New Challenges in Alliance Portfolio Management - Innovation and Marketing in the Pharmaceutical Industry - page 164

science-based fi eld such as pharmaceuticals, especially if the alliances are drafted
as option contracts. When the pharmaceutical fi rm considers and structures alli-
ances as real options on new drugs, it can restrict its resource commitments to initial
investments and postpone the decision to invest more, to later point in time when it
is clearer if the alliance lives up to the promise. Ample evidence in the fi nance and
management literatures shows that diversifying an option portfolio reduces risk
and enhances performance outcomes (e.g., Aggarwal and Samwick 2003 ; Gavetti
and Levinthal 2000 ). A real options perspective is therefore more than just another
theory; it is a motivator for fi rms to diversify their alliance portfolio and deal with
technological uncertainty in a more cost-effi cient way and with higher likelihood of
positive payoffs. In particular, McGrath and Nerkar ( 2003 ) provide a very clear
insight into the fundamentals of real options reasoning.
A third key take-away is that not all fi rms appear to benefi t equally from a diverse
alliance portfolio : senior management commitment and internal knowledge cre-
ation processes explain why some fi rms benefi t more than other . On the one hand,
testimonials from pharmaceutical industry experts and recent papers in the market-
ing literature show that top-down commitment enables companies to take and ben-
efi t from strategic actions. While following logically from prior related studies,
empirical evidence of the importance of senior management involvement in alliance
portfolio management is scant as this branch of the literature is still in its infancy.
On the other hand, I argued that the fi rm's internal knowledge creation processes
determine how well it can benefi t from diverse alliance activity. The fi rst evidence
( Wuyts and Dutta 2012 ) indicates that external knowledge sourcing is a comple-
ment rather than a substitute for internal knowledge development.
A fourth key take-away is that alliance portfolio management is dynamic (one
of the dimensions of portfolio management, see Fig. 5.1 ). In an environment that
is continuously changing along multiple dimensions, ranging from scientifi c
breakthroughs to the legislative environment, what constitutes an optimal portfolio
today may be source of constraint rather than opportunity tomorrow. As a practical
consequence, alliance portfolio management should not be reduced to a task force
that shapes the alliance portfolio strategy once and for all; rather, the assertions
regarding the future developments of the fi eld and the received wisdom of the
environment that may guide portfolio decisions at one point should be regularly
challenged.
Concretely, to tackle some of the current developments, individual alliance
deals may need to be forged increasingly as option contracts. Further, the decision
which alliance options to exercise will likely rely increasingly on commercial
goals next to technological goals. In addition, a more complex, multilevel approach
to portfolio management is likely to emerge—with an umbrella portfolio consist-
ing of several sub-portfolios that cover main areas such as biotechnology, nano-
technology, and ICT. Finally, the primary goal of portfolio management,
identifying one-fi ts-all blockbuster drugs, may need to gradually change to the
identifi cation of a broad palette of targeted treatments, in response to the promise
of personalized medicine.