Managerial and Organizational Issues in R&D collaborations: a Literature Review

Transcription

1 BSc(B) 6. semester Author: Audrius Stankus (as86782) Class: U34 Managerial and Organizational Issues in R&D collaborations: a Literature Review Business and Social Sciences 2012

2 Table of Contents Abstract Introduction Problem Statement Delimitations Methods Types of R&D collaborations Partner choice and their similarity Choice of a partner Similarity of partners Differences in knowledge and capability level Section summary Organizational Form Level of formalization Section summary Opportunism Section summary Interaction Risks of too intense interaction and communication Management tools used to increase communication and interaction between partners Section summary Discussion Implications for business Implications for literature Limitations Conclusion References... 46

3 Abstract Collaborations for R&D activities are becoming a popular approach to increase performance of the firm. It allows more efficient use of resources and gives a possibility for synergizing strong qualities of two or more companies. Given the complexity of technology, joint endeavor put towards the same goal greatly increases a chance of success. However, at the same time, it introduces new challenges for a firm that gets involved in R&D collaboration. Collaboration with other market player, which may even be direct competitor, significantly changes the dynamics of interaction and competition between firms. For this reason it is important to give enough consideration how collaboration will be organized and what management techniques will be chosen. This thesis will analyze and make a review of literature that addresses managerial and organizational aspects of R&D collaborations. The thesis will try to answer what are the most common issues and challenges encountered by firms collaborating for R&D activities. Literature review was chosen because it will help to identify which areas of this problem need more attention in the literature and it will help for businesses to get an overview of difficulties faced by collaborating firms and become aware of common pitfalls. Reviewed literature suggested a wide range of issues that occur in R&D collaborations. In this review all these issues were discussed under four main groups, namely, (1) similarity of partners, (2) organizational form, (3) opportunism, and (4) interaction and communication. The first group covers issues that arise because of various differences between collaboration partners. These differences have to be addressed as early as partner selection phase because it is important to find a partner that has similar goals and commitment level. Literature indicates that other differences such as knowledge or capability level should be somewhat equal, but there are arguments for both higher diversity and higher similarity. The second group discusses how organizational form chosen for R&D collaboration and level of contract formalization influences collaboration performance. There are no clear conclusions as to which organizational form is the best since it depends on various factors. However, it is found that more formalized relationships are more preferred where collaborations are made for longer time periods, where scope of research is broad and where diversity between partners is rather high.

4 The third group discusses how possibility for a partner to behave opportunistically and diverge from agreed goals, negatively influences collaboration performance. Literature suggests that it is unlikely to completely eliminate threat of opportunistic behavior but there are certain ways to decrease it. It was suggested to work towards increasing trust and reputation; agreeing on different tasks or specialization in advance; or making more formal and strict contracts. Last group discusses how important it is to maintain appropriate level of interaction between collaboration partners. Literature discusses that most often problems arise because of too little communication or poor process of communication. Very close interaction may also create problems but this issue is less often encountered in R&D collaborations. After review of literature author suggests that there is not enough attention given to the management of organizational change during collaboration period. Also, author suggests analyzing specifically failed collaboration attempts in order to find what problems were detrimental to the partnership.

5 1. Introduction Given a current speed of technological advancement, almost every company has to keep introducing innovations in order to gain competitive advantage, sustain it and survive in the market (The Management of Technological Innovation, 2008). The term Innovation is understood in a very broad sense, encompassing the creation of a new or better use of products, services, technologies or processes (The Management of Technological Innovation, 2008). Companies can thus innovate in various ways by introducing new management styles, superior business processes, new products, services or finding new uses of existing products (Blomqvist, Hara, Koivunemi & Äijö, 2004). A very important input of innovation process is research and development (R&D) activities. Research and development can be defined as activities that are carried out with a purpose of obtaining new knowledge, information or technology. These activities have very uncertain outcome and require substantial resources but at the same time they give a possibility of increased gains in the future. R&D activities allow firms to remain competitive and grow. In some industries research and development is often the main source of company growth (The Management of Technological Innovation, 2008). It allows gaining new knowledge, discovering new technologies, predicting future technological trends, etc. However, these activities require substantial resources. There are a lot of companies that understand the benefits of R&D activities, but are unable to carry them out due to lack of resources (The Management of Technological Innovation, 2008). In order to carry out R&D activities, companies have to allocate financial resources, find and attract appropriate human resources and get access to existing knowledge. The latter aspect is a crucial element of successful R&D activity, given the cumulative nature of knowledge. If a company wants to start R&D activities in the field that it has little knowledge and experience, it will be unable to compete with market leaders that have accumulated knowledge over time (Cohen & Levinthal, 1990; The Management of Technological Innovation, 2008). One way to overcome this problem is by doing joint ventures, strategic alliances or acquisitions with companies that have been in the field long enough to have accumulated knowledge. Collaboration for R&D activities is based on the idea that innovation and value creation cannot be created in one isolated department of an organisation anymore (Blomqvist et al, 2004). R&D activities became so complex and costly that collaboration between internal departments of an organisation and between other organisations is needed. Collaboration partners can be

6 customers, suppliers, direct competitors or unrelated firms that have interest in bringing innovation in the same field. There are two main motives for companies to get involved into collaborative R&D activities (Cohen & Levinthal, 1990; Zhang, Baden-Fuller & Mangematin, 2007). The first one is that firms are motivated to collaborate for R&D in order to acquire existing knowledge from other organisations. Another motive is to combine knowledge and capabilities of two or more companies in order to explore new knowledge that would be impossible to acquire carrying activities alone (Zhang et al., 2007). As Staropoli (1998) stated, in most high-tech industries it is now necessary to cooperate in order to be able to compete. The cost of R&D activities has become too high to be reasonable for individual companies. Carrying these activities alone is also not efficient from a standpoint of economic wealth. Many companies doing the same activity on their own are wasting resources. Complementarity of assets and high interdependence gives a lot of collaboration opportunities. In order to share financial burden and risks of research and development activities, organisations cooperate and share acquired knowledge and technologies (McGee & Dowling, 1994). The concept of collaboration for R&D is not new and has been given substantial attention in the literature. This field has been covered by a considerable amount of studies (Evan & Olk, 1990; Grimpe & Kaiser 2010; Staropoli, 1998). Various perspectives and methods are being used to evaluate potential gains and threats of R&D collaboration (Kleinknecht & Reijnen, 1992). Theoretical studies range from basic economic welfare tests to application of game-theory. Most of these theoretical studies find that is beneficial to cooperate. However, evidence from qualitative and quantitative studies is not very consistent. Empirical evidence reveals that often research outcome is much worse than expected (Miyagiwa & Ohno, 2002). Case studies and qualitative research help to better identify what can be main causes of disappointing collaboration results. It appears that one of the biggest issues in R&D collaboration is choosing suitable managerial and organizational practices. During collaboration periods accustomed managerial practices are often not effective and need to be changed. It happens because there is a need to change the nature of communication and attitude towards ex-competitors. Also, collaboration means involvement in joint activities with other firms that change the way firm s activities are organized. Old organizational structure may not be effective given the presence of new partners and complexion of joint activities. Collaborating firms often put too much emphasis

7 on economic factors of collaboration and neglect a need for change in organisations during collaboration periods (Hellström, Eckerstein & Helm, 2001). Interestingly, theoretical approaches, such as game-theory predicts strong incentives to collaborate in R&D. However, theoretical models are very simplified and do not include many uncertain variables. Therefore, theoretical findings do not always work in practice. Conclusions of empirical evidence are not as encouraging as the theoretical argumentation. Studies find that around 50% of cooperation efforts fail (Dacin, Hitt & Levitas, 1997; Spekmen et al., 1996). There are multiple reasons for this mismatch. Cooperation outcomes are often worse than expected because of poor communication, conflicts due to differences in ethnical and corporate cultures or focusing on short term gains instead of long term learning. Also, there are issues such as problems arising with allocation of intellectual property rights, information asymmetries, steering and control mechanisms, not-invented-here syndromes (Grimpe & Kaiser, 2010). In the study carried out by Duysters, Kok & Vaandrager (1999) the most cited reason for unsuccessful collaboration outcome was specified as divergence in partnership goals. Different goals between collaboration partners create a basis for problems in the near future. One of the most often occurring mismatches of goals is one partner wanting to acquire existing knowledge and technologies while goal of the other partner is acquisition of new skills and competences and learning in the longer term (Managing Innovation, 2005). In other words, some companies cooperate for exploitation purposes while other cooperates for exploration purposes and it is often hard to balance between the two (Riccaboni & Moliterni, 2009). Blomqvist et al. (2004) stated that alliances often fail because of lack of collaboration during creation or execution period. Above mentioned authors were trying to make a point that it is important to give enough attention to the process of communication during alliance. Also, that it is important to be learning not only on the field of research but also to learn new management models, integrate new tools and strive for efficient learning process for both sides of alliance. For these reasons, R&D processes are becoming more and more complex (Blomqvist et al., 2004). New business models such as Networked R&D Management are created that focus not on the research itself but on the whole chain of bringing innovation into the market. Now much more emphasis has to be put on consumer behavior and his needs. Process of development has to be integrated with other parts of the value chain. Many companies still do not realize that after the spread of R&D collaborations one of the most significant new challenges for the management is to learn how to balance between competition

8 and cooperation with the same companies in order to make cooperation efficient (Olk, 1999). It may mean changing negative personal beliefs about competitors, withstanding temptation to cheat and behave opportunistically, learning to share credit of accomplishments. Even when companies are aware of these issues, often importance of them is underestimated and they are not addressed sufficiently. At the same time too close cooperation may expose weaknesses that can be exploited by a partner. Finding a balance is not easy and rarely happens without experience. This issue can be related to a point made by Staropoli (1998) in his paper about R&D network in pharmaceutical industry. Author stated that there is a link between technological and organizational innovation. It means that significant breakthrough in science or technology cannot become an innovation without restructuring of organizational practices. In order to successfully introduce innovation it may be necessary to cooperate, that in turn requires addressing issues outlined by Olk (1999) and carrying out organizational change. Organisations with outdated organizational practices are not able pursue technological innovations and successfully compete in the market. Promotion of new organizational practices and closed cooperation can create a long term advantage at the whole region level. One example of similar case was discussed by Evan & Olk (1990) who mentioned that Japan s success in the semiconductor industry was in part based on promoting efficient R&D by pooling technical and scientific staff. At that time R&D cooperation was not very common in most of the countries. Such initiative of Japan gave early advantage in quickly developing industry. This thesis will focus on organizational and managerial issues that arise in various forms of R&D collaborations. Particular interest is to see what issues arise between private firms that collaborate for R&D activities, since this kind of relationship involves a lot of competition and add additional challenges. Need for changes in the organisation after forming collaborative relationships is often ignored. Instead, main focus is given to financial performance and economic goals (Hellström et al., 2001). When organizational problems are left aside, collaboration outcomes are much more likely to be lower than expected. In the worst case, it can appear to be costly and harmful for an organisation. This thesis will not perform new quantitative or qualitative analysis but instead will make a literature review of existing studies on organizational and managerial issues in organisations

9 collaborating for research and development activities. Literature review was chosen because it will help to identify what aspects of the problem are covered sufficiently and what needs more attention. After doing a review of the existing literature, some new insights on this topic will be offered. The thesis will also offer suggestions for future research that would fill the gaps in the literature. From a business perspective this literature review will provide a quick overview of what are the most common mistakes in R&D collaborations and what issues should be given the most attention. 1. Problem Statement Research started with a focus on R&D collaborations in general to get more fundamental knowledge about this topic. University library resources let to find out most common types of R&D collaborations and reasons why particular forms of collaboration are chosen. Also, it allowed identifying most often prevailing problems in such collaborations. Interestingly, in the literature, much more focus is put to economic aspects of technological collaborations. It was identified that problems arising at organizational level are often overlooked and depreciated. Having evidence that many collaboration efforts fail due to these problems (Managing Innovation, 2005; Tushman, 1979), it was decided that thesis will aim to give better understanding of this field. Therefore, the main question that this thesis will try to answer is: What managerial and organizational issues are the most important to address in order to avoid failures in R&D collaborations? Existing literature discussing these particular issues will be reviewed and main points will be summarized in this paper. Inter-connections and contradictions in the literature will then be identified, which would let to make conclusions about the most important areas of this problem Delimitations Since the scope of the problem chosen for review is quite broad, several delimitations will be made concerning the areas of research that will not be covered in this review.

10 First, in this paper legal issues that usually arise because of intellectual property rights will not be considered. One reason for this choice is that it is too broad to be sufficiently covered in this thesis and second reason is that in order to make well-reasoned review on this subject deeper knowledge of business law is required and is better to be left for researchers specializing in this field. The second delimitation is that only R&D collaborations between private companies will be analyzed. Collaborations of companies with universities or other public research centers will not be considered because such collaborations have different nature of competition and are facing different challenges. Also, there are some articles discussing R&D collaborations between departments of large multinational enterprises. These articles were left out as well as such collaborations also face different challenges compared to independent organisations. 2. Methods The article database that was used for finding relevant articles was Business Source Complete. Search query was refined to search only titles of the papers that were dealing with different types of R&D collaborations and that were about management or organizational aspects of this field. This search method has a weakness of missing articles that did not address these issues in the title. However, including search of abstracts brings too many irrelevant results and appeared to be inefficient. Also, it appeared that there are not many papers dealing directly with problems of R&D collaborations. Therefore, including words such as problems, issues, challenges, etc. did not return enough papers for a review. For this reason, it was decided to find papers that were discussing organizational and managerial aspects of R&D collaborations in general and find what difficulties are being addressed in these papers. Final search query used was the following: ( TI ( ((Research AND development) OR R&D)) AND TI ( cooperation* OR collaboration* OR allianc* OR consort* OR partner* OR network* OR ventur* ) ) AND ( TI (organi* OR manag* ))

11 This search query means that title of the paper had to mention: i) either research and development or its abbreviation R&D ; ii) some kind of collaboration form and iii) address organizational or managerial aspects. This search resulted 59 articles published in academic journals. Abstracts of all of them were read to sort out irrelevant articles. The selection was based on the following criteria. First, the thesis will not be dealing with industry-university types of collaboration since there are almost no competition involved in such collaborations and nature of communication between these organisations are completely different. This means that different challenges are faced as well. Therefore articles addressing this topic were removed. Also, articles discussing public sector were removed as thesis will only analyze collaborations between industry members. Reason for this choice is the same as mentioned concerning university-industry relations (naturally, universities are part of public sector). Next, articles dealing with legal issues of intellectual property rights were removed as this aspect will not be addressed in the thesis. Next, search returned few articles that discussed relationships of R&D units within large multinational corporations. These articles were removed as well since such R&D units have different goals and nature of competition compared to independent organisations. This also means that different problems are encountered within R&D units of Multinational Corporation. Also, search captured few completely irrelevant articles that happened to match search criteria. Finally, there were two articles that seemed relevant but were not possible to obtain using library resources. This left 22 articles for further investigation. Table 1 summarizes year of publication, journal name and main research method used in reviewed articles. These articles are published in 16 different journals. Most often published journals are International Journal of Technology Management (4 articles), R&D Management (4 articles) and Research Policy (2 articles). All other articles are published in different journals. Quantitative research methods are dominating in the reviewed papers. These methods are chosen in 13 articles. Other five articles are using qualitative methods and the rest four articles are based on conceptual approaches. There is roughly equal representation of U.S. and European firms. Also, there are several articles that include Asian firms. Interestingly, most of the relevant articles are published after year 2000, which shows the recent increase in interest of the problem that is being addressed in this paper. Amount of new knowledge and technologies started growing so fast that it became much harder for firms to introduce innovations and sustain competitiveness on their own. This called for new competitive strategies which often involved cooperation with suppliers, customers and even direct competitors. Naturally, this change in industry relationships raised new issues and challenges.

12 Table 1: List of articles reviewed No Author Year Journal Method 1. Blomqvist, Hara, Koivuniemi & 2004 R&D Management Conceptual Äijö 2. Cagliano, Chiesa & Manzini 2000 Journal of Engineering and Quantitative Technology Management 3. Cui, Ball & Coyne 2002 R&D Management Quantitative 4. Evan & Olk 1990 Sloan Management Review Qualitative 5. Faems, Janssens & Looy 2010 Creativity and Innovation Qualitative Management 6. Feller, Parhankangas & Smeds 2009 Int. J. Technology Management Quantitative 7. Gao 2006 Int. J. Technology Management Qualitative 8. Hagedoorn, Roijakkers & 2008 Int. J. Technology Management Quantitative Kranenburg 9. Heikkinen & Tähtinen 2006 International Journal of Innovation Qualitative Management 10. Hellström, Eckerstein & Helm 2001 R&D Management Conceptual 11. McGee & Dowling 1994 Journal of Business Venturing Quantitative 12. Okamuro 2007 Research Policy Quantitative 13. Olk 1999 The Journal of High Technology Quantitative Management Research 14. Quelin 2000 European Management Journal Conceptual 15. Riccaboni & Moliterni 2009 R&D Management Conceptual 16. Ring, Doz & Olk 2005 California Management Review Quantitative and conceptual 17. Sampson 2007 Academy of Management Journal Quantitative 18. Sampson 2004 Managerial and Decision Economics Quantitative 19. Staropoli 1998 Technology Analysis & Strategic Quantitative Management 20. Tezuka & Niwa 2004 Int. J. Technology Management Quantitative 21. Zhang, Baden-Fuller & 2007 Research Policy Quantitative Mangematin 22. Zhao, Anand & Mitchell 2005 Journal of Management Studies Qualitative All the 22 articles were then carefully read and analyzed according to the main theme they addressed and reported results of. In the beginning all relevant insights made by authors of reviewed papers were noted. After reading the articles, four main themes of problems in R&D collaborations were identified. All noted insights were then grouped according to the theme they represent. Not all papers discuss the same issues which means that chosen topic is rather broad. Identified themes are briefly described below and will be addressed more thoroughly later.

13 The first theme was issues emerging with the compatibility of the partner. Various differences, such as partner similarity in size, industry, knowledge level, capabilities or other, affect the operation and performance of the collaboration. Because of these differences various challenges are being faced by collaborating firms. Some of these differences synergize partnerships and some turn out to be a cause for unending conflicts and breaking collaborations. The second big problem was the choice of suitable organizational form. This topic was given the most attention in the reviewed literature. It is known that R&D collaborations involve a lot of risk. It can be described by two different types of risk (Olk, 1999). One type is the risk of not achieving objectives of the collaboration. To manage this type of risk means carefully choosing proper organizational form of alliance, clearly defining goals and objectives, and choosing suitable management tools for collaboration period. Another type is the risk of losing existing knowledge or technology to its partner. This type of risk is about dealing with unwanted spillovers and exposition of its knowledge and capabilities that are not part of the R&D collaboration agreement. However, these risks can be highly decreased with a proper choice of organizational form and appropriate level of formalization (Staropoli, 1998). The third big problem was a threat of opportunistic behavior. R&D activities involve high degree of uncertainty. These uncertainties create moral hazard for a partner to behave opportunistically. Again, formalization of contractual and organizational agreements is one of the main tools to decrease the hazard of opportunistic behavior by a partner (Staropoli, 1998). Another way that is used to manage the hazard of opportunistic behavior is increasing trust between partners and building good reputation in the industry (Ring, Doz & Olk, 2005; Sampson, 2004). At a higher or lesser degree this issue is related to other three main themes, but it was given substantial attention in the literature and it was decided to dedicate a separate section for it. Last broad theme was nature of interactions and communication between partners. Since one of the main points of R&D collaborations is to share knowledge, information and similar resources, communication is a crucial part of collaboration process. Lack of proper interaction between collaboration partners or ill process of interaction diminishes collaboration performance and creates problems that can usually be avoided with proper management of interaction and communication process. These four themes will be discussed in more detail by comparing insights and conclusions of different authors. Also, several organizational behavior theories will be applied to show how it

14 relates to findings identified in reviewed literature since most of the studies choose qualitative and quantitative methods as a main research tool. Before starting to elaborate on above mentioned themes, general description of most prevailing types of R&D collaborations are given below in order to give better understanding of issues that will be described later. 3. Types of R&D collaborations This section briefly describes the organizational forms that are used for R&D collaborations and that are discussed in this review. There are many types of organizational forms that are being chosen for R&D collaborations. All organizational forms can be separated into two main types equity based and non-equity based collaborations. Equity based collaborations means that participating firms pool their assets for joint activities. In this way firms share a burden of required resources and risk. Naturally, they share profits and benefits as well. Equity based collaborations that are mentioned in this paper are joint-ventures and consortiums. Non-equity based collaborations are partnerships where firms agree to cooperate and work towards the same goal but a pooling of assets is not involved. Non-equity based collaborations have very different level of partnerships it can vary from agreements based on trust to strict and formal agreements (Cagliano, Chiesa & Manzini, 2000). However, level of formalization is not the only factor that defines the nature of collaboration. Cagliano et al. (2000) describes five key dimensions that vary across different collaborations. Organizational forms differ on (1) number of partners, (2) formalization of agreement, (3) structure of control, (4) time horizon and (5) density of relationships. Number of partners can vary from two to very large number. It usually depends on amount of resources needed in order to achieve the objective. It also defines its influence to the industry and may affect market power of participating firms. Formalization of agreements varies from very informal agreements based on trust to strict contractual agreements with written norms and rules. Structure of control defines delegation of decision making power and control. Control of collaboration can be centralized on one particular firm, divided equally among all members or some combination of these. Time horizon specifies length of the collaboration. Collaboration can be created for just one short project or it can be created seeking for a long term commitment and relationship. Collaborations can also be long term oriented but only exploited in short time periods when market opportunity

15 appears. Last dimension, density of relationships, describes how often partners are communicating, exchanging knowledge and making joint decisions for future activities. Taking these factors into consideration, organizational forms that appear in the review most often are briefly described below. The most popular equity-based organizational form is Join-venture. It is business agreement to pool assets and resources in order to carry out joint business activities. R&D joint-ventures are formed by two partners; they have formal contractual agreements; proportionally distributed delegation of decision making power and control; varying time horizon from short projects to continuous business relationships and fairly high density of relationships (Cagliano et al., 2000). Another popular organizational form is R&D consortium. It is very similar to R&D joint-venture except that consortium usually has less focused goal and often involves more and different different types of entities, e.g. individuals, universities, government or other (Evan & Olk, 1990; Managing Innovation, 2005). One of the non-equity based organizational forms is R&D network. It is cooperation between firms, universities, public actors or other institutions doing research and development activities, that are acting together because of perceived joint objective, task or particular problem. There is no clear definition as to what constitutes a network (Managing Innovation, 2005). With recognition of mutual dependency actors arrange either formal cooperative agreements or informal information exchange and are working together in R&D activities. Members of R&D network are usually geographically or sectorally dispersed. Purpose of R&D network can be summarized in two main functions information exchange and resource transfer. Information exchange refers to intangible assets like knowledge. Resources refer to tangible assets like labor, financial resources or facilities that can be transferred among network members (Hellström et al., 2001). Other non-equity collaborations are strategic alliances, R&D contracts or technology-exchange agreements (The Management of Technological Innovation, 2008). There are no specific requirements as to how collaboration should be organized and how it should be called. Firms decide what suits them best and how they can benefit from collaborations the most. Quelin (2000) distinguished virtual R&D groups as a separate type of collaboration. These types of collaboration lets to improve access to resources and competences that are not available in a given geographical area; transfers politically or ethically sensitive activities to more neutral areas

16 and improves access to young and dynamic human resources. This allows costs savings by outsourcing activities where labor and other resources are cheaper. Also, this helps to codify at least some part of the knowledge while it may not be done working only in a local team because local teams can have much social and informal interaction that helps to share knowledge without writing it down and codifying it. Having a general understanding of what forms of R&D collaborations prevail in the market it is now easier to interpret findings discussed in the literature. 4. Partner choice and their similarity This section addresses main issues that are discussed in reviewed papers concerning how various characteristics of a collaboration partner influences performance of partnership. First part of a section discusses pre-partnership stage where a firm has to find a suitable partner and second part discusses what issues arise because of differences in partners after the collaboration agreement is made Choice of a partner Choosing a wrong partner for collaboration can be detrimental for all of the participating companies. In order to avoid negative consequences it is a good idea to start thinking about challenges of the partnership in the very beginning. Selecting a suitable partner is very important step in collaboration procedure. By doing early research on potential partner, company can save a lot of unnecessary costs and efforts. It may appear that companies cultures are completely different and there would be too many conflicts between work teams. Also, it may show if company is learning from its past collaboration and if it is doing better over time by learning from mistakes they make (Olk, 1999). Staropoli (1998) argued that past experience of similar collaborations adds a significant advantage for a firm to be considered as a collaboration partner. It was discussed by several authors that good reputation and successful experience decreases hazard of opportunism (will be discussed in more detail later) and other uncertainties (Feller, Parhankangas & Smeds, 2009; Okamuro, 2007). This may make the firm to be seen as a more attractive collaboration partner.

17 There are two main factors of motivation to enter in R&D alliances. First is motivation is to learn which means using partners knowledge and resources to explore new knowledge. Second is motivation to access partners knowledge that is already explored. It means exploiting each other s complementary capabilities (Zhang et al., 2007). It is important that both (or all) of the potential collaboration partners have the same motivation to enter the alliance. If one firm wants to explore new knowledge and second just want to access existing knowledge of a partner, alliance performance will not be as expected and objectives will not be met. Staropoli (1998) observed that R&D networks with more members and specific goals tend to perform better than networks with fewer members but wide and unspecific goals. This shows the importance of clear goals and objectives setting. Explicitly agreeing on specific objectives can help to avoid misunderstandings between partners in the future. Aside from goals and objectives of potential partners, there are certain conditions that need to be fulfilled in order to trigger formation process. Heikkinen & Tähtinen (2006) defined three initial conditions that were essential for forming R&D network. First, authors discussed that perceptions of interdependence is very significant factor for choice of partners and for forming R&D Network. Similar perceptions of interdependence between organisations increase willingness to cooperate. Realizing that cooperation with a particular firm can be better choice than competition is essential for forming an alliance. Second condition was recognition of joint interests that are shared with potential members of the network. Two firms working on a similar project separately are wasting their resources. Cooperation during precompetitive stage of R&D activities is now very popular because it reduces risk and cost of research (Quelin, 2000). By recognizing that it would be much more efficient to cooperate than compete, firms can pool resources and work towards the same objective together. Last essential condition was existence of at least one proactive organisation that initiated discussions and acted as the leader of potential network. This organisation in study of Heikkinen & Tähtinen (2006) was called network webber that refers to the entity that takes responsibility of finding and connecting with suitable organisations. Firms may be aware that there should be a possibility for profitable cooperation but if no one is taking action to initiate the process of forming the partnership it is unlikely that partnership will be established. All of these three conditions seemed to be significant, meaning that even with recognition of very high interdependence and joint interests it was not enough to initiate the formation of R&D network. Network webber is needed in order to point out high potential of network, initiate starting discussions and trigger formation process.

18 Another problem arising when choosing a collaboration partner is physical distance. Even with developed communication technologies there is still large difference between information available about domestic and foreign partners (Hagedoorn, Roijakkers & Kranenburg, 2008). Collaborating with an organisation from different country can be more useful by giving access to new management styles, additional resources and experience. However, cost of acquiring information about foreign firm is much higher and likelihood that certain firm will be noticed as potential collaboration partner is much smaller. For these reasons, collaborations between domestic partners are more common. However, it does not guarantee that domestic collaborations are more preferred than collaborations with foreign firms. Reviewed literature did not contain comparisons between R&D collaborations containing only domestic partners and collaborations with foreign partners Similarity of partners Some of R&D alliances are made between very similar companies that operate in the same market, some are made between completely different and unrelated companies, while the most alliances lie somewhere in between these two extremes. There are advantages and disadvantages for both similarity and differences between partners. Staropoli (1998) and Sampson (2007) argue that certain degree of diversity between partners in R&D alliances is very beneficial. However, different advantages are emphasized. Staropoli sees partner diversity as an advantage because it increases flexibility and decrease risks by letting to use financing that comes from different sources, i.e. sources of financing are diversified. Sampson (2007), on the other hand, discusses that partners that have different capabilities and knowledge demonstrate better alliance performance by learning from each other more than partners that are very similar and have equal capabilities and knowledge level. However, it is beneficial only until certain level of diversity between partners. Her empirical tests show inverted-u relationship between technological diversity of partners and alliance performance. It means that after certain degree of diversity is reached, increasing diversity more decreases alliance performance by creating difficulties to absorb very different knowledge and capabilities of a partner. Sampson (2007) argues that firms ability to learn is much more important than pool of knowledge and capabilities itself. Empirical tests show that performance of alliance depends on how well partners are able to assimilate each other s knowledge and capabilities. This hypothesis goes in line with theory of Cohen & Levinthal (1990) on absorptive capacity. It states that firm is not able to take all

19 benefit of knowledge it is exposed to, if it does not have experience accumulated over time by itself from its own research and development activities. It means that organisation s ability to enjoy gains of external knowledge is limited by amount of knowledge and experience that it has acquired by itself. Advantages of moderate diversity can be also viewed from a perspective of conflict. Conflict can be defined as a process where one or both parties perceive that their interests are contradicting with other parties interests (Organisational Behaviour, 2010). Classic view that conflict should always be avoided discussed by Frederick Taylor in twentieth century is now replaced with a view that certain level of conflict is helpful to increase performance. Big difference in knowledge and capabilities between partners does not necessarily mean that one is better than other. It may very well be that partners have developed different capabilities that are equally good. This can create conflict between R&D teams of collaborating organisations. If conflicts are managed properly it may result in stronger relationships and increased learning. Combining two ways of doing certain task may help to come up with completely new knowledge and superior capability. However, this perspective is a speculation of author and is not discussed in reviewed literature. Other view supports advantages of greater similarity. Feller et al. (2009) points out that some studies report greater collaboration gains in alliances with simultaneous competition and collaboration compared to alliances with little competition involved. Naturally, more similar partners are usually competing in the same market. Main reason of this feature is explained by increased motivation to learn. An alliance where inter-partner competition is involved motivates each partner to get the most out of the alliance and absorb the most knowledge. This leads to socalled learning races where both partners try to be ahead and learn faster than their partner. Other reason for better collaboration performance in alliances with inter-partner competition is that competing firms naturally have more similar competences and knowledge base. Therefore, competing partners have less problems learning from each other. However, Zhao et al (2005) finds partial support for negative influence of alliance internal competition by preventing open flow of knowledge. Competing firms may not be willing to share valuable knowledge with their direct competitors. Though, this conclusion may have been specific to Chinese automotive industry where product differentiation is very low and competition is intense. Emerging economies provide a lot of opportunities for companies from developed countries to seek for cheaper labor force, resources and access to new markets with huge potential. Therefore, R&D collaborations with companies established in countries with emerging economies

20 are becoming much more popular. However, knowledge transfer between collaboration partners where one of the partners is from developed country and other/s are from emerging economies faces additional challenges (Zhao et al., 2005). Despite the fact that there is a great need for knowledge in emerging economies, many firms have difficulties in absorbing knowledge. This is mainly due to technological gaps and cultural differences. These barriers limit the amount of knowledge the firm can absorb and determine the pace at which it can improve its capabilities. This was observed in the case study of Zhao et al. (2005), where alliances between Multi-National Enterprises and firms in Chinese automotive industry showed weakness in Chinese firms ability to absorb knowledge and capabilities offered by Multi-National Enterprise. Difficulties to learn from more advanced organisations can be explained by lack of absorptive capacity (Cohen & Levinthal, 1990). However, in the study of Zhao et al. (2005), cultural differences were even more significant factor for performance of collaboration than technological gap. These cultural differences appear not only in the form of different market characteristics but it also means different corporate culture and hierarchy which in the case of China was formed through many years of planned economy. Rigidity of organizational structure and resistance to change was a huge barrier for effective knowledge transfer and learning. Therefore, additional emphasis on managerial strategies to encourage change in the corporate culture would be very beneficial for increasing collaboration performance. Another type of partner combination that is quite popular and is often addressed in the literature is dyadic alliances where large organisation cooperates with high-tech SME (Faems, Janssens & Looy, 2010). These types of alliances are the most common in pharmaceutical industry where large incumbent pharmaceutical firms form alliances with small new biotechnology firms (Zhang et al., 2007; Managing Innovation, 2005). However, collaborations where power of partners is very different have been found to have higher failure rate (Managing Innovation, 2005). Main reason appears to be that partnerships with equal partner power demands continuous consultation, communication and collective problem solving. In a case of power imbalance, this process is more complicated and not given the same attention by both partners. This issue was also discussed by Hagedoorn et al. (2008). In their study, authors found that in pharmaceutical industry incumbent firms has little dependency on small new-biotechnology firms. This causes weak commitment to the partnership and less involvement into collaborative activities. Difference in power and influence between partners is also discussed by Olk (1999). In empirical study of R&D consortiums he argues that more experienced and knowledgeable partner will

21 contribute more resources and strive to have greater influence and control over the consortium. The organisation that is contributing more of its own resources will want to protect it so as to avoid unwanted spillovers and opportunistic behavior of its partners. Empirical tests show strong support for this hypothesis. Interestingly, increased uncertainty of R&D outcome does not increase perceived influence of R&D consortium member. It means that it does not matter for an organisation to have greater control of consortium activities when research outcome is very uncertain. Organisation is more interested in protecting its own knowledge than monitoring process of exploration of new knowledge. This may show lack of trust and decrease the likelihood of future collaborations or impede collaboration outcome in general (Hagedoorn et al., 2008). It also can be a reason for higher failure rates in collaborations where power of partners is different. Constant control and influence of one member shows mistrust and can cause serious conflicts. If organisation was less concerned with protection of its knowledge and capabilities it could focus more on actual research and achieve better collaboration performance. McGee & Dowling (1994) suggests that newer firms with underdeveloped capabilities and knowledge level are more likely to get involved into collaborative activities than firms that were successfully operating in the market for a longer time. Reason for this is that for a new firm it may be much cheaper and efficient to acquire required knowledge and capabilities from other firm (collaboration for exploitation purposes) than to explore it on its own. Naturally, a new firm has to be able to offer something that will interest other firm and make it consider sharing its knowledge and capabilities. Collaboration would require more experienced firm to share its own knowledge and capabilities that may decrease its competitive advantage. This would mean that a less advanced partner would benefit from alliance more than firm with strong knowledge and technological base (Zhang et al., 2007). At the same time, new firm is at increased risk of being exploited by incumbent firm. Lack of experience and knowledge may lead to contractual agreements that actually are more beneficial to incumbent firm. Putting it together it can be said that by getting involved in R&D collaboration, new and less experienced firm has a higher risk of being exploited and disadvantaged by other firm, but at the same time it gets higher benefits and increased payoff. Extreme cases where collaborating organisations are either very far or very close to each other in terms of industry, market position and technology are also complicated and usually do not deliver expected performance. It is difficult to collaborate with direct competitors because of great suspicion and opportunism. On the other hand, very distant organisations have different interests

22 and knowledge that makes it harder to benefit from each other (Ring, Doz & Olk, 2005). Also, prior relationships are much less likely for distant organisations which means that likelihood of noticing each other as potential partner is smaller Differences in knowledge and capability level One of the main purposes of R&D collaborations is to share knowledge. Knowledge exists in different forms and it can be separated into two main types tacit knowledge and explicit knowledge (Gao, 2006). Tacit knowledge is one that is hard to formalize and communicate. One type of tacit knowledge exists in a form of skills or know-how that a person has acquired with his experience. Tacit knowledge also includes cognitive element which means individual s perception of reality and visions of how it can be changed and look in the future. For these reasons tacit knowledge is very valuable. Explicit knowledge, on the other hand, is knowledge that can be written down and systemized and that can be shared with others. This type of knowledge can be transmitted to other team members or collaboration partners and be used immediately by them (assuming they have the ability to absorb that knowledge). Tacit knowledge is not easily transformed into explicit knowledge. However, it can still be used for organizational knowledge creation (Gao, 2006). With a process of close socialization starting at individual level and gradually moving towards collective level tacit knowledge can slowly be transmitted to others. It means that at first tacit knowledge should be shared with individual and in that way used to interpret it and conceptualize. Later it can be used for further discussions with different research teams to work with it further. At this level knowledge is transformed into a concrete form as a system, product or technology. Communication is essential in this process because without different perspectives and knowledge of peers it is often impossible for individual to arrive at concrete outcome. Gradual step by step procedure has to be followed so that important parts of tacit knowledge are not left out and forgotten. When knowledge is transformed into explicit form it becomes easier to use and share with others, thus increasing collaboration performance. This discussion of knowledge and its forms shows that process of knowledge transfer in R&D collaborations can be very complex. For this reason, very different levels of knowledge and different knowledge transfer routines can be a huge barrier for efficient sharing of existing knowledge and creation of new knowledge. Since almost always partners have more or less different knowledge level, it is important to learn dealing with partners differences more efficiently. Experience is one of the main factors that increases inter-organizational learning