EXPRESS: Collaborating to Innovate: Balancing Strategy Dividend and Transactional Efficiencies

Abstract

When a firm collaborates with its suppliers, it expands its access to external know-how, and thus, can enhance its innovation performance. Such collaborations are common and argued to have significant impact on the firm’s market outcomes. However, such collaborations also expose the firm to various transactional hazards including knowledge spillovers and opportunism. This trade-off looms over the firm’s commitment to a market positioning strategy and the functional capabilities it draws upon to generate its strategy dividend. Recent accounts suggest the verdict on supplier collaborations is noisy and that partner perceptions of these collaborations do not align on key issues of governance, strategy, and value generation. To investigate this, we study 202 formal co-development contracts of high-tech original equipment manufacturers that collaborated with suppliers from 1985 to 2016. Drawing upon the governance value analysis framework, we show how misalignment between the firm’s co-development contracts, capabilities, and market positioning strategy significantly erodes its innovation performance. Thus, blanket prescriptions for one or the other types of contracts are misdirected, their effectiveness being a contingent outcome dependent on the firm’s market positioning strategy and functional capabilities. Our paper presents one of the most complete tests of the governance value analysis framework to date.