Although research has implicitly assumed small- or medium-sized enterprises (SMEs) employ alliances to improve performance, few studies have directly investigated how and when current performance levels might prompt firms to cooperate. Based on disparate predictions of the behavioral theory of the firm (BTOF) and threat rigidity thesis, we developed competing hypotheses regarding the impact of performance dissatisfaction on future alliance intentions for firms with and without previous alliance experience. Employing a dataset of 657 SMEs from six countries, results indicate that for firms with alliance experience, increasing managerial dissatisfaction with current performance decreased intentions to employ future alliances, thus supporting the BTOF thesis. Overall, these results highlight the importance that current performance satisfaction plays in influencing future alliance formation intentions.
Small- and medium-sized enterprises (SMEs) are increasingly employing strategic alliances in attempts to build or strengthen a sustainable competitive advantage. In doing so, managers often hope to improve SME performance by developing new skills, obtaining critical resources, gaining market access, developing new technologies, attaining important scale economies, and/or enhancing firm reputation (Varadarajan and Cunningham, 1995). At the same time, alliances can create several potential organizational problems, including allowing critical information leakage to an alliance partner (Hamel, 1991). Consequently, an SME is only likely to seek an alliance when its managers perceive that benefits will offset costs of cooperation, and, thus, improve the firm's long-term performance (Harrigan and Newman, 1990).
Although extant research suggests that performance improvement goals motivate alliance formation, few studies, to date, have directly examined whether current performance actually prompts SMEs to cooperate. Several studies have examined performance as an outcome of alliance formation (e.g., Oum et al., 2004 and Dollinger and Golden, 1992); however, few, other than a few sampling large, multinational firms (e.g., Burgers et al., 1993) have assessed whether it serves as a key input to these decisions. Thus, further research is needed to better understand how current performance influences future SME alliance formation decisions.
A central issue in developing this understanding involves how managers “frame” the decision to cooperate based on a firm's present circumstances. Managerial decision making research, in general, has long noted that current firm performance serves as a critical variable influencing how managers formulate future strategic decisions (Chattopadhyay et al., 2001, Kahneman and Tversky, 1979 and March and Sharpira, 1987). In examining the role of performance, a simple reinforcement perspective (Bandura, 1977) would posit that positive and negative performance outcomes should prompt managers to maintain or change their firm's current strategic course, respectively (Milliken and Lant, 1991). Research, to date, however, particularly examining firms with substandard performance, has failed to universally support this straightforward relationship with some studies finding managers implement novel strategies in attempts to improve performance and others showing they persist with current strategies despite negative performance feedback (Greve, 2003, Ketchen and Palmer, 1999 and Staw et al., 1981). Thus, how current performance influences future strategic decisions remains an important ongoing debate in organizational research (Ocasio, 1995).
Indeed, researchers have developed and employed two theoretical counterweights, the behavioral theory of the firm (BTOF) and threat rigidity thesis, to explain this relationship with the former positing increasing strategic change and the latter strategic persistence in response to managerial performance dissatisfaction (Cyert and March, 1963 and Staw et al., 1981). Applying these theories to strategic alliances suggests that for firms that have recently or are currently employing alliances, increasing performance dissatisfaction will either decrease or increase a firm's likelihood of seeking future alliances to remedy substandard performance, respectively. Moreover, as we discuss in more detail below, they suggest exactly the opposite relationship for firms without alliance experience.
Accordingly, this study investigates the influence of current managerial performance dissatisfaction on future SME alliance intentions. We begin by briefly reviewing alliance advantages and disadvantages to discuss why SMEs might form or avoid forming alliances, in general. We then develop and test hypotheses based on the BTOF and threat rigidity for SMEs both with and without alliance experience employing a six-country sample. Finally, we discuss theoretical and managerial implications of our findings. Overall, results provide important insights into a heretofore underresearched motivation for SME alliance formation.
