Entrepreneurship and Innovation Today

Asymmetric New Product Development Alliances: Win-Win or Win-Lose Partnerships?

Asymmetric New Product Development Alliances: Win-Win or Win-Lose Partnerships?  by Kartik Kalaignanam, Venkatesh Shankar, Rajan Varadarajan

Abstract

Many new product development (NPD) alliances are asymmetric, that is they are formed between a larger firm and a smaller firm.  In this paper, we examine whether such alliances promote increased shareholder values and, if so, what factors drive the changes in shareholder values of the partner firms.  We develop and empirically test a model of short-term changes in shareholder values of firms involved in NPD alliances in the information technology and communication industries.  We find that both the larger and smaller partners in the alliances experience significant shortterm financial gains.  However, larger firms differ from smaller firms with regard to the drivers of financial gains.  For the larger partner firm, an alliance that encompasses multiple functional areas (e.g., R&D, marketing, and distribution) enhances financial gains.  In contrast, the smaller partner firm benefits from alliances in which the R&D efforts of the partners are pooled.  However, our findings suggest that smaller firms obtain greater financial gains from alliances than do larger firms.  To obtain significant financial gains from NPD alliances, larger firms may want to pay closer attention to forming broad scope alliances with innovative smaller partners, while smaller firms should focus on larger partners who are willing to devote greater R&D resources to the alliance.

Source: MANAGEMENT SCIENCE Vol.  53, No.  3, March 2007, pp.  Iv-vii issn 0025-1909 eissn 1526-5501 07 5303 00iv

Size Really Matters - New Insights for Start-Ups' Survival" by Ornit Raz and Peter A. Gloor of MIT's Sloan School of Management.

The breadth of executives' social networks with colleagues at other firms plays a crucial role in deciding which tech start-ups will live or die, according to the Management Insights feature in the February issue of Management Science, the flagship journal of the Institute for Operations Research and the Management Sciences (INFORMS®).

Management Insights, a regular feature of the journal, is a digest of important research in business, management, operations research, and management science.  It appears in every issue of the monthly journal.

"Size Really Matters - New Insights for Start-Ups' Survival" is by Ornit Raz and Peter A. Gloor of MIT's Sloan School of Management.

The authors found that firms whose managers have more social relationships with peers at other software start-ups have a better chance of surviving external shocks, such as the burst of the dot-com bubble earlier in the decade.  This result suggests that cultivation of strong and relevant social networks among a firm's managers can be an important determinant of the success of a startup venture.

The research is based on a multi-year study of 100 software start-ups in Israel.  Original data was collected from start-ups during the dot-com economic growth.  Eight years later, the authors examined new information about the ability to survive the bubble's burst.

The findings suggest that small-firm survivors talk not among themselves but prefer to talk to larger firms.  In addition, larger non-survivors talk too much among themselves.  The authors observed grouping by communication networks into a group of larger survivors and larger non-survivors.  They determined that informal grouping in a "club of winners" and a "club of losers" is done well before the winners and the losers are known.  These results may lend themselves to predict future winners.

Abstract: In this paper, we present new evidence regarding a start-up firm’s probability of survival, based on the social network structure of the firm’s managers.  Since start-up firms must cope with many issues, the question “who will survive and who will die” is a complex puzzle.  On one hand, we would expect that social network size facilitates survival rate.  On the other hand, a large social network could result in a “domino effect,” in which firms that are well connected with each other are also influenced by the same thinking, make the same wrong decisions, and wind up pulling each other down.  Based on a multi-year study of 100 software start-ups in Israel, we show that the managers’ informal communication network does indeed play an important role in their firm’s probability of survival.  Specifically, firms whose managers have more social relationships with peers at other software start-ups have a better chance of surviving external shocks, such as the burst of the e-Business bubble.  This result suggests that cultivation of strong and relevant social networks among a firm’s managers can be an important determinant of the success of a startup venture.

The current issue of Management Insights is available at http://mansci.journal.informs.org/cgi/reprint/53/2/iv.