Strategic alliances are voluntary agreements between independent firms to develop and commercialize new products, technologies or services (Gulati, 1998). The use of strategic alliances has grown dramatically over the last two decades, particularly in high-technology industries (Hagedoorn, 1993). Commensurately, allying has become critical to the success of high-tech entrepreneurial ventures (Powell et al., 1996). Recently, scholars have proposed that firms differ systematically in their alliance management capability and that these differences may be a source of firm-level competitive advantage (Dyer and Singh, 1998 and Ireland et al., 2002). Thus, understanding how alliance-specific and firm-level factors impact a firm's alliance management capability is an important, yet under researched, question, especially in the entrepreneurial context.
Prior research has provided empirical evidence that an entrepreneurial firm's strategic alliances enhance its rate of patenting (Shan et al., 1994), product innovation (George et al., 2002 and Kelley and Rice, 2002), speed to initial public offering (IPO) (Stuart et al., 1999), market valuation at IPO (DeCarolis and Deeds, 1999) and foreign sales (Leiblein and Reuer, 2004). Other studies have generally endorsed a positive effect of alliances on entrepreneurial firm performance, but cautioned that there may exist diminishing returns to extensive allying (Deeds and Hill, 1996). Some researchers have moved beyond general alliance experience and shown that alliance experience with the same partner over time positively impacted the alliance performance of subsequent alliances between these two partners (Zollo et al., 2002), and that firms with alliance experiences in similar technological fields were less likely to engage in post-formation governance changes in a subsequent alliance (Reuer et al., 2002).2 When focusing on established firms rather than high-tech ventures, alliance experience has also been shown to result in higher stock market value creation (Anand and Khanna, 2000), enhanced new product development (Rothaermel, 2001a) and in the establishment of a dedicated alliance function, which in turn positively impacted alliance performance (Kale et al., 2002).
While prior research has clearly provided some evidence for the existence of firm-level alliance experience effects, empirical research that investigates factors impacting a firm's alliance management capability is scarce, mainly due to methodological obstacles. We argue that, if an alliance management capability indeed exists, it must have tangible benefits to be the basis for a firm-level competitive advantage (Godfrey and Hill, 1995). One such tangible benefit of a firm's alliance management capability is the firm's ability to productively manage its alliances, which in turn should positively impact its performance. Accordingly, we define alliance management capability as a firm's ability to effectively manage multiple alliances.
To empirically explore the construct of alliance management capability, we first establish that the relationship between a high-technology venture's alliances and its new product development is inverted U-shaped. In particular, we demonstrate that an inverted U-shaped relationship holds not only for a high-tech ventures total portfolio of alliances but also for individual alliance types (i.e., upstream, horizontal and downstream alliances). This is a precursory step to empirically establish that a firm's level of alliance management capability can be proxied by the point of diminishing total returns in the relationship between a firm's alliances and its new product development.
We then turn to the determinants of a firm's alliance management capability. We develop the notion that the alliance type and the firm's alliance experience moderate the relationship between firm allying and new product development. In particular, we suggest that different types of alliances demand different amounts of a high-tech venture's alliance management capability. Moreover, we propose that an alliance management capability is built through accumulated alliance experience over time. Firms with greater alliance experience should be able to productively manage a larger number of alliances. We test these hypotheses on a sample of 2226 R&D alliances entered into by 325 global biotechnology firms in the 25-year period between 1973 and 1997.
