New Challenges in Alliance Portfolio Management

Part of the International Series in Quantitative Marketing book series (ISQM, volume 20)


In order to expand the pool of opportunity and access external R&D, many pharmaceutical firms have accumulated portfolios of alliances with other industry participants over the past decade. Academic research has amply demonstrated that such alliance portfolios can contribute to firm innovativeness and profitability. Yet, alliance portfolios don’t always pay off and much remains to be done to arrive at a theory of effective alliance portfolio management. This chapter pursues a number of contributions to this area. First, the author offers an overview of the key dimensions of portfolio management: scale, partners, governance, technology diversity, cost, and dynamics. Second, the author singles out the technological diversity of the alliance portfolio and elaborates on its definition and measurement. Third, the author addresses three challenges that relate to managing technologically diverse alliance portfolios in the pharmaceutical industry. The first challenge is theoretical in nature: the author contrasts two competing theoretical perspectives that raise different expectations with regard to optimal portfolio diversity, and he motivates why the real options perspective may prove to outperform the learning theory perspective. The second challenge stems from the observation that not all firms benefit equally from similar levels of alliance portfolio diversity: the author argues that such differences across firms can be explained by differences in the commitment of managerial resources to implementing a portfolio strategy and by differences in internal routines and capabilities. The third challenge relates to the changing nature of collaboration: the evolution of biotechnology as a scientific field, the emergence of nanotechnology, the increasing potential of personalized medicine, and particular institutional changes such as healthcare reforms have reshaped the pharmaceutical landscape and require novel approaches to alliance portfolio management.


Real Option External Knowledge Portfolio Management Pharmaceutical Firm Technology Diversity 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  1. Aggarwal RK, Samwick AA (2003) Why do managers diversify their firms? Agency reconsidered. J Finance 58(1):71–118CrossRefGoogle Scholar
  2. Ahuja G, Lampert CM (2001) Entrepreneurship in the large corporation: a longitudinal study of how established firms create breakthrough inventions. Strateg Manage J 22(6/7):521–543CrossRefGoogle Scholar
  3. Ansoff HI (1958) A model for diversification. Manage Sci 4(4):392–414CrossRefGoogle Scholar
  4. Argyres N (1996) Capabilities, technological diversification and divisionalization. Strateg Manage J 17(5):395–410CrossRefGoogle Scholar
  5. Arora A, Gambardella A (1994) Evaluating technological information and utilizing it: scientific knowledge, technological capability, and external linkages in biotechnology. J Econ Behav Organ 24(1):91–114CrossRefGoogle Scholar
  6. Aspinall MG, Hamermesh RG (2007) Realizing the promise of personalized medicine. Harv Bus Rev 85(10):108Google Scholar
  7. Bamford J, Ernst D (2002) Managing an alliance portfolio. McKinsey Q 3:29–39Google Scholar
  8. Baum JAC, Calabrese T, Silverman BS (2000) Don’t go it alone: alliance network composition and startups’ performance in Canadian biotechnology. Strateg Manage J 21(3):267–294CrossRefGoogle Scholar
  9. Burt RS (1992) Structural holes: the social structure of competition. Harvard University Press, CambridgeGoogle Scholar
  10. Capon N, Glazer R (1987) Marketing and technology: a strategic coalignment. J Market 51(3):1–14CrossRefGoogle Scholar
  11. Caves RD (1981) Diversification and seller concentration: evidence from change, 1963–1972. Rev Econ Stat 63:289–293CrossRefGoogle Scholar
  12. Chatterjee S, Lubatkin MH, Schulze MS (1999) Toward a strategic theory of risk premium: moving beyond CAPM. Acad Manage Rev 24(3):556–567Google Scholar
  13. Clark KB, Fujimoto T (1991) Product development performance: strategy, organization, and management in the world auto industry. Harvard Business School Press, BostonGoogle Scholar
  14. Cohen WM, Levinthal DA (1990) Absorptive capacity: a new perspective on learning and innovation. Adm Sci Q 35(1):128–152CrossRefGoogle Scholar
  15. Cui AS (2013) Portfolio dynamics and alliance termination: the contingent role of resource dissimilarity. J Market 77(3):15–32CrossRefGoogle Scholar
  16. Cui AS, O’Connor G (2012) Alliance portfolio resource diversity and firm innovation. J Market 76(4):24–43CrossRefGoogle Scholar
  17. DiMaggio P (1992) Nadel’s paradox revisited: relational and cultural aspects of organizational structures. In: Nohria N, Eccles R (eds) Networks and organization: structure, form, and action. Harvard Business School Press, BostonGoogle Scholar
  18. Ellison SF, Cockburn I, Griliches Z, Hausman J (1997) Characteristics of demand for pharmaceutical products: an examination of four cephalosporins. Rand J Econ 28(3):426–446CrossRefGoogle Scholar
  19. Fleming L (2001) Recombinant uncertainty in technological search. Manage Sci 47(1):117–132CrossRefGoogle Scholar
  20. Fleming L, Sorenson O (2001) Technology as a complex adaptive system: evidence from patent data. Res Policy 30(7):1019–1038CrossRefGoogle Scholar
  21. Gavetti G, Levinthal DA (2000) Looking forward and looking backward: cognitive and experiential search. Adm Sci Q 45(1):113–137CrossRefGoogle Scholar
  22. GlaxoSmithKline (2011)Google Scholar
  23. Goerzen A (2007) Alliance networks and firm performance: the ımpact of repeated partnerships. Strateg Manage J 28(5):487–509CrossRefGoogle Scholar
  24. Goerzen A, Beamish PW (2005) The effect of alliance network diversity on multinational enterprise performance. Strateg Manage J 26(4):333–354CrossRefGoogle Scholar
  25. Granovetter M (1973) The strength of weak ties. Am J Sociol 78:1360–1380CrossRefGoogle Scholar
  26. Granstrand O (1998) Towards a theory of the technology-based firm. Res Policy 27(5):465–479CrossRefGoogle Scholar
  27. Hansen MT (1999) The search-transfer problem: the role of weak ties in sharing knowledge across organization subunits. Adm Sci Q 44(1):82–111CrossRefGoogle Scholar
  28. Higgins MJ, Rodriguez D (2006) The outsourcing of R&D through acquisitions in the pharmaceutical ındustry. J Financ Econ 80:351–383CrossRefGoogle Scholar
  29. Hobson DW (2009) Opportunities and challenges in pharmaceutical nanotechnology. Pharm Technol 33(7):177–178Google Scholar
  30. Hoffmann WH (2007) Strategies for managing a portfolio of alliances. Strateg Manage J 28:827–856CrossRefGoogle Scholar
  31. Jiang RT, Tao QT, Santoro MD (2010) Alliance portfolio diversity and firm performance. Strateg Manage J 31:1136–1144CrossRefGoogle Scholar
  32. Katila R, Ahuja G (2002) Something old, something new: a longitudinal study of search behavior and new product introduction. Acad Manage J 45(6):1183CrossRefGoogle Scholar
  33. King AA, Lakhani KR (2011) The contingent effect of absorptive capacity: an open innovation analysis. Harvard Business School Working Paper 11–102Google Scholar
  34. Kodama F (1992) Technology fusion and the new R&D. Harv Bus Rev 70(4):70–78Google Scholar
  35. Kogut B, Kulatilaka N (1994) Operating flexibility, global manufacturing, and the option value of a multinational network. Manage Sci 40(1):123–139CrossRefGoogle Scholar
  36. Koka BR, Prescott JE (2008) Designing alliance networks: the influence of network position, environmental change, and strategy on firm performance. Strateg Manage J 29:639–661CrossRefGoogle Scholar
  37. Kuhn TS (1962) The structure of scientific revolutions. The University of Chicago Press, ChicagoGoogle Scholar
  38. Lechleiter J (2010) Using FIPNet to supercharge the innovation engine. In: Beyond Borders—Global Biotechnology Report 2010. Ernst & YoungGoogle Scholar
  39. Lerner J (1994) The importance of patent scope: an empirical analysis. Rand J Econ 25(2):319–333CrossRefGoogle Scholar
  40. Lewin AY, Massini S, Peeters C (2011) Microfoundations of internal and external absorptive capacity routines. Organ Sci 22(1):81–98CrossRefGoogle Scholar
  41. Macher JT (2006) Technological development and the boundaries of the firm: a knowledge-based examination in semiconductor manufacturing. Manage Sci 52(6):826–843CrossRefGoogle Scholar
  42. McEvily B, Zaheer A (1999) Bridging ties: a source of firm heterogeneity in competitive capabilities. Strateg Manage J 20:1133–1156CrossRefGoogle Scholar
  43. McGrath RG, Nerkar A (2003) Real options reasoning and a new look at the R&D investment strategies of pharmaceutical firms. Strateg Manage J 25(1):1–25Google Scholar
  44. Miller DJ (2006) Technological diversity, related diversification, and firm performance. Strateg Manage J 27(7):601–619CrossRefGoogle Scholar
  45. Montgomery CA (1985) Product-market diversification and market power. Acad Manage J 28(4):789–798CrossRefGoogle Scholar
  46. Moser P, Nicholas T (2004) Was electricity a general purpose technology? Evidence from historical patent citations. Am Econ Rev 94(2):388CrossRefGoogle Scholar
  47. Ozcan P, Eisenhardt KM (2009) Origin of alliance portfolios: entrepreneurs, network strategies, and firm performance. Acad Manage J 52(2):246–279CrossRefGoogle Scholar
  48. Palepu K (1985) Diversification strategy, profit performance, and the entropy measure of diversification. Strateg Manage J 6(3):239–255CrossRefGoogle Scholar
  49. Paruchuri S (2010) Intraorganizational networks, interorganizational networks, and the impact of central inventors: a longitudinal study of pharmaceutical firms. Organ Sci 21(1):63–81CrossRefGoogle Scholar
  50. Pavitt K, Robson M, Townsend J (1989) Technological accumulation, diversification and organization in UK companies, 1945–1983. Manage Sci 35(1):81–99CrossRefGoogle Scholar
  51. Phelps CC (2010) A longitudinal study of the influence of alliance network structure and composition on firm exploratory innovation. Acad Manage J 53(4):890–913CrossRefGoogle Scholar
  52. Pisano GP (2002) Discovering the future: R&D strategy at Merck. Harvard Business School, Case Study 601-086Google Scholar
  53. Powell WW, Koput KW, Smith-Doerr L (1996) Interorganizational collaboration and the locus of innovation: networks of learning in biotechnology. Adm Sci Q 41:116–145CrossRefGoogle Scholar
  54. Rao RS, Chandy RK, Prabhu JC (2008) The fruits of legitimacy: why some new ventures gain more from innovation than others. J Market 72(4):58–75CrossRefGoogle Scholar
  55. Rappa MA, Debackere K (1995) An analysis of entry and persistence among scientists in an emerging field of science: the case of neural networks. R&D Manage 25(3):323–341CrossRefGoogle Scholar
  56. Reagans RE, Zuckerman EW (2008) Why knowledge does not equal power: the network redundancy trade-off. Ind Corp Change 17(5):903–944CrossRefGoogle Scholar
  57. Rothaermel FT (2001) Incumbent’s advantage through exploiting complementary assets via interfirm cooperation. Strateg Manage J 22(Special Issue):687–699CrossRefGoogle Scholar
  58. Rowley T, Behrens D, Krackhardt D (2000) Redundant governance structures: an analysis of structural and relational embeddedness in the steel and semiconductor industries. Strateg Manage J 21(Special Issue 3):369–386CrossRefGoogle Scholar
  59. Sarkar MB, Aulakh PS, Madhok A (2009) Process capabilities and value generation in alliance portfolios. Organ Sci 20(3):583–600CrossRefGoogle Scholar
  60. Sharpe P, Keelin T (1998) How SmithKline Beecham makes better resource-allocation decisions. Harv Bus Rev 76(2):45–52Google Scholar
  61. Simonet D (2002) Licensing agreements in the pharmaceutical industry. Int J Med Market 2(4):329–341CrossRefGoogle Scholar
  62. Soni PK, Lilien GL, Wilson DT (1993) Industrial innovation and firm performance: a re-conceptualization and exploratory structural equation analysis. Int J Res Market 10:365–380CrossRefGoogle Scholar
  63. Stern I, Henderson AD (2004) Within-business diversification in technology-intensive industries. Strateg Manage J 25(5):487–505CrossRefGoogle Scholar
  64. Suzuki J, Kodama F (2004) Technological diversity of persistent innovators in Japan—two case studies of large Japanese firms. Res Policy 33:531–549CrossRefGoogle Scholar
  65. Uzzi B (1997) Social structure and competition in interfirm networks: the paradox of embeddedness. Adm Sci Q 42:35–67CrossRefGoogle Scholar
  66. Varadarajan PR (1986) Product diversity and firm performance: an empirical investigation. J Market 50(2):43–57Google Scholar
  67. Vassolo RS, Anand J, Folta TB (2004) Non-additivity in portfolios of exploration activities: a real options-based analysis of equity alliances in biotechnology. Strateg Manage J 25(11):1045–1061CrossRefGoogle Scholar
  68. Veugelers R, Cassiman B (1999) Make and buy in innovation strategies: evidence from Belgian manufacturing firms. Res Policy 28:63–80CrossRefGoogle Scholar
  69. Wassmer U (2010) Alliance portfolios: a review and research agenda. J Manage 36(1):141–171CrossRefGoogle Scholar
  70. Wuyts S, Dutta S (2008) Licensing exchange: insights from the biopharmaceutical industry. Int J Res Market 25(4):273CrossRefGoogle Scholar
  71. Wuyts S, Dutta S (2012) Benefiting from alliance portfolio diversity: the role of past internal knowledge creation strategy. J Manage forthcoming (first online March 23, 2012)Google Scholar
  72. Wuyts S, Dutta S, Stremersch S (2004a) Portfolios of interfirm agreements in technology-intensive markets: consequences for innovation and profitability. J Market 68(2):88–100CrossRefGoogle Scholar
  73. Wuyts S, Stremersch S, Van den Bulte C, Franses P-H (2004b) Vertical marketing systems for complex products: a triadic perspective. J Market Res 41(4):479CrossRefGoogle Scholar
  74. Wuyts S, Colombo M, Dutta S, Nooteboom B (2005) Empirical tests of optimal cognitive distance. J Econ Behav Organ 58(2):277–302CrossRefGoogle Scholar
  75. Wuyts S, Dutta S, Qu S (2010) Balancing advertising and R&D expenditures in technology-intensive industries: a dual diversification perspective. Working PaperGoogle Scholar
  76. Yadav MS, Prabhu JC, Chandy RK (2007) Managing the future: CEO attention and innovation outcomes. J Market 71(4):84–101CrossRefGoogle Scholar
  77. Yli-Renko H, Janakiraman R (2008) How customer portfolio affects new product development in technology-based entrepreneurial firms. J Market 72(3):131–148CrossRefGoogle Scholar
  78. Ernst & Young (2010) In: Beyond borders—global biotechnology report 2010Google Scholar
  79. Zhao X (2009) Technological innovation and acquisitions. Manage Sci 55(7):1170–1183CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Koç University & Tilburg UniversitySariyerTurkey

Personalised recommendations