Innovation in the Pharmaceutical Industry: The Process of Drug Discovery and Development - Innovation and Marketing in the Pharmaceutical Industry - page 63

technical backgrounds, as well as have proximate organizational processes and com-
mon research communities. Such symbiotic partnerships would result in more suc-
cessful innovation outcomes from the alliance (Lane and Lubatkin 1998 ).
Diminishing returns from excessive alliance activity . Simultaneous participation in
multiple alliances can be conducive to prolifi c product development, but may incur
signifi cant transaction costs, manifested in increasing burden on the fi rm's manage-
ment. The heightened complexity and the specifi city of information exchange with
multiple partners, the need to monitor diverse relationships and to abide by multiple
agreements can overextend the fi rm's managerial capability. The scrutiny with which
it selects new partners may wane, or the selection pool may shrink signifi cantly once
the most promising partners are already on board, rendering additional alliances less
well-fi tting or less productive. Diminishing marginal returns will eventually set in and
may even transition to negative effects. The fi rm's innovation performance may decline
when the fi rm extends beyond a certain critical threshold of alliance connectivity.
Entering too many alliances opens up the venture to risks of coordination prob-
lems, mismanagement, opportunism, and expropriation. Yet, participation in too
few can place the fi rm at a competitive disadvantage. The implied inverted-U effect
of the number of alliances on a fi rm's innovation performance has been supported
in the empirical studies of Deeds and Hill ( 1996 ) and Rothaermel and Deeds ( 2006 ).
Network effects , experience effects and partner diversity . Exploring the alliance net-
works of a panel of 225 biotech fi rms in a dynamic setting, Powell et al. ( 1996 ) fi nd
that the majority of fi rms establish multiple alliances over time. The interfi rm con-
nectivity in the industry grows rapidly. Collaborative practices with diverse part-
ners contribute to learning effects, which enhance fi rm growth. Hoang and
Rothaermel ( 2005 ) propose that alliance experience obtained from a fi rm's joint
activities with a portfolio of diverse partners aids knowledge codifi cation, brings
about new intra- and interorganizational routines, and may even prompt the forma-
tion of new structures within the fi rm. The new routines or structures can be mutu-
ally benefi cial: they may facilitate the functional cooperation between the partners,
enhance the assimilation of new knowledge, and boost the information exchange
between them. The locus of learning can be the development of alliance experience
among dedicated alliance managers . Eventually, however, diminishing marginal
effects from coordinating too many partnerships may set in.
The impact of experience obtained from the same set of a few long - term partners
can be less effective. Having only a few partners leaves less room for organizational
learning. The variation in new experiences will be limited. Complacency, process
inertia, or functional rigidities between the partners may set in. The empirical results
of Hoang and Rothaermel ( 2005 ), obtained from a study of 158 collaborative new
product development projects, support these propositions. For the biotech fi rms in that
study, the impact of diverse prior alliance experience has a positive but diminishing
effect on the success probability of joint R&D projects, while the cumulative partner-
specifi c alliance experience is rendered insignifi cant. The same pattern was subse-
quently demonstrated by Rothaermel and Deeds ( 2006 ) in another, larger sample.
Interestingly, these fi ndings have failed to replicate with large pharmaceutical fi rms.
Having a diverse alliance network does not exert a positive impact on their project