New Challenges in Alliance Portfolio Management - Innovation and Marketing in the Pharmaceutical Industry - page 158

expect a positive linear or even convex effect of portfolio diversity on profi tability.
Arguably, not all fi rms choose to strategically bet on different horses; it is well
accepted that specialization can also be benefi cial as fi rms gain in-depth knowledge
that may give them a competitive edge (Fleming 2001 ; Katila and Ahuja 2002 ).
Given the observations in managerial practice, in particular in evolving science-
based industries such as pharmaceuticals, the effect of portfolio diversity on profi t-
ability may well be U-shaped, where the most profi table fi rms are those that gain a
competitive edge by specializing in only a few technology domains and those that
spread their bets by taking real options in diverse technology domains. Firms that
fail to specialize or diversify are stuck in the middle.
In conclusion, alternative theoretical perspectives lead to vastly different expec-
tations. The very scant empirical evidence does not appear to support the learning
theory perspective; moreover, observations of managerial practice suggest that
pharmaceutical fi rms have increasingly adopted a real options perspective, which is
based on different behavioral assumptions. More empirical research is required to
contrast alternative perspectives, and in particular to examine the explanatory power
of real options theory, in order to derive informed managerial recommendations. In
his recent review paper on alliance portfolios, Wassmer ( 2010 ) calls for more
research on the profi tability consequences of alliance portfolio composition. I sug-
gest we start with improving our understanding of technological diversity.
Importantly, there may also be an additional reason why previous research stud-
ies have not delivered clear-cut generalizations: fi rms differ. Some fi rms are better
equipped than other to benefi t from a diverse alliance portfolio, but we know very
little about fi rm heterogeneity. What distinguishes those fi rms that not only com-
pose diverse alliance portfolios but also manage to reap the benefi ts? This question
brings us to Challenge 2.

5.4.2 Challenge 2: Firm Heterogeneity

Not all fi rms benefi t equally from alliance portfolio diversity. Yet, the portfolio lit-
erature has not paid much attention to fi rm differences. A possible explanation is
that the portfolio literature draws on network theory, where characteristics of the
actors are seldom accounted for (a limitation of the literature that is often referred
to as “over-socialization”). The lack of attention to fi rm characteristics contrasts
sharply with the key role of fi rm differences in the innovation and strategy literature.
An important challenge that needs to be addressed to advance our understanding of
alliance portfolios is to explicitly account for fi rm heterogeneity. Below, I argue that
differences across fi rms in terms of (1) managerial resources committed to portfolio
management and (2) the presence of internal routines to deal with extramural
knowledge help explain why some fi rms benefi t more from a diverse alliance port-
folio than other fi rms.
First, when fi rms take a portfolio perspective, they need to commit appropriate
managerial resources. The commitment of managerial resources is likely to