1996;Dozetal.2000;Hughesetal.1997;Madhok1995;MadhokandTallman1998).Forexample,anextensiveliteratureoninterfirmrelationsexaminestheroleofindividualandorganizationaltrustinenablingeconomictransactionsthatappeartobesubjecttoseverehazardsofopportunisticbehaviour(e.g.Granovetter1973;Lewis1999;RingandVandeVen1992,1994;Zaheeretal.1998;ZaheerandVenkatraman1995).Trustmaybebasedinitiallyonobservablereputationsintransactionswithotherpartners;however,withrepeatedtransactions,itmayalsobeexperientialbasedonprivateinteractionsbetweenpartnerfirmsandtheiremployees(Doz1996;Dozetal.2000;VanderMeer-KooistraandVosselman2000).Tothedegreethattrustservesasacomplementto(DasandTeng1998,2001)orasubstitutefor(Gulati1995a;GulatiandSingh1998)alterativemechanismsforstructuringandgoverninginterfirmrelations,thecontinuallyevolvingstateofexperientialtrustintroducesatime-varyingcovariatethatmoderatesthestrategyandstructurerelationship(Dekker2001).

ItistemptingtodrawparallelsbetweentheallianceliteraturereviewedinthesectionsonMarkets,Hybrids,andHierarchiesandinthesectionentitledDeterminantsoftheAllianceSurvivalStability,andtheliteratureonthealignmentoffirmstrategy,structure,and


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performance.However,theallianceliteratureisdistinguishedbythedegreetowhichthequestionsareexaminedatseverallevelsofanalysis:thelevelofthetransaction,thelevelofthe(p.40) relationshipbetweentwofirms,andthelevelofthenetworkofrelationshipsthatbindsseveralfirmstoacommongoal.4Wepositthatthemulti-levelnatureofalliancemanagementisonesourceofnewdemandsformanagementaccountingandperformancemanagement.

InthesectiononPerformanceManagementandManagementControlinStrategicAllianceNetworksweconsiderthreekeycomponentsofamanagementaccountingframeworkforstrategicalliances:thegovernancestructure(includingthemanagementofriskandtrust),theperformancemeasurementandcontrolstructure,andtheprocessformanagingthealliancenetworkovertime.Wealsopresentevidencefromthepractitionerliteraturethatnewpracticesareemergingandoldpracticesareadaptingtoaddresstheuniquedemandsofmanagementaccountingintheextendedenterpriseofthestrategicalliancenetwork.TheConclusionsummarizesthekeycomponentsofmanagementaccountingforstrategicalliancenetworksandconcludeswiththepropositionthattheexamplesofinnovativeandadaptedpracticesfoundareindicativeofanewareaforresearchonmanagementaccountingintheextendedenterprise.

TheNewEconomyandtheExtendedEnterprise:EvidenceonStrategicAlliancesandJointVentures,19852000WeusedatafromThomsonFinancialService'sSDCPlatinumJointVenturesandStrategicAlliancesDatabasetovividlyillustrateourclaimthatacentralfeatureoftheneweconomyispermeablefirmboundariesandincreaseduseofcollaborationtoachievecompetitiveadvantage.Strategicalliancesandjointventureshaveincreaseddramaticallyinthelastdecadeathreefoldincreasebetween1990and2000(Figure3.1).Theformationofcollaborativeinitiativeshasalsooutpacedthebenchmarkgrowthintheestablishmentofnewfirms.TheUSCensusreportsthatthenumberofnewfirmsgrewby8.7percentbetween1992and1997(http://www.census.gov/csd/susb/susb2.htm,October2001).Inthesameperiod,thenumberofstrategicalliancesandjointventuresincreasedby12.2percent.However,thisaggregatestatisticmasksanothertrend.Specifically,strategicalliances,whicharenotaccompaniedbytheformationofaformalthirdentity,havebecomemorepopularascomparedtojointventures,whichrelyheavilyoncontractlawtoenforcethetermsofcollaboration.Between1990and2000,strategicalliancesgrewfrom48to68percentofallannouncedcollaborations.

Theswellincollaborativeactivityhasnotaffectedallindustriesequally(Figure3.2).Theshareandtheabsolutenumberofalliancesformedinmoretraditionalmanufacturingindustries(SICcodes2039)hasdeclinedfroma(p.41)


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(Source:ThomsonFinancialServices)

Fig.3.2. Theformationofcollaborationsthroughjointventureorstrategicalliances,19852000fortwodigitSICcodes:SICcodedefinitions(http://www.census.gov/epcd/naics/nsic2ndx.htm):0109,Agriculture,forestryandfisheries;1019,Mineralindustriesandconstruction;2039,Manufacturing;4049,Transportation,communicationandutilities;5059,Wholesaletrade,retailtrade;6069,Finance,insuranceandrealestate;7089,ServiceIndustries;9099,PublicAdministration

combinedshareof57.4percent,(2,139announcements)in1990toacombinedshareof13.6percent(1,413announcements)in2000.Incontrast,serviceindustries(SICcodes7089)showedadramaticincreaseintheshareandthenumberofcollaborationsformedduringtheperiod,1990to2000increasingfrom16percent(609announcements)to54percent(5,627announcements)ofallcollaborations.Thisextraordinarygrowthisnotexplainedsimplybygrowthintheservicesector.(USCensusdataindicatethatbetween1992and1997thenumberofmanufacturingfirmsgrewonly1.7percent,whilethenumberofservicefirmsgrewby13.3percent.)Rather,itreflectsasignificantlyincreasedpropensityamongallservicefirmstoemploycollaborationstrategiesduringthe1990s.

Dataonthecharacteristicsofcollaborationsrevealthatthemotivationforcollaborationsandthesubstanceofcollaborativeactivityhasalsochanged(Table3.1).In1990,only12percentofallcollaborationswerebetweenpartnersofthesamenationality.By2000,theequivalentsharewas47percent.Whataccountsfortheincreaseduseofcollaborativearrangementswithinnationalborders?Deregulationandincreasedfreetradeplayamajorroleindiminishingtheuseofinternationalcollaborationsasameansofgainingaccesstoworldmarkets.Howeverthisisonlypartofthestory.Asthesecondcolumn(p.42)

Table3.1Characteristicsoftheactivitiesofstrategicalliancepartnersforcollaborationsthatwerefirstannouncedduringtheperiod,19852000


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Year Percentofpartnershipsinvolvingpartnersofthesamenationality

Percentofpartnershipswithactivitiesthatcrossnationalborders

Percentofpartnershipsinvolvingtechnologylicensing

Percentofpartnershipsinvolvingsharedresearchanddevelopment

Percentofpartnershipsinvolvingsharedmanufacturing

Percentofpartnershipsinvolvingsharedmarketing

1985 5.3 90.7 24.3 4.2 17.0 12.51986 13.1 81.7 16.9 4.2 15.6 12.11987 6.9 84.1 24.2 8.0 18.1 17.61988 14.0 75.6 18.8 8.4 15.5 14.11989 11.0 78.9 22.4 13.5 19.1 19.71990 12.0 67.6 15.5 17.7 18.7 29.91991 14.3 66.5 12.5 20.6 22.2 34.71992 37.3 58.0 13.1 25.3 21.4 42.61993 31.7 62.6 13.2 23.5 29.9 40.11994 33.6 63.9 14.8 22.4 30.2 33.81995 34.2 63.2 15.8 16.2 30.9 28.81996 33.3 61.7 17.2 13.5 26.6 25.11997 37.2 57.9 16.9 14.2 21.7 18.81998 40.2 56.0 16.3 6.9 21.1 15.71999 45.1 51.9 11.3 4.6 17.7 11.82000 46.9 51.7 3.3 5.7 10.3 10.7Source:ThomsonFinancialServices.

ofTable3.1indicates,evenwiththeshifttolocalpartners,in2000,partnershipactivitiesremainedheavilyfocusedonthosethatcrossedinternationalbordersfor51.7percentofcollaborations(adeclinefrom67.6percentin1990).

Amorecompellingexplanationliesintheshiftinthesubstanceofcollaborativeactivity.Inthepast,collaborationswereoftenamechanismfortransferringtechnologiesthatweresubjecttoimpactedortacitknowledge.Collaborationwasnecessarytopermitafirmtoearnprofitsonlicensingproprietarytechnologies.Duringthe1990sitbecamemorecommonforpartnerstojointlydevelop,produce,ormarketproductsandservices.Indeed,inasurveyof2,000alliancesin19945,theconsultingfirm,Booz-Allen&Hamilton,foundthatmorethan55percentofallianceswerebetweencompetitors(HarbisonandPekar1998:6,19).TheremainingcolumnsofTable3.1chartthedeclineoftechnologylicensingandtherelativeincreaseofjointactivities.Relatedtotheshifttocollaborativeactivitiesisasubtleshifttowardsnetworksofcollaborators.In1985,95percentofcollaborationswerebetweentwopartners;by2000,only86percentofcollaborationswerebetweentwopartners.


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Reflectingondifferencesinearlycollaborativeactivityascomparedtothoseoftheneweconomyera,theearlydataareconsistentwiththestrategy(p.43) literatureoftheperiod(Porter1980,1985).Thisliteraturearguedforjointventuresasameansofenteringinternationalmarkets,wherelocalexpertiseandpoliticalinfluencecouldhelpbridgeculturaldividesandwheregovernmentregulationsmightprohibitforeignentrywithoutalocalpartner.Recentdataaremoreconsistentwithcontemporaryresource-basedviewsofthefirm(e.g.BrandenburgerandNalebuff1996;Hameletal.1989;PrahaladandHamel1989,1990),inwhichstrategicpartnershipsbetweencapablespecialists(includingcompetitors)providecompetitiveadvantage.Thedatasuggestseveralimportantfeaturesofcollaborationsthathaveemergedintheneweconomy:

Themagnitudeofcollaborativeactivityhasincreased.Themechanismsofcollaborationhavechanged.Theparticipantsincollaborationshavechanged.Themotivationforcollaborationhaschanged.Thesubstanceofcollaborativeactivityhaschanged.

Inthenextsection,wereviewkeyresearchfindingsfromthestrategyandorganizationalmanagementliteraturesthatexplorethesechanges.

Markets,Hybrids,andHierarchies:Theoriesoffirmboundariesandallianceformation

DeterminantsofFirmBoundaries:MarketsversusHierarchiesContemporaryresearchonthedeterminantsoffirmboundariestakesasastartingpointtheNewInstitutionalEconomicsinwhichgovernancestructure,ratherthanaproductionfunction,definesafirm(Williamson1985).Inthisliterature,researchersseektoexplainwhyfirmsrelyonmarkets(i.e.arm's-lengthtransactions)toobtainsomeinputsbutproduceotherinputsinternally(i.e.verticalintegrationorhierarchies).Inmarkets,priceistheprimarycoordinationmechanismandformalcontractsreflectthemutuallyagreed-uponobligationsofself-interested,transactionpartners.Disputesthatariseareoftensettledinacourtoflaw.Whenfirmsoptforverticalintegration,operationsmayberuninacentralizedordecentralizedfashion(e.g.usingquasi-marketmechanismssuchasnegotiatedtransferprices);however,attheuppermostlevelofmanagement,acommoncentralauthorityoverseestheinterestsofthefirmandresolvesdisputesthatariseatlowerlevelsoftheorganization(Williamson1991).Twotheorieshaveemergedtoexplainfirmschoicesbetweenmarketsandhierarchies:thetransactioncostminimizingviewandtheresource-basedview.

Transactioncosttheoryhypothesizesthatfirmschooseanorganizationalform(i.e.marketsorhierarchies)thatminimizesthesumofproductionandtransactioncosts(Coase1937).Transactioncostsincludethecostsofnegotiatingand(p.44) writingcontracts,monitoringandenforcingcompliancewithcontractterms,andresolutionofcontractdisputes(Joskow1987;Williamson1985).Thetheoryreliesontwobehaviouralassumptions.Thefirstisboundedrationalityofcontractwriters,which,alongwithuncertaintyinthespecificationofthetransactionitselforintheexternalenvironment,makecompletecontractsimpossibleorprohibitivelyexpensive.Incompletecontractsandself-interestedbehaviour(thesecond


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behaviouralassumption)ofcontractingparties,createthepotentialforopportunismandsignificantholdupcosts(Williamson1985,1991).Transactioncosteconomicstheorizesthatmarketsandhierarchiesdifferintheircapacitytoadapttouncertaintyandchangingconditionsand,thus,differintheleveloftransactioncosts.Firmsintegratetransactionswithcharacteristicsassociatedwithhightransactioncosts,suchas:uncertaintyindefiningthetaskoritscompletion,taskcomplexityorinterdependence,infrequencyoftransacting,andthenecessityofinvestmentsinassetsspecifictothetransaction(MilgromandRoberts1992;Williamson1985).Empiricalstudiessupportthepropositionthatfirmstendtosubsumetransactionsthatrequireinvestmentsinspecificassets(Klein1988;Mastenetal.1989;MonteverdeandTeece1982;Ulset1996),thatarefraughtwithuncertainty(NovakandEppinger2001;Ulset1996),orarelinkedtoothertransactions(Andersonetal.2000).5

Althoughtransactioncostseconomicshasbecomeafundamentaltheoryoforganizationaldesign,recentresearchhasidentifiedtwoaspectsofthetheorythatrequirefurtherinvestigation.First,transactioncosteconomicsdoesnotencompasstheeffectsofothercostssuchasthoseassociatedwiththecoordinationofactivitieswithinandbetweenfirms(LorenzoniandLipparini1999).Second,althoughthetheoryidentifiesinterdependenttransactionsasasourceoftransactioncost,thenatureandsourceofinterdependencieshasbeeninsufficientlyexplored.Empiricalstudiestypicallyusetheindividualtransactionastheunitofanalysis,ignoringinterdependenciesaltogether.Interdependenciesthatmeritinvestigationincludetechnicalinterdependenciesamonginputs,suchasthoseconsideredinAndersonetal.(2000),aswellasinterdependenceamongthefirmanditsnetworkofsuppliersthatreflectrelationalcapabilities(Dozetal.2000;Gulati1995a;Gulatietal.2000;LorenzoniandLipparini1999;RingandVandeVen1992).

ThesecondschoolofthoughtonorganizationaldesignderivesfromPenrose's(1959)seminalwork,andtakesaresource-basedviewofthefirm.6(p.45) Accordingtothisview,firmboundariesreflectstrategicchoicesabouttheuseofscarce,inimitableresourcestoachieveasustainablecompetitiveadvantage(PrahaladandHamel1989,1990).Scarcephysicalandhumanresourcespresentfirmswitharangeofopportunities.Penrose(1959:25)distinguishesresourcedeploymentdecisionsasthesourceofuniquenessofindividualfirms.Theoristswhoholdtheresource-basedviewtendtofocusonthedynamicsoffirmstrategy;forexample,onhowandwhyfirmswithseeminglyidenticalinitialresourcesdeploythemdifferently.Forexample,Madhok(1996)andBianchi(1995)focusonhumancapitalandcharacterizethefirmasabundleofknowledge.Theypositthatresourcedeploymentchoicesreflecteffortstousemarketinteractionstostimulatelearningandthecreationofnewhumancapital.Othersconsidertheprimaryresourcetobethefirm'sinimitableorganizationalcapabilitiesandroutines,forexample,theabilitytonetworkwithsuppliers(e.g.LorenzoniandLipparini1999).

Insum,bothtransactioncosteconomicsandtheresource-basedviewofthefirmprovideexplanationsforfirmboundaries.Thetransactioncostviewpresentsamorestaticviewoffirmssettingboundariestooptimizecoststhatareknownoranticipated,givenasetofassumptionsabouthumanbehaviour.Theresource-basedviewpresentsfirmsengagedinadynamicsearchforopportunitiestodeployscarceresourcesinamannerthatyieldsabnormalreturnstoentrepreneurialefforts.Althoughthetheoriesdiffer,itismoreaccuratetoviewthemascomplementstooneanotherratherthanascompetingtheoriesof


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organizationalform(Kogut1988).Theunderlyingmotivationforboundarychoicesforagivenfirmdependsonorganizationalcontext,andwhetherthetransactionscost(e.g.,costreduction)approachtoprofitmaximizationismorelikelytooutperformtheresource-based(e.g.,marketgrowth)approach(Kogut1988:330).Inthenextsectionweconsiderhowboththeoriesexplainhybridorganizationalforms.

HybridOrganizationalFormsBetweenmarketsandhierarchiesliesanarrayofhybridorganizationalforms.Some,likejointventures,franchisesorotherlicensingarrangements,arebackedbyformal,legallyenforceablecontracts.Others,likestrategicalliancesandindustryconsortia,mayoperatewithoutrecoursetolegalenforcementmechanisms(although,theymayemployformalprocessesformanagingthealliance).Thefirstissueinconsideringhybridsinrelationtotheoriesofthefirmisdeterminingwhethertheyrepresentstableorganizationalforms.Perhapshybridorganizationalformsaresimplyawaystationinthetransitionfrommarketstohierarchies,orviceversa.Indeed,inhisseminalbookonstrategy,MichaelPorter(1990:613)claimsthatalliancesaretransitionaldevicesratherthanstableentities.Giventhehighfailurerateofalliances,thispropositionseemsreasonable.However,thesheervolumeofcollaborativeactivityinthelastdecadeandthelongevityofmanyrelationships(p.46) havecausedmanyresearcherstoconcludeotherwise(Menard1995,1996;Williamson1985,1991).Williamson(1991)promoteshybridstothesamelevelofprominenceasmarketsandhierarchiesanddescribestheadaptationcharacteristicsofthisgovernancemodeandthetypesoftransactionsforwhichitisparticularlywellsuited.LorenzoniandBaden-Fuller(1995)observe,Mostorganizationsoscillatebetweenhavingamplecreativityandlittlediscipline,ortoomuchdisciplineandnotenoughcreativity.Theyarguethatanetworkoffirmswithastrongstrategiccentreyieldsanidealmiddleground.Thus,recentthinkingintheacademicliteraturesuggeststhathybridsare,infact,stableorganizationalforms.Thechallengeforresearchersistoreconciletheseneworganizationalformswithexistingtheory,ortodevelopnewtheoriesthatareconsistentwiththeneworganizationalrealities.

Intransactioncosteconomics,theintensityoftheprofitincentiveisakeyadvantageofmarkets;thesuperiorcoordinationthatisattainedwithinthefirmisthekeyadvantageofhierarchies.Hybridsarecharacterizedashavingintermediatelevelsofincentiveintensityandcoordinationability(Ulset1996;Williamson1991).Thetheorypredictsthathybridgovernanceformsemergewhentransactioncostsaresufficientlyhightomakemarkettransactionstoocostly,butnothighenoughtojustifyverticalintegration(Gulatietal.2000;Menard1995;MilgromandRoberts1992;Williamson1985).7Thus,organizationalformsalignwithacontinuumoftransactioncosts,ratherthanassumingoneoftwoextremeforms(e.g.marketsorhierarchies).

Hybridorganizationsemployoneofthreegovernanceforms:equityjointventures,inwhichtwoormorefirmscontributeequitytoformanindependent,jointly-ownedentity;equityexchange,inwhichoneormorefirmstakeaminorityequitystakeinoneanother;andnon-equityarrangements,wherenoequityisexchangedandathirdorganizationalunitisnotcreated.Thefirsttwoapproaches,whichuseequitytoalignpartnerinterests,aregenerallyconsideredtopossesssimilarcontrolcharacteristics,includingthelossofhigh-poweredincentives,ofhierarchies.Non-equityalliances,ontheotherhand,possesscontrol


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characteristicssimilartoarm's-lengthtransactions(Gulati1995a;Williamson1991).Transactioncosteconomicspredictsthattransactioncharacteristicsthatpromptedverticalintegrationwillalsofavourequityovernon-equityalliances.Forexample,firmsaremorelikelytoformequityallianceswhenappropriationhazardsarehigh(Oxley1997,1999),orwhenuncertaintyandassetspecificityarehigh,suchasinR&Dactivities(BuvikandReve2001;Gulati1995a;GulatiandSingh1998;OsbornandBaughn1990;Pisano1989,1990;Pisanoetal.1988).

(p.47) Institutionalfactorsthataffectwhetheranallianceislikelytobesustainablecomparedtomarketsandhierarchiesincludeappropriationrisks,reputationeffects,anduncertainty(Williamson1991).Whentransactionsrequirespecificassets,thelikelihoodofsustainingahybridorganizationformdeclinesastherisksofassetappropriationordevaluationincrease.Overtime,firmsdevelopreputationsastrustworthy(oruntrustworthy)tradingpartners.Insomecircumstances,reputationcanserveasabondagainstopportunisticbehaviourthatallowsindependentfirmstoengageintransactionsthatwouldnormallybeintegratedwithinafirm.Moreover,asnetworksoffirmsbecomemoreembedded,ormutuallydependent,reputationsbecomeintertwinedandassociatedwithanentitythatrepresentsthegroupoffirms.8Lossofindividualfirmidentitycanservetobindalliancepartnerstogetherforacommonmissionandtoreducetheriskofopportunisticbehaviouramongalliancepartners.Ingeneral,hierarchiesprovidethegreatestopportunitytoorchestratecoordinatedactivitiesatlowcost.Committedalliancepartnersmaybeabletonearlyreplicatecoordinationroutines.However,whenexogenousshocksarelikelytoaffecttradingpartnersdifferently,hierarchiesarebetterabletomountacoordinatedresponsebecausedecisionrightsareconcentratedwithasingle,like-mindedmanagementteam.Asaresult,firmschooseverticalintegrationoverallianceswhenexogenousshocksarelikely(Williamson1991).

Insum,thetransactionscostviewofthefirmincorporateshybridorganizationalformsasamiddlegroundbetweenmarketsandhierarchies.Likemarketsandhierarchies,theselectionofahybridorganizationalformisinfluencedbytheleveloftransactionsandproductioncosts,whichinturnareinfluencedbythecharacteristicsofthecontemplatedtransactionandtherelativeproductionefficiencyofthetradingpartners.

Theresource-basedviewofthefirmoffersadifferentexplanationfortheformationofhybridorganizationalforms;namely,asasourceofsustainablecompetitiveadvantage(e.g.DozandHamel1998).Transactioncosttheoryportraysthefirmoptimizingitsprofitsoverarangeofalternativeorganizationalstructuresforatransactionwhoseoutputsarerelativelywell-understood.Theresource-basedviewconsidersthepossibilitythatfirmsenterallianceswithoutwell-specifiedgoalsorwithoutawell-specifiedplanforattainingtheirgoals,butwithreasontobelievethatcollaborationamonguniquelyqualifiedpartnerswillcreateanopportunityforbothpartiestoenlargethepieoftheirproductiveendeavours(BrandenburgerandNalebuff1996;Doz1996;Hameletal.1989).Studiesthatdocumentthestrategicroleofalliancesinclude:Gulati(1995a,b),GulatiandSingh(1998),Kaleetal.,Kaufmanetal.(2000),LorenzoniandLipparini(1999),Menard(1995),RingandVandeVen(1994),Tomkins(2001)andWilliamson(1991).Evidenceofpositive(p.48) financialreturnstoeffectivecollaborationisfoundin:AnandandKhanna(2000),LorenzoniandLipparini(1999),WolffandReed(2000),Zaheeretal.(1998),Baumetal.(2000)andStuart(2000).In


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alargesamplestudy,AnandandKhanna(2000)findanassociationbetweenallianceexperienceandabnormalmarketreturns.Usingsurveyresults,HarbisonandPekar(1998:1)reportthatstrategicalliancesproducedareturnoninvestmentofnearly17percentamongthetoptwothousandcompaniesintheworldfornearly10years...50percentmorethantheaveragereturnthatthecompaniesproducedoverall.

Ifwecompareevidenceonwhyfirmsprofesstoengageinstrategicalliances(Kaleetal.2000;Tsang2000)withthemotivationssuggestedbytransactioncosttheoryandtheresource-basedviewofthefirm,wefindthatboththeoriesareconsistentwiththedataonthegrowthofstrategicalliances.9Consistentwiththeresource-basedview,firmsformalliancesinordertoleveragetheirexistingcapabilitiesincombinationwiththoseofstrategicpartners(LaseterandRamdas2001)andtodevelopinimitablerelationalcapital(Adler2001;Gulatietal.2000;LorenzoniandLipparini1999).Consistentwithtransactioncosttheory,firmsformalliancestoachieveeconomicreturnsthroughgreaterproductionscale,moreefficientrisksharing,andimprovedcoordinationandknowledgesharing10(Adler2001;Dyer2000;DyerandNobeoka2000;JensenandMeckling1991).Dekker(2002)observesthattheselectionofaparticularpartnerfirmandthechoiceofalliancegovernanceformaresimultaneouslymade,andbothareinfluencedbythenatureandmagnitudeoftransactioncosts.Thisobservationprovidesanotherpotentiallinkbetweenthetransactioncostandtheresource-basedviewsofthefirm.

Wealsoseeevidenceofconflictbetweenthetwotheories.Forexample,whiletransactioncosteconomicspositsthatuncertaintyinducesfirmstobecomemoreverticallyintegrated,LorenzoniandLipparini(1999)findthatfirmsinteractmorewithexternalsupplierpartnerswhenuncertaintyincreases.Ratherthanabsorbingtheuncertaintywithinfirmborders,theysharetheuncertaintywithtrustedpartners.Thisisconsistentwithpatternsofallianceformationinindustriescharacterizedbycapital-intensive,uncertainproductdevelopmentactivitiessuchasfilmproductionintheentertainmentindustry,drugdevelopmentinthepharmaceuticalindustry,11andoilandgas(p.49) explorationintheenergyindustry.IntheJapaneseautomotiveindustry,Okamuro(2001)findsthemagnitudeofrisksharingbetweensupplierandbuyertoincreasewiththeintensityoftherelation.Similarly,AnandandKhanna(2000)findthatinalliances,learningeffectsaremoreimportantwhenthereisgreatercontractualambiguity(i.e.theeffectsarestrongerforR&Djointventuresascomparedtomarketingjointventures).Thesepaperssuggestthatstrategicalliancesareformed,notsolelytoreducetransactioncosts,butalsoforthecompetitiveadvantagesaffordedbystrategiccollaborations.

Inlightofthebenefitsaffordedbyeffectivestrategicalliances,thequestionarises,Whydon'tallfirmsdevelopstrategicsupplieralliances?Althoughthebenefitsprovidesignificantinducementsforallianceformation,theabilityofafirmtoformsupplieralliancesisalsoafunctionoftheopportunitiestodoso.Ahuja(2000)findsthatallianceformationintheglobalchemicalsindustryisdirectlyrelatedtofirmsallianceformationopportunities.Opportunitiesincreasewiththeattractivenessofafirmtopotentialpartners.Technologicalcompetenceandpastinnovativeness(i.e.technicalcapital)andtheabilitytoconvertthatcompetenceintoprofitableproductsandservices(i.e.commercialcapital)attractalliancepartnersandincreasetheopportunitiesforallianceformation.Opportunitiesalsoaccruetofirmsthathaveestablishedapositivereputationfrompriorallianceparticipation(i.e.embeddednessor


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socialcapital).Inastudyoftheselectionofalliancepartners,Gulati(1995b)showsthatthelikelihoodoftwofirmsforminganallianceishigherwhenthefirmshaveaprioralliancerelation,whenthatpriorrelationisrelativelyrecent,andwhentheysharecommontiestoathirdparty.Thissocialnetworkperspectiveonallianceformationunderscoresthepotentialcompetitiveadvantageofrelationalcapabilities.

DeterminantsofAllianceSurvivalandStabilityWhilethenumberofallianceshasdramaticallyincreased,over60percentfail(Anonymous2000);12thatis,thehybridorganizationalformdissolveswithoutachievingtheoriginallystatedgoals.Someendwithrecriminationsandill-willamongpartners.Othersendasamicabledivorces.Inthissectionweconsidertheprevalenceofalliancefailuresfromtheperspectivesoftransactioncosteconomicsandtheresource-basedviewofthefirm.Wefirstconsiderfailuresofthehybridorganizationalformalone.Wethenturntofailuresoftheorganizationalformthatareassociatedwithfailuresofthebusinesspremiseforcollaboration.

(p.50) AsPorter(1990)suggests,alliancesoftentransitiontoeitheratraditionalmarkettransactionorahierarchy(e.g.acquisitionormerger).DasandTeng(2000)proposethatthestabilityofanalliancerestsontheabilityofalliancepartnerstobalancethreepairsofcompetingtensions:cooperation/competition,rigidity/flexibilityandshort-term/long-termorientations.Thefirstconflict,betweencooperation(i.e.thepursuitofcommonbenefits)andcompetition(i.e.thepursuitofselfinterest),recallstransactioncosteconomicsconcernsofopportunism(DasandTeng1998;Parkhe1993).Thesecondconflictpitstheneedforflexibilityintheallianceagainstthedemandsforstabilitythatoriginatewiththeparentorganizations.Thus,forexample,theflexiblerelationshipsthatarethehallmarkofsomehybridorganizationalformscreatedifferentdemandsforperformancemanagementandinter-organizationalcontrolthanthemorerigidmodesofgovernanceandcontrolthatareenactedwithinthefirm(e.g.HarbisonandPekar1998).GrootandMerchantfindempiricalevidenceofthisconflictintheirstudyofinternationaljointventures.Finally,tensionsbuildinanalliancewhenparticipantshavedifferenttimehorizonsforallianceparticipation.LorenzoniandBaden-Fuller(1995)alsoemphasizetheimportanceofbalancingthesecompetingforcesbysuggestingthatthesuccessful,innovativenetworkreconcilestheflexibilityofmarketrelationshipswiththelong-termcommitmentofhierarchical,centralizedfirms.

DasandTeng(2000)proposethatthedynamicsofanallianceareafunctionofshiftsamongtheabove-describedtensions.Ashifttowardscooperation,rigidityand/oralong-termfocusprecipitatesamigrationfromanalliancetoverticalintegration.Incontrast,ashifttowardscompetition,flexibility,andashort-termfocusbringsamigrationtowardsamarkettransaction.Consistentwiththisview,Kogut(1989)findsthatjointventuresarelesslikelytodissolvewhenthefocusofactivityisonresearchanddevelopmentafocusarguablyrequiringlong-termcooperationandwhentherearemultipletiesamongpartnerfirms.Multipletiesreducetheprobabilityofopportunisticbehaviourbecausesuchbehaviourispunishablebyreciprocationinothertransactions.Conversely,jointventuresaremorelikelytodissolveandreverttomarkettransactionswhenthereismorecompetitiverivalryamongpartners.

Transactioncosteconomicstendstofocusonexogenousshocksthataltercosts,or


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expectationsthereof,forproductionortransactions.Williamson(1991)arguesthattheefficiencyofaparticulargovernanceformisdeterminedbyitsrelativeabilitytosupporttwotypesofadaptationtoexogenousshocks:autonomousadaptationandcooperativeadaptation.Autonomousadaptationisautomatic,unconscious,andisthetypeofadaptationforwhichmarkets,usingpriceasthemechanism,arebestsuited.Cooperativeadaptation,however,isconscious,purposeful,andusedwhencooperationamongthepartiesisnecessarytoadapttotheshock.Hierarchiesareespeciallyadeptatthistypeofadaptation.Williamson(1991)suggeststhatalliancespossessintermediatelevelsofbothtypesofadaptationcapability,offeringalower(p.51) costalternativetohierarchiesinthepresenceofexogenousshocksrequiringcooperativeadaptation.Thus,accordingtotransactioncosteconomics,aprimarydeterminantofallianceperformanceandsurvivalistheefficiencywithwhichtheallianceadaptstovarioustypesofexogenousshocks.Inpractice,however,weseeallianceevolutionandahighrateofalliancefailureevenintheabsenceofexogenousshocks.Adifferentsetofcontingenciesassociatedwithrelationaldynamicsis,therefore,neededtodescribetheevolutionandhighfailureratesofalliances.

Alliancesarevulnerabletofailurebecausealliancepartnersareexposedtobothperformanceriskandrelationalrisk(DasandTeng1996,2001).Performanceriskistheprobabilitythatallianceobjectiveswillnotbeachieved,despitethefullcooperationofthepartners.Thistypeofriskcomesprimarilyfrommarketforcessuchascompetition,demandfluctuations,andchanginggovernmentregulationstheexogenousshockscontemplatedbytransactioncosteconomics.Whileperformanceriskundoubtedlyaccountsforsomealliancefailures,itismitigatingthistypeofriskthatmotivatesmanyfirmstoformalliances.Relationalriskistheprobabilitythatpartnerswillnotcooperate,ariskthatisuniqueto,andcreatedbytheformationofalliancesamongfirmswithpotentiallydivergentinterests(DasandTeng2001).DasandTeng(2000)relatetheirthreepairsofcountervailingforces(describedabove)tothelevelofrelationalriskandtheoverallinstabilityofalliances.

Sincealliancesarepronetofailuresthatstemfromrelationalrisks,itisnotsurprisingthattworecurringthemesinthestrategyandmanagementliteraturearethatalliancesuccessandperformancearepositivelyinfluencedby(i)interpersonal,inter-groupandinterfirmtrust(Adler2001;DasandTeng2000;Gulati1995a;HagenandChoe1998;JeffriesandReed2000;Kaleetal.2000;Parkhe1998;Tomkins2001;Wicksetal.1999;ZaheerandVenkatraman1995)andby(ii)networkcharacteristics(Granovetter1985;Gulatietal.2000;Rowleyetal.2000).Inthesectionsbelow,weconsidereachofthesefactorsastime-varyingcovariatesofallianceperformanceandstability.

TrustinAllianceRelationshipsThetermtrustisusedinavarietyofwaysinthemanagementliterature.Somestudiesrefertoagame-theoretictypeofcalculativetrustinwhichparticipantsbehaveinamannerpromotingthecommongoodonlybecauseitisintheirbestinteresttodoso(e.g.,forreputationreasons)(Williamson1993).Inthetransactioncostliterature,transactionfrequencypromotesthistypeoftrust.Commonmechanismsforattainingthisstateoftrustincludesubstantialupfrontinvestmentsinalliance-specificassets(e.g.,physicalorhumancapital)orsignificantexchangeofequitythatalignsfirminterests.Ineffect,participantspostabondthatisforfeited(orsubstantiallyimpaired)iftheallianceisnotproductive.Madhok


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(1995)callsthistypeofmutualhostageexchangethestructuralcomponentoftrust.13Othersallowforaslightlymoresocial(p.52) interpretationanddefinetrustastheobjectiveexpectation,basedonexperienceandrepeatedinteractions,thatapartnerwillnotbehaveinanopportunisticmanner(DasandTeng1998;Gambetta1998;Gulati1995a;RingandVandeVen1992,1994;Spekmanetal.2001;Tomkins2001).14Thisdefinitionisrelatedtothenotionofcommitment(Spekmanetal.2001).Authorsinthisresearchstreamarecarefultopointoutthatthisdefinitionreliesonanobjectiveassessmentofprobabilitiesandis,therefore,differentfromapurelypsychologicalblindtrust(Adler2001).Madhok(1995)arguesthatboththesocial(i.e.expectation)andthestructural(i.e.calculative)componentsoftrustarenecessarybutnotsufficientconditionstosustainaninterfirmrelationship.

DasandTeng(2001)distinguishtwocomponentsofsocial(orexpectation)trust.Competencetrustistheassessmentofthepartner'sabilitytoperformaccordingtotheagreement.Goodwilltrustistheassessmentofhisintentionstodoso.Bothassessmentscontributetotheoveralllevelofexpectationtrust.Adlerfurtherexpandsthedefinitionoftrust.Hedefinesamodernformofreflectivetrustasencompassing(i)thefamiliarityofrepeatedtransactions,(ii)theobjectiveassessmentoftheotherparty'sgainsofopportunisticbehaviour,and(iii)theconfidenceinducedbyprevailingvaluesandnorms.Hearguesthatthistypeoftrustistheprimarycoordinatingmechanismofathirddistinctgovernanceformofcommunity(i.e.inadditiontomarketsandhierarchies).

Irrespectiveofthecalculativeorexpectationalvariety,trustreducesrelationalriskbyreplacingthefearofopportunisticpartnerbehaviourwithmutualconfidence(Adler2001;DasandTeng1998;DasandTeng2001).InkpenandCurrall(1998)identifythefollowingconsequencesoftrust:forbearance(e.g.refrainingfromopportunisticbehaviour),reducedcostsofgovernance(e.g.coordinationandmonitoringcosts),increasedrelationshipinvestments(e.g.specificassets),increasedscopeofactivity,andincreasedperformanceofthepartners.15Dyer(2000)discussestheroleoftrustinovercomingreluctancetoinvestinspecificassetsintheJapaneseautomobileindustry.Othersdiscuss(p.53) thereductionintransactioncostscostsofsearch,contracting,monitoring,enforcement,anddisputeresolutionwhentrustishigh(e.g.Adler2001;Dyer2000;Gulati1995a;RingandVandeVen1994).

Empiricalstudiesgenerallyconfirmtrustasanimportantdeterminantofstrategicalliancesuccess.Forexample,inasurveyofpurchasingmanagers,ZaheerandZaheeretal.(1998)findthatconflictsandnegotiationcostsarelowerandsupplierperformancehigherwhenpartnerstrusteachother.Spekmanetal.(2001)likewisedocumentapositiverelationbetweensupplychainperformanceandtrustbetweenpartners.Insum,trustallowstransactionsthatwouldordinarilybeintegratedbecauseofspecificassetinvestmentsandhightransactioncoststobecompletedinthecommunityofalliancepartners(Hart2001).Advantagesofthemarkettransaction,suchashigh-poweredincentives,arepreserved,whilebenefitsofhierarchysuchasknowledge-sharingandreducedneedforothercontrolmechanismsareretained(e.g.formalcontrols)(Adler2001;Dyer2000).

NetworkRelationshipsTheseconddeterminantofallianceperformancethathasgainedwidespreadattention


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amongresearchersisthestrengthandembeddednessofthenetworkofalliancepartners.Aweaknessoftransactioncosteconomicsresearchhasbeenafocusonindividualtransactionsinisolationofother,possiblyrelatedones.Socialnetworktheoristsarguethatcharacteristicsoftheentirenetworkoftransactingpartieswithinavaluechainareanimportantdeterminantofperformance(Gulatietal.2000).Theperformanceofaspecificinterfirmrelationshipisaffectedbythestructureofthenetworkandthedegreetowhichfirmsarefirmlyembeddedinthatsocialnetwork.Socialnetworkspromotetrustandreducetransactioncostsbyenablinginformationsharing,strengtheningreputationeffects,improvingcoordinationbetweenfirms,andfacilitatingtheidentificationofpotentialpartners(Gulati1995b;Gulatietal.2000).Rowleyetal.(2000)provideempiricalevidencethatwhilethedensityofasetofnetworktiesispositivelyrelatedtofirmperformanceinenvironmentsdemandinghighinvestmentsinexploitation(e.g.steelindustry),itisnegativelyrelatedtofirmperformanceinenvironmentsdemandinghighinvestmentsinexploration(e.g.semiconductorindustry).Moreover,thepositiverelationbetweentherelationalembeddedness(Gulatietal.2000)ofafirm(i.e.thestrengthofapartnerrelationship)andperformanceisweakerindensenetworks.

Itisimportanttonotethatthepopularconceptofsupplychainmanagementisdistinctfromthecollaborationoffirmsinavaluechainnetwork(LorenzoniandBaden-Fuller1995).Supplychainmanagementtypicallyfocusesonimprovingthelogisticsofplacingandfulfillingordersandonbettermatchingsupplyanddemandtoreduceinventorythroughoutthevaluechain.Incontrast,participantsinastrategicvaluechainnetworktendtofocusoninnovationopportunitiesandondevelopingandsharingnewcompetencies.(p.54)Participantstakeaholisticviewofthenetworkanditscollectiveabilitytoachievecompetitiveadvantage.LorenzoniandBaden-Fuller(1995)findthatthemostsuccessfulofthesecollaborationsinvolveatleastoneverystronghubfirmthatisthestrategiccentreofthenetwork.Thisstrategiccentreismuchmorethanacontractbrokerandisnotappropriatelycharacterizedashollow,asaremanyfirmsthatoutsourcecorecompetencies.Thestrategiccentrefirmmanagestheagendaofthegroupbycreatingavisionthatdirectstheenergiesofallparticipants.Italsoprotectskeybrandimagesofthegroupandinsuresthatcorecompetenciesareretainedanddevelopedandthatinnovativecapacityisconstantlyrenewed.Finally,thehubfirmcreatesanenvironmentoftrustandreciprocitythatmotivatesparticipantstoperformintheinterestsofthegroup.

Thisbringsustothecentralconcernofthispaper.Specifically,whataretheperformancemanagement,evaluation,andcontrolneedsofhybridorganizationformsandhowaretheybeingmetinthemoresuccessfulexamplesthathaveemergedinthe1990s?Inthesectionthatfollowsweexplorethesequestionsusinganecdotalevidencetoillustratetheemergenceoforganizationalpracticesaimedatfacilitatingalliancerelationships.

PerformanceManagementandManagementControlinStrategicAllianceNetworksIncraftinganalliance,partnersmakedecisionsaboutgovernancestructure,andpoliciesandprocedureswiththeobjectiveofenactingstrategicgoalswhileminimizingrelationalandperformancerisk.Theprevioussectionsreviewedthemotivationsandgoalsofallianceformation,thegovernancestructuresthatarecompatiblewiththesemotives,andevidenceontheperformanceoftheseorganizationalforms.Muchlesshasbeenwritteninthe


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researchliteratureaboutthepoliciesandproceduresthatsupportallianceperformance,includingmanagementaccountingpracticesthathelpalliancepartnersmanageperformanceoftheextendedenterprise.Yetbusinesssurveysanddescriptionsofsuccessfulalliancessuggestthatthesearecriticaltothesuccessofthealliance(e.g.,Clement1997;HarbisonandPekar1998).A1996studybytheGasResearchInstitute(Clement1997)ofalliancepracticesintheoilandgasindustryidentifiedsevencriticalsuccessfactors,fourofwhichhavedirectbearingonmanagementaccountinginstrategicalliances:

goalsthataretiedtoprofitsforallparties;theuseofquantitativemeasuresofperformancetomutuallyestablishedgoals;incentivesforallpartiestoparticipate,and;thepresenceofanagreeduponprocessforregularevaluationofperformance.

(p.55) WhenForbes(21May2001)compileditsrankingoffirmsthathavebeenmostsuccessfulinemployinghybridorganizationalformstoattaincompetitiveadvantage,itfoundthegreatestvariationintheareaofpartneringskills,thesetofestablishedpracticesformanagingalliancerelations.16

Inthissection,weconsiderthreekeyaspectsofperformancemanagementandmanagementcontrolinastrategicalliancenetwork:alliancecontrol(includingthemanagementofriskandtrust),managingallianceperformance(evaluationandperformancemeasurement)andmanagingtheevolutionofthealliance(includingpartnerselectionandtermination,managinglearningandincentives).Inthesesectionswecovertopicstypicallyconsideredwithinmanagementaccounting;however,wealsoconsideruniquedemandsthatalliancesplaceonmanagementaccounting.Ineachcaseweofferevidencefromthepractitionerliteraturethatstrategicalliancesmeetdemandsformanagementaccountinginformationinbothtraditionalandnovelways.

AllianceControlPracticesConfidenceinanalliancepartnercomesfromtrustandcontrol,bothofwhichmitigaterisk(DasandTeng1998).Trustandcontrolcanbesubstitutesorcomplements.Insomecircumstances,trustisasubstituteforformalcontrol.Forexample,Gulati(1995a)findsthatalliancesarelesslikelytobeequity-basedwhentrust,asmeasuredbythenumberofpriorinteractionsbetweentheparticipants,ishigh.GulatiandSingh(1998)showthatfewerhierarchicaltypecontrols,suchasformalizedoperatinganddisputeresolutionprocedures,areusedwhentrustbetweenalliancepartnersishigh.Rowleyetal.(2000)arguesthatadensesocialnetworkcanalsoserveasatrust-basedgovernancemechanismandanalternativetoformalizedcontrols.Trustisalsoacomplementtoformalizedcontrols.Controlmechanismsaremoreeffective(DasandTeng1998)andriskisreduced(ChilesandMcMackin1996)whentrustishigh.

Inthissectionwehypothesizethatsuccessfulstrategicalliancenetworkswillemphasizemanagementcontrolpracticesthatsupportriskassessmentandmanagementandthatfostertheemergenceoftrustamongrelevantemployeesandfirmswithinthealliance.


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ManagingAllianceRiskAsstatedabove,alliancesarevulnerabletobothperformanceandrelationalriskanddifferentalliancegovernancestructuresarebettersuitedtodifferentsourcesofrisk(e.g.,equityalliancesarebetteratmitigatingrelationalrisk,(p.56) whilenon-equityalliancesarebetteratmitigatingperformancerisk)(DasandTeng1996).DasandTeng(1999)positfurtherthatmanagementcontroltechniquesmustbematchedtoboththetypeofriskpresent(i.e.performanceorrelational)andtothetypeofresourcescommittedbyalliancepartners(i.e.propertyorknowledge).Propertyincludesphysicalandfinancialassetswithclearpropertyrightsthatareprotectedbylaw.Incontrast,knowledgeisembeddedintheorganizationanditsemployees,andisnotlegallyprotected.

Firmsthatcommitpropertyresourcestoanallianceandareprimarilyconcernedwithrelationalriskmustfocusontheprotectionoftheseassets.DasandTeng(1999)suggestacontrolorientationinwhichthemanagementoftheallianceinvolvesusingcontractual,equity,andmanagerialcontrolmechanismstoprotectassetsfrommisuse.Ifthealliancepartnerperceivesperformancerisktobetheprimaryrisk,thealliancemanagementobjectivechanges.Partnerfirmshaveanincentivetomaintainaflexiblemanagementorientationtoenhancethealliance'sabilitytoadapttochangingenvironmentsandincreasethelikelihoodofalliancesuccess.DasandTeng(1999)suggestmanagingthesetypesofallianceswithshortterm,recurrentcontractsthathaveclearexitprovisions.

Whenthecommittedassetsinanallianceareoftheknowledgetype,alliancepartnerscannotrelyonlegalmeansforprotectingtheirresourcesandare,therefore,morevulnerabletopartneropportunism.Thisisaparticularlydifficultsituationgiventhatthesharingofknowledgeisfrequentlyaprimaryreasonforallianceformation.Whenfirmsareconfidentinthecooperationoftheiralliancepartners(i.e.relationalriskisperceivedtobelow),performanceriskisthedominantrisk.Managementcontrolinthesealliancesfocusesontheproductionofknowledgeandontheefficiencywithwhichknowledgeistransferredacrossfirmboundaries.DasandTeng(1999)suggestthatthisproductivityorientationdemandsmanagementcontrolsthatfacilitatecoordinationoforganizationalroutinesandthatmaximizetheefficiencyofknowledgeproductionandsharing.Riveraetal.(2001)arguethatthecharacteristicsofthepeopleinvolvedintheallianceandtheircompatibilityareessentialtolearninginalliances.However,theycautionthatwhileincreasedoperationalcontrolenhancescoordinationinknowledgesharing,itcanalsoreducethecreativecapacityoftheallianceifitcreatesrigid,pre-approvedpathsforsharingknowledge.

Iffirmscommittingknowledgeresourcesareprimarilyconcernedwithrelationalrisk,theobjectiveofthealliancemanagementprocessissecurityofthefirm'sownknowledgeandknow-how.InthiscaseDasandTeng(1999)suggestlimitingtheaccessofknowledgetothepartnerfirm,andmaintainingseparateworklocations.Theystresstheimportanceofclearlydelineatingknowledge-sharingintentionstoavoidfalseexpectations.

Dyer(2000)andDyerandNobeoka(2000)describeToyota'smanagementtechniquesforpromotinginformationsharingwithandamongitssuppliers,whileassuringtheconfidentialityofproprietaryknowledge.Kaleetal.(2000)(p.57) likewisefindthatfirmsdevelopexpertiseandcapabilitiesfromalliancepartnersbutareabletoprotecttheirownproprietaryassetsfromsupplieropportunism.


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ManagingtheEmergenceandGrowthofTrustAgrowingliteratureexaminestheroleofindividualandorganizationaltrustinenablingeconomictransactions.Trust,asastaticexogenousconstructbasedonobservablereputation(andproxiedbythenumberofpreviouspartnerties),wasarguedabovetobeadeterminantofallianceformation.OneexampleofanexternalsignalofqualityreputationthathasbeenwidelyadoptedistheISO9000certificationprogramme(Andersonetal.1999;Bergin1996).However,trustmayalsobeexperientialbasedonprivateinteractionsbetweenpartnerfirmsandtheiremployees(e.g.VanderMeer-KooistraandVosselman2000:57).InkpenandCurrall(1998)notethatstructuralcomponentsoftrust,whichmayexistbeforetheformationofanalliance,havedifferentantecedentsthanthemoredynamic,experientialtypesoftrust,whicharebaseduponhumaninteraction.

Thedefinitionsoftrustusedintheliteratureareconsistentwiththisdynamicviewinthattheyalludetotheprocessofbuildingtrustwithrepeatedinteractions(DasandTeng1998;Gambetta1998;Gulati1995a;RingandVandeVen1992,1994;Spekmanetal.2001;Tomkins2001).Trustgrows(ordeteriorates)overtimeaspartnersinteractrepeatedly.Alliancepartnersbuildtrustbysharinginformation,preservingequityamongpartners,honouring(especiallylong-term)commitments,engaginginmutualrisk-taking,demonstratingcompetence,andmaintainingflexibilityandawillingnesstocompromiseinpartnernegotiations(DasandTeng1998;Dyer2000;Lewis1999).Lewis(1999)identifiesovertpracticesthatfirmsoftenusetobuildtrustwithinpartnerships.Forexample,partnerfirmsseekingtobuildtrustengageinpurposefulandextensiveinformationsharing.Theyalsoachieveconsensusonclear,mutualperformancemeasures.Finally,tobuildtrust,thegoverningbodyofthealliancemustprovidenecessaryresourcesandgivecleardirectiontopartnerfirms.

EvidenceofovertactivitiestobuildandmanagetheemergenceoftrustismostprevalentamongJapanesefirms.CooperandSlagmulder(2001)identifystructuralelementsofthemanagementsystemthatpromotetrustinjointproductdevelopmentactivities.Sheridan(1994,1998)describesSonyCorporation'sandHondaofAmerica'sprogrammesofsendingconsultingengineerstosupplierslocationstoteachimportanttechnicalskillsandimproveoperatingperformance.Beecham(1999)describesastructuredapproachtoperformancemanagementandgoalsettingusedbyNissantoimprovethecodevelopmentenvironmentbetweenitanditssuppliers.Dyeretal.(1998)describeToyotaMotorCompany'spartitioningofsuppliersintothreeconcentriccircles.EachringcontainssupplierswithdifferentlevelsofembeddednessinandcriticalitytotheToyotafamily,asevidencedbygovernancerelationshipswith(p.58) Toyotaandtheintensityofresourcesharingbetweenthefirms.DyerandOuchi(1993)elaborateonhowToyotausescontrolledcompetitionamongsupplierstogenerateabetterproductwithoutconsequentlyhavingacollapseoftrust.Acommonthreadinthesestoriesistheuseofaccountingsystemstofacilitatetheemergenceoftrust;forexample,throughsharedaccountingcostrecords(FreyandSchlosser1993)andthecreationofaseethroughvaluechainwherebothpartiescostsandproblemsarevisible(Dyer1996;DyerandOuchi1993)andthroughcomplexmutualmonitoringprogrammes(Dyer1996;Richards1995).

Distinctionsarealsomadeintheliteraturebetweeninterpersonalandinterorganizationaltrust.Theformeristhetrustbetweenindividualsandhasbothanemotionalandcognitive


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component.Thelatterispurelycognitiveandisthecollectiveorientationtowardsanotherorganization(JeffriesandReed2000).Practicesthatbuildinterpersonaltrust,suchasstableemploymentofindividualsinvolvedandcareerpathsthatcrossfirmboundaries(Dyer2000),alsofacilitateinterorganizationaltrust(ZaheerandVenkatraman1995;Zaheeretal.1998).InkpenandCurrall(1998)arguethatantecedentsofinterpersonaltrustincludethemutualattachmentofindividualsinbothfirmsandthepresenceofboundaryspanningmanagers.Inastudyofsupplierpartnershipsintheautomotiveandcomputerindustries,Ittneretal.(1999)identifyperformancegainswhentrust-buildingpracticessuchasfrequentmeetings(i.e.informationexchange)areused.FreyandSchlosser(1993)noteFordandABBexplicitlyengineeredtheirpartnershiptocreatetrustusingagovernancestructurethatbroughtaboutfrequentencountersamongemployeesandkeymanagers.In1999UnitedAirlinesformedanalliancedivisiontomanagenewpartnershipsandanexecutivekeepsindailycontactwiththepartner'smanagement(Anonymous2001:68).

Jeffries(2000)considersthedynamicsofinterpersonalandinterorganizationaltrustandproblem-solvingincentivesamongalliancepartners.Hesuggeststhatwheneitherinterpersonalorinterorganizationaltrustishigh(butnotboth),partnershavethestrongestmotivationtosolveallianceproblems.Kaleetal.(2000)alsolinkinterpersonaltrusttoproblemsolving.IndatacollectedfromasurveyofalliancesformedbyUS-basedcompanies,theyfindthattrustaffectstheextenttowhichconflictsaremanagedinanintegrativefashion.Improvedconflictresolutionfacilitatesknowledge-transferanddetersopportunisticbehaviour.Asaresult,allianceparticipantscangaincapabilitiesfromalliancepartnerswhilealsoprotectingproprietaryassetsfromopportunisticbehaviour.

Finally,thereisadynamicrelationbetweentrustandinformationneedsininterfirmrelationships.Trustaffectsthesharingofdifferenttypesofinformationdifferently.Trustingpartnersaremorelikelytoshareinformationrelatedtoknow-howandcapabilities(Adler2001;Dyer2000;Kaleetal.2000).Ontheotherhand,trustmaybeanalternativetomonitoring(Madhok1995;ZaheerandVenkatraman1995).Thatis,trustingpartnersneedlessinformation(p.59) aboutpartneractivitiesandthefulfillmentofpartnershipagreements.Forexample,Motoman,asupplierofindustryroboticsystems,andStillwaterTechnologies,acontracttoolingandmachiningcompany,describetheirrelationshipasonebasedontrustandahandshake,notawrittencontract(Sheridan1997).ThisisconsistentwiththepropositionbyRingandVandeVen(1994)thatincreasingtrustamongpartnersleadstoanincreasedrelianceoninformalnegotiationsrelativetoformalones.

Tomkins(2001),however,suggeststhattherelationbetweentrustandmonitoringinformationismorecomplexthantheseauthorssuggest.Trustbuildsfasterwheninformationismorereadilyavailableintheearlystagesoftheinterfirmrelationship.TopmanagementplayedacrucialroleinbuildingtrustinwhatwasapreviouslypoorrelationshipbetweenAnalogDevicesandTeradyne.Trustgrewoutoftheiractoffaithinopeningbookstooneanother(Litsikas1996).Moreover,partnerstrustleveland,therefore,theirinformationneedsmaydifferduringthelifeofthepartnership.HondaofAmericaBPworkswithsupplierstoimprovetheirqualityandcost,occasionallyevensendingHondateamstosupplierssites.Throughtheseinformation-sharingexperiences,supplierscanearntherighttomovetohigherlevelsofinvolvementinHonda'sproductplanninganddesignefforts(Sheridan1998).Theseexamplesillustratehowtrust-buildingactivitiesandthe


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establishmentofcontrolandinformationsystemsareinextricablylinkedininterfirmrelationships.

ManagingAlliancePerformanceInthissectionwearguethatsuccessfulstrategicalliancenetworkswillmanageallianceperformancebyprovidingeffectiveleadershipanddirection,facilitatingcommunicationandlearning,andbymeasuringandevaluatingperformanceofthealliancenetworkandofthenetworkparticipants.

ProvidingleadershipanddirectionLorenzoniandBaden-Fuller(1995)findthatstrategicnetworkshaveastrongfirmatthecentreofthenetworkthattakesprimaryresponsibilityforensuringthatthenetworkcreatesvalueforallpartners.Thefirmsetsrulesthatgovernpartnerresponsibilitiesandbuildingcapabilitiesthroughsimultaneousactivitiesinstructuringandstrategizing.AnexecutiveatHoneywell,adefenceindustryandtechnologyfirmwithover100alliances,echoestheimportanceofacentralfirminthenetwork,notingthatwheneverpossibleHoneywellavoidsenteringinto5050dealsinwhichnobodyisincontrol(Anonymous2001:82).

Surveyingthepopularbusinessliterature,wefindthatformanyfirms,thefirststepinbuildingacorecompetencyinalliancemanagementisthecreationofanew,high-levelmanagementteamdedicatedtothetaskofdevelopingalliancerelationships.EllramandEdis(1996)studyofonehundredmatchedpairsofbuyersupplierpartnersfoundthatthemostsuccessfulfirms(p.60) dedicatedateamthathadtopmanagement'ssupportandinvolvementtomanagingthepartnership.ExamplesfromthebusinesspressincludeUnitedAirlinesformationin1999ofanalliancedivisiontomonitorandcreatenewpartnerships(p.68),JohnsonControlsappointmentofanexecutivetooverseeeachalliance(p.70),andCoca-Cola's(p.73)andIBM's(p.77)appointmentofavice-presidentinchargeofalliancesandnewventures(Anonymous2001).Alliancemanagementgroupsarenotanoffshootofcorporateprocurement,noraretheyasimplevariantonamergerandacquisitionteam,populatedbyfinancial,legal,andtaxexperts.Indeed,Accenturewarnsthattoomanyfirmsassumethattheissuesofintegrationthatariseinmanaginganalliancearesimilartothoseofamergeroracquisition(www.accenture.com,August2001).Theyarguethatwhileintegrationandmutualadaptationareessential,theyareachievedmuchmoregraduallyandrequirecontinuousmanagementbyindividualsskilledindiplomacyandwithdeepunderstandingofthecorebusinessobjectivesofthealliancenetwork.

FacilitatingcommunicationandlearningIfalliancecapabilityistobecomeapervasivecorecompetencyofthefirm,akeyobjectiveofthesenewcorporategroupswillbetocaptureandtransferallianceknowledgeacrosstheorganization.Riveraetal.(2001)studyalliance-specificmechanismsforlearning,suchas:thesimilarityofpartners,thediversityofemployees,andenablingprocessesandtechnologiesthatintegratethefirms.Asanexampleofthelatter,Kodakdevelopedandadoptedamethodicalapproachforpartneringwithotherfirmsin1991(EllramandEdis1996).Thedemandforstandardpracticesandcodifiedapproachestomanagingpartnerrelationswillincreasewiththenumberofalliancepartnersandthecomplexityofthe


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portfolioofalliancegovernancestructuresused(www.accenture.com,August2001).

Insuccessfulalliancenetworks,thecentralfirmtypicallyoverseesandmanageseffectivecommunicationsprocesses,including,butnotlimitedto,electronically-basedprocesses.Absentthebureaucraticprocessesofhierarchies,strategicallianceshavethepotentialformakingdecisionsfaster.Indeed,inasurveyofmanagers,executivesreportthatinwell-functioningalliances,decisionsarereached3050percentfasterthanforcomparableinternaldecisionsintheirfirms.However,theynotethatmulti-partnerrelationships,unionsettings,andcommunicationstylesthatfavourconsensus-buildingcanslowdecisionseveninalliances(www.accenture.com,August2001).LorenzoniandBaden-Fuller(1995)findthatthecentralfirmoftensetsthecommunicationsstyleformeetingsamongpartnersandactivelymonitorsanddocumentsinformationexchange.

Thesubstanceofcommunicationsisnotlimitedtotheperhapsnarrowproblemthattheallianceseekstoaddress.Itincludessharingideasaboutcustomers,othersuppliers,markettrends,andgeneralbusinesspractices.Thedensityandbreadthofinformationexchangesuggeststhatsubstantial(p.61) personalinteractionsareessentialinstrategicalliances.Thisiswhatwefindinourreviewofpopularbusinessarticlesthatdescribeeffectivepartnerships(e.g.,Anonymous1996;Dixon1999;Hendricks1997;Sheridan1997).InadescriptionofVolkswagon'srevolutionaryfactoryinwhichsuppliersworkalongsideVWemployeesontheautoassemblyline,oneexecutivesays,Akeychallengeisthesystematicintegrationoftheactivitiesofpartners.Thisisaccomplishedthroughintensecommunication,whichismadepossiblebytheircloseproximity,aswellasintegratedinformationtechnology(Lima1997).

Finally,effectivecommunicationandtheexchangeofinformationplaysakeyroleinthecontrolofinterfirmrelationships.Adlerandothersarguethatalliancesareparticularlyadeptattransferringknowledgeacrossorganizationalboundaries.Indeed,thesharingofinformationisasourceofcompetitiveadvantageofalliancesandanecessaryconditionfortheirsuccess.Tomkins(2001)identifiestheleveloftrustasafundamentaldeterminantofinformationneedswithinstrategicalliances.Partnershipsinwhichthereislesstrustrequiremoreinformationformonitoringandcoordination.Tomkinsassertsthattherelationismorecomplexanddynamicthanitappears,suggestingthattrust,informationneedsand,consequently,controlrequirementslikelychangeoverthelifeofthepartnership.Successfulalliancenetworksmustcontinuallyadapttothesechanginginformationandcommunicationneeds,ataskthatrequireseffectivepersonnelandtechnologymanagement.

Clearlyintegratedinformationsystemsareanenablingtechnologyformanyalliances,eventhosethatlackcloseproximity.Forexample,firmsareusingweb-basedintranets(amongpartners)tofacilitateinformationexchange.AtIBM,thetopexecutiveresponsibleforsoftwareallianceshasawarroomwithawallcoveredwithproceduralchartsforfifty-ninesuchalliancesandmonitorseachfromaLotusNotesextranetonhislaptop(Schifrin2001b:28).CiscoSystemsusestheInternettospeedpartnercommunicationsandtoeducatepartnersaboutitsproducts(Schifrin2001b:79),NuclearManagementCompanyusesaWeb-basedintranettopostinternalpeer-groupreportcards(Schifrin2001b:82),andHewlett-PackardinvitesprospectivepartnerstosubmitproposalsviaitsWebsitesandprovidesaforumfortrackingworkinexistingpartnerships(Anonymous2001:78).


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MeasuringandevaluatingperformanceWhetheritisfacilitatedbytechnology,asinthecaseofNuclearManagementCompany'sonlinepeerreportcards(Anonymous2001:82),oracomponentofpersonalcommunications,asinthecaseofthedailyproductionmeetingsbetweenVolkswagonsupervisorsandtheiron-sitepartners(Lima1997),akeycomponentofperformancemanagementofalliancesisperformancemeasurementandevaluation.Lewis(1999)likewiseidentifiesaccountabilityforresultsasaprimarytaskofalliancecontrol.EllramandEdis(1996)studyofonehundredmatchedpairsofbuyersupplierpartnersfoundthatthemostsuccessfulrelationshipsemployedformalprocessesformutualperformance(p.62)monitoring.However,eventhesefirmsacknowledgedthatthiswasoneofthemostdifficultaspectsofestablishingthealliancerelationship.Echoingthis,Accentureconcludedfromasurveyofexecutivesinvolvedinstrategicalliancesthatmeasuringallianceperformanceisthenewest,mostimperfectbranchofalliancemanagement.Lessthanhalfofallalliancesuseformalmeasurementsandonlytenpercentfindthosetheyusesufficient(www.accenture.comAugust2001).

Althoughthesesystemsmayassistfirmsinmutuallymonitoringfortheopportunisticbehaviourthattransactioncosteconomistsfear,wefoundverylittleevidenceofthisinthedescriptionsofalliancesinthepopularpress.17Rather,thefocusappearstobeonidentifyingopportunitiesforimprovedperformanceoftheallianceandonfacilitatingthediscoveryofopportunitiestoinnovateandexpandthescopeofallianceactivities.ConsiderthisdescriptionofperformancemeasurementbyUniversalCardServicesandTSYS:

strategicintent[ofthealliance]wasreinforcedwhenUCScreatedasetofmeasurestoevaluatethequalityofoperationsatbothcompanies.TSYShascreated3645qualitymeasurestomonitoritsoperationsperformance...BothUCSandTSYSpostdailystatisticsonaccuracy,speed,responsetimeandcustomersatisfactionmeasuresthroughoutthecompany...ThegoalsforeachmeasureweresetthroughdiscussionsbetweenUCSandTSYS.Theperformanceforeachdayiscomparedtothegoalandacompositedailyqualitymeasureiscomputedandshared.GraphscomparingdailyperformancewithtargetedgoalsareavailableonlinetoalltheemployeesofTSYSandUCSaswellasbeingprominentlypostedinbothcompanies.Thesemeasuresareusedtocharttheprogressofthealliance(Sankaretal.1995).

Asisthecasewithinfirms,measuresofperformancearecrucialtoimplementingcontrolininterfirmalliances.DasandTeng(2001)identifythreetypesofcontrolmechanismsandsuggestthattheappropriateapproachdependsonthelevelandtypeoftrust(goodwillorcompetencetrust)thatispresentandonthetypeofrisk(relationalandperformancerisk)thatthefirmswishtomitigate.Thefirstcontrolmechanism,behaviourcontrol,isacontroloftheprocessandisusefulforreducingrelationalrisk.Outputcontrols,ontheotherhand,arebetteratreducingperformancerisk.Finally,socialcontrolsinformalcontrolsdesignedtoestablishnormsofbehavioursmitigate(p.63) bothtypesofrisk.Goodwillandcompetencetrustenhancetheeffectivenessofallthreetypesofcontrol(DasandTeng2001).

Inadditiontothecontrolmechanism,firmschoosetheappropriatecontrolfocusandcontroltightness.Thesechoicesarecontinuallyre-evaluatedinlightofpartnerobjectivesandof


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existingtrustlevelsandallianceperformance(GrootandMerchant2000).Inastudyofinternationaljointventures,GrootandMerchantfindsomeevidencethatcontrolfocusisbroaderencompassingabroadersetofperformanceindicatorswhenpartner'sobjectivesaremorebroadlydefinedandwhenpastperformanceortrustlevelsarerelativelylow.Lowpastperformanceandlowtrustalsowillresultintheuseoftightercontrols.

Insum,successfulstrategicalliancemanagementinvolvesleadershipanddirection,thefacilitationofcommunicationandlearning,andperformancemeasurementandevaluation.Partnerrelations,competitiveforces,andeconomicconditions,however,areeverchanging.Thisdynamicenvironmentposesasignificantchallengetomanagementaccounting,whichmustprovideforinformationandcontrolneedsofthestrategicalliancethroughoutitslife.Inthenextsection,weexplorethemanagementissuesthatarisewiththeevolutionofstrategicalliances.

Managingtheevolutionofalliances:formationandstabilityOtherthansingle-firmcasestudies,weareawareofonlyoneresearchpaperthatexaminestheprocessesbywhichstrategicalliancesemergeusingalargesampleoffirms.Dozetal.(2000)conductasurveyof53R&Dconsortiainanefforttounderstandhowdifferentformationprocessesaffectallianceperformance.Inanexploratoryanalysis,theyidentifytwopathsofnetworkformation.Inthefirstpath,theemergentprocess,changesintheenvironment,commoninterests,andsimilarviewsamongpotentialmembersleadtoallianceformation.Thesecondformationpathisanengineeredprocessbywhichathirdpartyrecognizestheopportunityforcollaborationandtriggersallianceformation.Thispathismorelikelywheninterestsaremoredissimilarandinterdependenceislow.Fromtheresultsoftheexploratoryanalysis,Dozetal.(2000)makebasicinferencesandpredictionsabouthowtheallianceformationprocessaffectsthemannerinwhichconsensusisreachedbyallianceparticipants,participantsatisfactionwiththealliance,andalliancelongevity.Specifically,alliancesformedbyanemergentprocesstendtouseformalboundariestoprecipitateconsensusbuildingamongpartners.Engineeredalliancesdevelopconsensusbyestablishingcontractualtermsthatalignpartnerincentives.Dozetal.(2000)proposethatengineeredallianceswillfaceunmetexpectationswhilemembersofemergentalliancesexperiencebothsatisfactionanddisappointmentatvarioustimesthroughoutthealliancelife.Moreover,theexploratoryresultssuggestthatalthoughmembersofemergentallianceshavestrongerexpectationsofcontinuityofthealliance,theywillterminatesoonerthanalliancesformedbyanengineeredprocess.(p.64) Finally,Dozetal.(2000)findevidencethatengineeredalliancestendtoleadtoadditional,emergenttypealliancesamongthepartners.

ThecompetingforcesframeworkforalliancesuccesssuggestedbyDasandTeng(2000)doesnotdescribetheevolutionaryprocessbywhichtheforcesemergeortheprocessbywhichanimbalanceintheforcesiscorrectedorleadstoadeteriorationintheallianceform.Thereislittlescholarlyresearchthatexplorestheseprocesses,eitherconceptuallyorempirically.AnexceptionisRingandVandeVen(1994).Takingasgiventheexistenceofaninterorganizationalrelationshipbetweentwoormorefirms,theydevelopatheoreticalframeworkforhowrelationshipsevolveovertime.Theydescribethedevelopmentand


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evolutionof[analliance]asconsistingofarepetitivesequenceofnegotiation,commitmentandexecutionstages(RingandVandeVen1994).Negotiationsandcommitmentscanbeformalorinformal,andexecutionincludesbothroleandpersonalinteractions.Theevolutionofrolerelationshipstopersonalinteractionsisproposedtoincreasewiththealliancetenureofthefirmagentsinvolved.Asrelianceontrustamongparticipantsincreases,informalcontractsincreasinglysupplantformalones.However,ifexpecteddurationofthealliancesexceedstheexpectedtenureoftheagents,thenparticipantsbegintoformalizepreviouslyinformalcommitments.Finally,theprobabilitythatthepartieswilldissolvetheallianceinresponsetoacommitmentbreachdecreasesoverthelifeofthealliance(RingandVandeVen1994).

Focusingonthestrategicnetwork,ratherthanindividualtransactions,LorenzoniandBaden-Fuller(1995)findthatstrategicnetworksthatcontinuallyrenewthemselvesbybuildingnewcapabilitiesaremostlikelytosurviveasalliances.Newcapabilitiesmayariseinaprocessofmutualadaptationasfirmsdiscovernewwaystorecombinetheirindividualcompetencies(Riveraetal.2001).Alternatively,theymayarisewithnewpartnersjoiningthealliance.Thispointstoanotherdemandformanagementinformationintheappropriateselectionofpartners.Abigdifferencebetweenthesuccessfulandunsuccessfulnetworksisthatintheformer,thecentralfirmchoosespartnersbasedoncarefulconsiderationofstrategicissuesaswellasthefitorcompatibilityofmanagementsystems,decisionprocesses,andperspectives(LorenzoniandBaden-Fuller1995,italicsadded).

IncentivesandRewards:ManagingPartnersShareofAllianceReturnsDescribingthecontrolandgovernancestructurethatunderpinssuccessfulstrategicnetworks,LorenzoniandBaden-Fuller(1995)remark:

Anglo-Saxoncontractsaretypicallylimitedinthesensethatpartnersarenotexpectedtogobeyondthecontract.Incontrast,inanetworkperspective,thebehaviorisprescribedfortheunknown,eachpromisingtoworkinaparticularmannertoresolvefuturechallengesanddifficultiesastheyarise...Strategiccentersalsorelyontrust,bututilizecontractsandformalcontrolsasacomplement.Centralfirmsdeveloprules(p.65) forsettlingdisputes...[and]ensurethatrewardsaredistributedinamannerwhichencouragespartnerstoreinforcethepositivecircle...Noneofthecentralfirmswestudiedseekstobethemostprofitablefirminthesystem...thetaskofthemanagerisoneofdesigningastructurewhichprovidesanenvironmentfavorableforinteractionstoformandfornewinformationtobegenerated.Suchastructureisanetwork...Informationcondensedthroughthenetworkisthickerthanthatcondensedthroughthebrokeragemarket,butisfreerthaninthehierarchy.

Muchmoresothanfirmsinvolvedinasupplychainnetwork,LorenzoniandBaden-Fuller(1995)findthatmembersofstrategicnetworksseektobuildpartnerscapabilitiesandareunusuallyaggressiveinscanningthehorizonforinnovationopportunities,particularlythosethatinvolvepartnerssharingandmodifyingoneanother'stechnologiesinamodelofbusinessgrowththattheauthorsdescribeasborrow-develop-lend.Theyalsofindthatitisquitecommonforcentralfirmstocreateracesamongkeypartnersforthediscoveryofnewknowledgeandcapabilitieswiththeexpectationthatthewinnerwillberewarded,but


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thatallpartnerswillbenefitfromthediscovery.Toyota'scarefullycontrolledcompetitionsamongsuppliers,whereallpartiessurvivetocompeteagain,illustratethisconceptofthecentralfirmmaintainingprofitabilityofallplayersforthegoodofthenetwork(DyerandOuchi1993).Thisdisciplinedcreativityinterjectscompetitionthatisoftenabsentinhierarchies,whileavoidingthewinnertakealloutcomesofcompetitionthatmaylimitthenumberofcompetitorswhocompeteinsubsequentstagesofinnovation.Itisalsoacriticalelementthatunderpinsthestabilityofthealliancebyensuringfairreturnstoallpartners.

ConclusionThepastdecadehasseenatremendousgrowthinstrategicalliancesandjointventuresacrossavarietyofindustries,providingevidenceofthephenomenaofnewlyemergentformsofcollaborativeinterfirmrelationships.Thevolumeofthiscollaborativeactivityandthelongevityofmanyoftheserelationshipssuggeststhatinterfirmalliancesdo,infact,representasustainableorganizationalform.Despitethis,strategicallianceshavereceivedlittleattentionintheaccountingacademicliterature.

Transactioncosteconomicssuggeststhathybridorganizationalformsemergeinsettingsinwhichtransactioncostsaresufficientlyhightomakemarkettransactionstoocostly,butnothighenoughtojustifyverticalintegration.Theresource-basedviewofthefirmoffersadifferentexplanationfortheformationofhybridorganizationalforms,namely,asasourceofsustainablecompetitiveadvantage.Boththeoriessuggestmotivationsandgoalsofalliances,thegovernancestructuresthatcorrelatewiththesemotives,andfactorsthataffecttheperformanceoftheseorganizationalforms.Empirical(p.66) evidencesupportsmanyofthesetheoreticalpropositions.Yetweknowverylittleaboutthepoliciesandproceduresthatsupportperformanceattainmentinthedaytodaylifeofthealliance,includingmanagementaccountingpracticesaimedathelpingfirmsmanageperformanceofthisextendedenterprise.

Themulti-facetednatureofallianceformationandalliancemanagementandcontrolcreatesnewdemandsformanagementaccounting.Performancemeasurementandcontrolacrossorganizationalboundariesrepresenttheadaptationofoldmanagementaccountingtechniquestothisnewsettingoffirmnetworks.Newmanagementpracticesofrelationshipmanagementareevolving,facilitatedbymanagementaccountinginformationtomeetdemandsforinterorganizationaltrustbuilding,learning,andrichcommunicationamongpartnerfirms.Afterreviewingtheextantresearchrelatedtostrategicallianceformationandperformance,wesuggestanewagendaformanagementaccountingresearchintheextendedenterprise,anagendalinkedtowhathastraditionallybeentermedmanagementaccountingresearchbutthatalsochallengestheseboundaries.Weconsiderthreekeychallengesofmanagingastrategicnetwork,takingasgivenaparticularhybridgovernancestructure;specifically,managingalliancecontrol(includingriskandtrustamongpartners),managingallianceperformanceevaluation,andmanagingtheevolutionofthealliance.Ineachcaseweofferevidencefromthepractitionerliteraturethatstrategicalliancesaremeetingdemandsformanagementaccountinginformationinbothtraditionalandnovelways,supportingourintuitionthatthenewhybridformsaresufficientlydifferentfrommarketsorhierarchiestodemanddifferentmodesofmanagementaccounting.

Withinaparticularhybridorganizationalform,thefirstsignificantchallengeismanagement


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control.Managementtechniquesandmanagementaccountingcontrolmechanismsmustbetailoredtothetypeofassets(propertyorknowledge)committedtothealliancepartnershipandtothedominanttypeofrisk(performanceorrelational)present.Moreover,trustamongpartnersaffectstheperceivedlevelofrelationalriskand,insomesettings,substitutesforformalcontrolmechanisms.Accountinginformationandtrustlevelsareinextricablylinked,inthattrustlevelsamongpartnersaffecttheextenttowhichinformationsharingisneededandtheextenttowhichpartnerfirmsarewillingtoshareinformation.

Thesecondchallengeforalliancepartnersistheevaluationofallianceperformance.Observationsofinnovativeandsuccessfulcollaborativearrangementshighlighttheimportanceofacentralfirmresponsibleforoverseeingnetworkcommunications.Integratedinformationsystemsareimportanttoallianceformationasistheconsistentandobjectivemeasurementandevaluationofallianceperformance.High-levelmanagementsupport,intheformofadistinctmanagementteamdedicatedtoallianceformationandmanagement,isalsofrequentlyusedinsuccessfulalliances.Emphasisonvarioustypesofcontrolmechanisms(behaviour,outputorsocial)isadaptedtothetypeofriskpresentandthelevelofpartnertrustinthealliance.

(p.67) Finally,themanagementofallianceevolutionisthethirdchallengefacingalliancepartners.Managementaccountinginformationisincreasinglyimportanttotheselectionofalliancepartnersandtheassessmentofthecompatibilityofinformationsystemsanddecisionprocesses.Accountinginformationalsoplaysanimportantroleinthedevelopmentofinterfirmtrust,whichhasimplicationsforinformationneedsandtheuseofformalizedcontrolmechanisms.Finally,accountinginformationisoftenthebasisf

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