Exploring Mechanisms for Performance Management in Strategic Alliances: bridging partner differences in knowledge-exchange

The interest of this doctoral research is to contribute in increasing the success rate of strategic alliances through the shared practice of performance management (PM). The focus of this research is to study how firms within an alliance collectively use performance information through formal control mechanisms, and develop relational capital through informal control mechanism to support the achievement of common goals, and the establishment of future direction of the relationship. Since unique and difficult-to-imitate knowledge-based resources provide significant competitive advantages, the aim of learning from alliance partners (Hamel, et al. 1991; Mowery, 1996) has been one of the most-cited motivations of engaging in alliances. Continuously learning from the transfer and exchange of knowledge is a dynamic capability which shapes alliances over time. Scholars have shown interest in the study of strategic alliances geared on innovation evident in the growth of literary works dedicated on the topic (Dagnino et al., 2015), while in practice, businesses continue to recognize alliances and innovation together as an effective strategy mix to get ahead of their competitors. The need to keep pace with the advances in innovation is especially recognized in high-technology industries, knowing that in their fast-paced business, it is by continuous learning that a competitive advantage can be kept. Behind advances in learning are ‘epistemic communities’, defined by Cohendet et al., (2014) as groups of knowledge-driven agents linked together by a common goal, a common cognitive framework and a shared understanding of their work, which goes beyond individual organizations and geographical proximities (Holzner, 1968, p.140). Hakanson (2010) used the concept of epistemic communities to emphasize on a sociological view on knowledge-exchange as being significantly dependent on the cognitive background of the agents, instead of using the more popular theory on knowledge-based view that emphasize on the importance of “tacitness” as the determinant of the right governance structures. Epistemic communities are better in handling the exchange of knowledge “because their common norms, procedures and practices constrain the risks of bounded rationality and opportunism in knowledge exchange” (Verwaal, 2017). A firm keeping a portfolio of strategic alliances would mean participation in the development of multiple epistemic communities, which suggests the complexity of knowledge structures and the difficulty of finding the common and shared identity among the network of relationships. The bias over the dominant epistemic community where the firm finds itself most familiar may result to disregard for other existing knowledge links without realizing the greater potential of developing highly differentiated competitive innovations as a contribution of knowledge diversity. It is only natural for two or more distinct firms to experience cognitive and normative barriers in the development of their relationship, which when left unresolved, can paralyze the flow of knowledge-exchange, and therefore prevent partner firms to realize the potential benefits of continuing with the relationship. It would be worthwhile to study the role of performance management mechanism, both formal and informal, in bridging these differences, and to investigate the challenges encountered by firms in setting-up and managing PM systems in alliances, including the recognition of the potential unintended consequences arising from PM efforts. It is also interesting to observe how PM mechanisms adjust to change as partners learn and as the relationship evolves over time. The first objective of the research is to investigate how PM in strategic alliances aligns cognitive and normative differences among partnering firms. It should look into both extrinsic and intrinsic differences among individual firms that ideally come together to build epistemic communities, that should be founded on common norms and familiar settings. The inability of a strategic alliance to develop the ideal condition for an epistemic community to persist is a barrier to knowledge-exchange. The insights that will be delivered through this study should provide understanding on the role of PM in strategic alliances in addressing disparity issues that prevent them from becoming successful. The second objective is to understand the differences in PM practices as it co-evolves with the changes that happen as knowledge is exchanged between partners such as adjusting measures and improved monitoring schemes, and how relational capital develops over the life of the alliance. Addressing this objective in the research may find evidence to support how maturity has an influence in the way performance management is implemented in strategic alliances. A more dynamic depiction of PM in strategic alliances is expected to be developed through this objective. The matters presented earlier requires rigorous, in-depth investigations, and the best approach to attain the research objectives is through the conduct of case studies. Firms that manages a portfolio of strategic alliances may be targeted where each alliance within the portfolio may count as an individual case. In this case, triangulation using the perspective of other firms within the alliance will be taken into account to mitigate bias. Without any certainty, one or a few of the cases may agree to the conduct of a longitudinal study important for the second objective. Bearing in mind the variety of alliance types, and considering the premise on knowledge-exchange, it may be useful to target equity arrangements, since it has been established in literature that equity arrangements support greater transfer of technological capabilities (Kogut, 1988) and 'absorptive capacity' (Cohen and Levinthal, 1990); and any variation in alliance type might put the results of the research into question. A case study protocol (Yin, 2014, p.84) will be developed to guide the collection of necessary information during the study of PM practices in the different cases. The best characteristics of PM practices, and the issues to look-out for are derived from the earlier review of literature. It will contain an overview of the case studies, data collection procedures, detailed questions, and a guide for the case study report. The PhD research follows a qualitative approach in its investigation of PM mechanisms, both formal and informal, in strategic alliances with a focus on knowledge-exchange. Qualitative methods would be particularly useful for gaining insights into the nature of control mechanisms, involving unpredictable and uncontrollable behavior of not just individual people, but of firms and alliances.