Strategic considerations for teaming, alliances and collaborations

16 Jul 2010 Sandeep Mehta

Management Science has a cool (at least I think so) paper on Cross-Function and Same-Function Alliances: How Does Alliance Structure Affect the Behavior of Partnering Firms:

Firms collaborate to develop and deliver new products. These collaborations vary in terms of the similarity of the competencies that partnering firms bring to the alliance. In same-function alliances, partnering firms have similar competencies, whereas in cross-function alliances, partners have very different competencies.

This is very important in co-development.  If a company in consumer electronics is co-designing a new device with a PCB manufacturer, the alliance is likely to be same-functional. Good news is that alliance between firms with similar competencies seem to work well (with caveats – see below).

On examining managers’ view of these alliances, we find that, on average, same-function alliances are expected to perform better than cross-function alliances, holding fixed the level of inputs. 

However, if the same consumer electronics firm wanted to work with a new company on wireless power, a brand new technology, the alliance might be cross-functional.  Many R&D managers are apprehensive of collaboration with dissimilar firms.  The paper uses game theory to come up with a very interesting finding that cross-functional collaboration leads to increased investments:

partners in cross-function alliances may invest more in their alliances than those in same-function alliances.

And that multiple partners are not a problem in cross-functional collaboration, but they are if the firms collaborating have similar competencies.  This is very important in Aerospace & Defense world as many government contracts do indeed have several same-functional parters:

It is also often believed that increasing the number of partnering firms is not conducive for collaborative effort. Our analysis shows that this belief is correct for same-function alliances, but not for cross-function alliances. 

Finally, a somewhat straight forward learning – once the firms have learned from each other and become more similar in competency, they do stop investing the way they used to in the cross-functional stage:

We extend our model to consider alliances where firms have an opportunity to learn from their partners and later leverage this knowledge outside the scope of their alliance. Though such learning increases the resources committed by alliance partners in the learning phase, it decreases investment in the subsequent competition and also dampens the overall investment across the two stages. 

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