* Thanks to the Ford Foundation and Digital Media Forum for funding and to Anne Genereux, Song Yang, and Francisco J. Granados for research assistance.

Dynamics of Strategic Alliance Networks

in the Global Information Sector, 1989-2000*

David KnokeUniversity of Minnesota

ICOS, March 15, 2002

PROLIFERATING ALLIANCESBusiness press annually reports hundreds of intercorporate collaborations, creating intricately interconnected “partners of partners” networks

Helsinki to Seattle via TokyoApril 22, 2001: Nokia, Ericsson and Motorola announced a joint corporate effort to create a universal standard to allow cell phone, pagers, and PDAs to send real-time instant messages to each other, regardless of equipment brand or the software.

April 25, 2001: Ericsson and Sony confirmed they would combine their mobile phone businesses in an attempt to create the definitive next-generation handsets for consumers.

June 13, 2001: More than 10 Japanese companies, including Sony and NEC, will set up a consortium to jointly develop next-generation semiconductor-manufacturing equipment.

Oct 21, 2001: NEC and Microsoft announced they will form a strategic alliance for developing platform products, system integration and Internet services for corporate users.

STRATEGIC ALLIANCESBetween market relations & org’l hierarchies reside several short-lived, hybrid forms of interorganizational relationships

Strategic alliance: at least two partner firms that (1) remain legally independent; (2) share benefits, managerial control over performance of assigned tasks; (3) make contributions in strategic areas, e.g., technology or products (Yoshino & Rangan 1995)

SA governance forms vary in the types of legal & social mechanisms to coordinate & safeguard alliance partners’ resource contributions, administrative responsibilities, divide rewards from their collaboration

(Todeva & Knoke 2003)

Hierarchical Relations

---------------------------------------------------------

JOINT VENTURES COOPERATIVES EQUITY INVESTMENTSR&D CONSORTIASTRATEGIC COOP. AGREEMENTSCARTELSFRANCHISINGLICENSINGSUBCONTRACTOR NETWORKSINDUSTRY STANDARDS GROUPSACTION SETS

---------------------------------------------------------Market Relations

ALLIANCE FORMATION

Many alliance-formation explanations focus on dyads

• Org’l & environ’l attributes & motives explaining who allies with whom? (Baker & Faulkner; Ebers)

• Impact of past alliances on future ties: “Does familiarity breed trust?” (Gulati; Gulati & Gargiulo)

• Orgs brokering deals among partners (Fernandez & Gould)

Fewer analyses examine complete-network structures

• MERIT-CATI multi-industry (Hagedoorn & Schakenraad)

• Biotech-pharmaceutical industry (Powell et al.)

• Impact of formal org’l field-net properties on alliance formation rates (Kenis & Knoke)

ALLIANCE CONSEQUENCES

Others investigate strategic alliance outcomes and impacts

• Implementation stage (Larson 1992)

Managing conflicts among autonomous partners

• Success/failure in reaching a venture’s goals

R&D innovations, org’l learning, market penetration

• Impact on the partners’ performances (Stuart 2000)

Profits, sales growth, patents, mergers/takeovers

• Societal consequences

Innovation rates and product proliferation

Market competition or collusion?

The GLOBAL INFO SECTORGIS project on the formation, change, & outcomes of strategic alliances among world’s largest info firms

Five NAIC information subsectors (publishing; motion pictures & sound recording; broadcasting & telecomms; info services & data processing) plus computer, telecomm, semiconductor manufacturing industries

145 core orgs: 66% USA, 16% Europe, 15% Asia

Alliance & venture announcements in general and business news media from 1989 to 2000

Total of 3,569 alliances involving two or more core orgs (some collaborations also include noncore partners)

TWO RESEARCH QUESTIONS What are the interorganizational structures of the

alliance network among the core GIS orgs?

Alliance Network: a set of organizations connected through overlapping partnerships in different strategic alliances (Knoke 2001)

Analyze complete-network proximities among orgs to plot spatial locations of alliance blocks: UCINET hierarchical clustering & multidimensional scaling on matrices of interorg’l similarities (# partnerships)

Globalization H0: The search for competitive advantages

through strategic partnering increases corporate integration across national & industry boundaries, creating a stable alliance network structure dominated by a few core MNCs

How does the GIS network structure evolve?

Effects of previous network structural relations on later changes in complete-network connections

Use longitudinal, stochastic simulation model to estimate network effects (reciprocity, transitivity, balance, etc.) among organizational partners’ choices: SIENA analysis of annual matrices of nondirected, binarized alliance network (dichotomized at varied levels)

Positive Preference H0: Organizations choose partners,

using their knowledge of the current network structure, in efforts to create a “positively evaluated” configuration

RISING ALLIANCE RATESGIS Strategic Alliances 1989-2000

YEAR

2000199819961994199219901988

FR

EQ

UE

NC

Y

5

4

3

2

1

0

Total (100s)

Mean per Org

DIVERSE PURPOSESGIS Types of Alliances

YEAR

2000199819961994199219901988

PE

RC

EN

T o

f A

LL

IAN

CE

S

100

90

80

70

60

50

40

30

20

10

0

Equity Investment

Product Adaptation

Research & Develop

Marketing

Production

Contract

L icense

Standards

Legal-Political

CLOSENESS CENTRALITY

GIS Closeness 1989-2000

Y EAR

2000199819961994199219901988

CL

OS

EN

ES

S

6.0

5.0

4.0

3.0

2.0

1.0

0.0

Network

Mean

CLOSENESS

1991: AT&T

1995: IBM; Sun; Intel

2000: Microsoft; IBM; Sun; HP

CENTRALITY: ORGS INVOLVED WITH MANY PARTNERSDEGREE = Number of ties directly connecting focal org to other orgs (in- or out-degrees)

CLOSENESS = Inverse of sum of distances to other orgs (geodesics = shortest paths)

NETWORK CENTRALIZATION: Extent to which one actor has high centrality and others low

BETWEENNESS CENTRALITY

GIS Betweenness 1989-2000

Y EAR

2000199819961994199219901988

BE

TW

EE

NN

ES

S

100.0

80.0

60.0

40.0

20.0

0.0

Network

Mean

BETWEENESS

1991: AT&T; Time Warner

1995: AT&T; Intel; IBM

2000: Microsoft; IBM

CENTRALITY: ORGS INVOLVED WITH MANY PARTNERSBETWEENNESS = Number of times an org occurs on a geodesic between other pairs of orgs

NETWORK CENTRALIZATION: Extent to which one actor has high centrality and others low

MAPPING the GIS COREHierarchical cluster & multidimensional scaling analyses to identify positions and spatial proximities among 30 most-active GIS firms (1991, 1995, 2000).

Similarity = N of partnerships per dyad.

Organization Primary SIC

America Online AOL Info retrieval

Apple Computer

AT&T Telecomm

BellSouth BS Telecomm

Cisco Communic equip

Compaq Computer

Hewlett-Packard HP Computer

IBM Computer

Intel Semiconductor

Microsoft Software

Motorola TV equip

Novell Software

Oracle Software

Sun Microsystems Computer

Texas Instruments TI Semiconductor

Organization Primary SIC

British Telecomm BT Telecomm

Ericsson Telecomm equip

France Telecomm FT Telecomm

Philips TV equip

Siemens Computer periph

Fujitsu Computer

Hitachi Computer

Matsushita AV equip

Mitsubishi AV equip

NEC Computer

NTT Telecomm

Sony AV equip

Toshiba AV equip

Bell Canada BCE Telecomm

Samsung (Korea) Semiconductor

GIS Core Alliances in the Triad

J apan-Europe

Europe-USA

USA-J apan

Europe

J apan

USA

ME

AN

AL

LIA

NC

ES

6

5

4

3

2

1

0

Y R91

Y R95

Y R00

CHANGING CENTRAL GIS FIRMSTop-ranked orgs by degree, closeness, or betweenness measures*

(red underline in figures)

1991 1995 2000

FujitsuIBMAT&THitachiSun

IBMAT&TMotorolaNECMitsubishi

IBMMicrosoftSunToshiba

1991 GIS (MDS Stress = 0.102)

1.5.5-.5-1.5

1.0

0.0

-1.0

TOSHIBA

TI

SUN

SONY

SIEMENS

PHILIPS

ORACLE

NTT

NOVELLNEC

MOTOROLAMITSUBISHI

MICROSOFT

MATSUSHITA

INTEL

IBM

HP

HITACHI

FUJITSU

FT

ERICSSON

COMPAQ

CISCO

BT

BS

BCE

ATT

APPLE

SAMSUNG

1995 GIS (MDS stress = 0.142)

1.81.51.31.0.8.5.3.0-.3-.5-.8-1.0-1.3-1.5-1.8-2.0-2.3

1.5

1.0

.5

0.0

-.5

-1.0

-1.5

TOSHIBA

TI

SUN

SONY

SIEMENS

SAMSUNG

PHILIPS

ORACLE

NTT

NOVELL

NEC

MOTOROLA

MITSUBISHI

MICROSOFT

MATSUSHITA

INTEL

IBM

HPHITACHI

FUJITSU

FT

ERICSSON

COMPAQ

CISCOBT

BS

BCE

ATT

APPLEAOL

2000 GIS (MDS stress = 0.137)

2.01.51.0.50.0-.5-1.0-1.5-2.0

2.0

1.5

1.0

.5

0.0

-.5

-1.0

-1.5

TOSHIBA

TI

SUN

SONY

SIEMENSSAMSUNG

PHILIPS

ORACLE

NTT

NOVELL

NEC

MOTOROLA

MITSUBISHI

MICROSOFTMATSUSHITA

INTEL

IBM

HP

HITACHI

FUJITSU

FT

ERICSSON

COMPAQ

CISCO

BT

BS

BCE

ATT

APPLE

AOL

EVOLUTION ANALYSISThe macro-evolution of GIS alliance structures, under dynamic constraints of network properties and assumption of methodological individualism

SIENA (Simulation Investigation for Empirical Network Analysis; Snijders 2001) models the changing network connections as outcomes of org’l decisions to add or drop ties, assuming that orgs seek to maximize various “objective function” elements

(e.g., preferences for increased network transitivity, reciprocity, balance, alliances with popular and active partners, etc.)

SIENA estimates effects using two or more observed matrices of dichotomous ties. It applies the method of moments, implemented as a continuous-time Markov chain Monte Carlo simulation (MCMC) [i.e., actors know network’s current structure, but not its earlier states].

EVOLUTION of the GIS CORESIENA analysis of changing alliance ties among the 30 most-active GIS firms in 1991, 1995, and 2000.

*p < .05 ** p < .01 ***p < .001

OBJECTIVE FUNCTION

1991-1995

1995-2000

Rate 63.26*** 116.50

Density 1.65*** -0.27

Balance 1.77*** 1.21**

Indirect ties 1.29** 1.02*

Reciprocity -- 2.48

U.S. dissimilarity -0.40** -0.12

Japan dissimilarity -0.22 -0.05

Europe dissimilarity -- --

Dichotomized at 0 vs. 1+ partnerships per dyad

Density fell over time: 0.74 0.56 0.50

EVOL. Cont.Rate: average # changes (incl. unobserved two-ways that cancel)

Density: control for orgs’ number of partners (out-degrees)

Reciprocity: all GIS alliances are mutual choices

Balance: Similarity between org’s out-ties to partners’ choices; orgs with many partners choose new partners that also have many partners

Indirect tries: N of orgs connected via one-step intermediaries; orgs prefer “open” networks that connect them to many partners-of-partners

Nation dissimilarity: Negative sign means orgs choose partners from same nation

No evidence that partner selection reflects organizational preferences for transitivity, alter popularity, or alter activity.

NEXT DIRECTIONS?

Construct and test a comprehensive, macro-level theoretical explanation of strategic alliance network formation & consequences

Reconstruct historical narrative of Global Information Sector, to understand better the emergence of this trans-national & -industrial system with its markedly mutable internal structures

Uncover structural details of GIS strategic alliances amng all organizations in complete networks across two decades

Model the dynamics of alliance network evolution, emphasizing contingencies of nation & industry

Examine block- and dyad-level partnerships, as functions of organizational & network factors

Analyze strategic alliance consequences for organizational performances: growth, profits, innovation

ReferencesBaker, Wayne E. and Robert R. Faulkner. 2002. “Interorganizational Networks.” Pp. 520-540 in Companion to Organizations, edited by Joel A.C. Baum. Oxford, UK: Blackwell Business.

Ebers, Mark. 1997. “Explaining Inter-organizational Network Formation.” Pp. 3-40 in The Formation of Inter-Organizational Networks, edited by Mark Ebers. Oxford: Oxford University Press.

Fernandez, Roberto M. and Roger V. Gould. 1994. “A Dilemma of State Power: Brokerage and Influence in the National Health Policy Domain.” American Journal of Sociology 99: 1455-1491.

Gulati, Ranjay. 1995. “Does Familiarity Breed Trust? The Implications of Repeated Ties for Contractual Choices in Alliances.” Academy of Management Journal 38:85-112.

Gulati, Ranjay and Martin Gargiulo. 1999. “Where Do Networks Come From?” American Journal of Sociology 104:1439-1493.

Hagedoorn, John and Jos Schakenraad. 1992. “Leading Companies and Networks of Strategic Alliances in Information Technologies.” Research Policy 21:163-190.

Kenis, Patrick and David Knoke. 2002. “How Organizational Field Networks Shape Interorganizational Tie-Formation Rates.” Academy of Management Review (April).

Knoke, David. 2001. Changing Organizations: Business Networks in the New Political Economy. Boulder, CO: Westview Press.  

References, cont.Larson, Andrea. 1992. “Network Dyads in Entrepreneurial Settings: A Study of the Governance of Exchange Relationships.” Administrative Science Quarterly 37:76-104.

Powell, Walter W., Kenneth W. Koput, and Laurel Smith-Doerr. 1996. “Interorganizational Collaboration and the Locus of Innovation: Networks of Learning in Biotechnology.” Administrative Science Quarterly 41:116-45.

Snijders, Tom A.B. 2001. “The Statistical Evaluation of Social Network Dynamics.” Sociological Methodology 31:361-395.

Stuart, Toby E. 2000. “Interorganizational Alliances and the Performance of Firms: A Study of Growth and Innovation Rates in a High-Technology Industry.” Strategic Management Journal 21:791-811.

Todeva, Emanuela and David Knoke. 2003. “Strategic Alliances and Corporate Social Capital.” Kölner Zeitschrift für Sociologie und Socialpsychologie (Forthcoming)

Yoshino, Michael Y. and U. Srinivasa Rangan. 1995. Strategic Alliances: An Entrepreneurial Approach to Globalization. Cambridge, MA: Harvard University Press.