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Perspectives on the Determinants of Success in ATP-sponsored R&D Joint Ventures: The Views of Participants 1

Jeffrey H. Dyer

Brigham Young University

Benjamin C. Powell

University of Pennsylvania

OVERVIEW

This study explores the growing importance of collaborative ventures to the nation's economic strength, the difficulty in making them work, and the role of government in fostering collaborative ventures. Its focus is on factors that increase or decrease the likelihood of success of collaborations as seen from the perspective of participants in ATP-funded joint ventures in the automotive industry.

Key findings of this analysis are that factors fostering trust and information sharing, or decreasing coordination costs, improve the chances of success. Conversely, factors that negatively affect the level of trust and information sharing, or increase coordination costs, among the joint-venture participants adversely affect their success. Negative factors include an overly large number of participants within a given joint venture, a horizontally structured joint-venture organization populated by direct competitors, lack of experience of members working together, a lack of personnel stability, and a low level of company commitment. The importance of these factors varies depending on the circumstances (e.g., high turnover rates are more detrimental when small companies rather than large companies are involved).

This analysis also suggests that the ATP is accelerating and improving the successful outcome of collaborative projects that are taking on higher risk and

1 Condensed version of forthcoming study by Jeffrey Dyer and Benjamin Powell, forthcoming, Perspectives on Success and the Determinants of Success in ATP-Sponsored R&D Joint Ventures: The Views of Participants in 18 Automobile Manufacturing Projects, GCR 00-803.



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Page 249 Perspectives on the Determinants of Success in ATP-sponsored R&D Joint Ventures: The Views of Participants 1 Jeffrey H. Dyer Brigham Young University Benjamin C. Powell University of Pennsylvania OVERVIEW This study explores the growing importance of collaborative ventures to the nation's economic strength, the difficulty in making them work, and the role of government in fostering collaborative ventures. Its focus is on factors that increase or decrease the likelihood of success of collaborations as seen from the perspective of participants in ATP-funded joint ventures in the automotive industry. Key findings of this analysis are that factors fostering trust and information sharing, or decreasing coordination costs, improve the chances of success. Conversely, factors that negatively affect the level of trust and information sharing, or increase coordination costs, among the joint-venture participants adversely affect their success. Negative factors include an overly large number of participants within a given joint venture, a horizontally structured joint-venture organization populated by direct competitors, lack of experience of members working together, a lack of personnel stability, and a low level of company commitment. The importance of these factors varies depending on the circumstances (e.g., high turnover rates are more detrimental when small companies rather than large companies are involved). This analysis also suggests that the ATP is accelerating and improving the successful outcome of collaborative projects that are taking on higher risk and 1 Condensed version of forthcoming study by Jeffrey Dyer and Benjamin Powell, forthcoming, Perspectives on Success and the Determinants of Success in ATP-Sponsored R&D Joint Ventures: The Views of Participants in 18 Automobile Manufacturing Projects, GCR 00-803.

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Page 250longer-term research than collaborative endeavors without government involvement. Moreover, the findings suggest that the ATP is providing funding during critical stages, overcoming barriers to collaborating, increasing project stability, and causing collaborative projects to run more smoothly, albeit with some perceived loss of flexibility on the part of companies. Due to the relatively small sample size and the exploratory nature of the study, the results are considered suggestive rather than conclusive, and a more extensive follow-on study is proposed. COLLABORATION: IMPORTANT AND DIFFICULT Innovation is critical to superior performance for companies in high-technology industries. To produce innovations, companies increasingly seek collaborative relationships to access complementary resources, capabilities, and knowledge outside the firm. 2 The past two decades have witnessed an extraordinary increase in the number of inter-firm collaborations, i.e., alliances or joint ventures among firms. Indeed, Anand and Khanna observe that alliances have become one of the most important organizational forms, with more than 20,000 alliances reported in just the last two years. 3 Despite their potential importance, inter-firm collaborations are difficult to manage. Some estimates suggest that approximately 30-70 percent fail. 4 Alliances may be mushrooming in numbers, but alliance success is difficult to attain. Understanding how to enhance the probability of success in inter-firm collaboration would be extremely valuable from an economic standpoint. This study increases such understanding by identifying factors held by companies participating in ATP-funded joint ventures to be particularly important to success. GOVERNMENT AS A CATALYST FOR COLLABORATION Recent research suggests that government can play an important role as a catalyst for inter-firm collaboration. 5 Not only can government play an important 2 D. J. Teece et al., “Dynamic Capabilities and Strategic Management,” Strategic Management Journal, 18(7):509-533. 3 B. N. Anand and T. Khanna, “Do Firms Learn to Create Value? The Case of Alliances,” Strategic Management Journal, Special Issue Conference, Northwestern University, 1999. 4 B. Kogut, “The Stability of Joint Ventures: Reciprocity and Competitive Rivalry,” Journal of Industrial Economics, 38(2):183-98; J. Bleeke and D. Ernst, “Is Your Strategic Alliance Really a Sale?” Harvard Business Review, 73(1):97-105; Alliance Analyst, Managing Alliances—Skills for the Modern Era, March, 18, 1996; and K. R. Harrigan, Strategies for Joint Ventures, New York: The Free Press, 1985. 5 W. G. Ouchi and M. K. Bolton, “The Logic of Joint Research and Development,” California Management Review, 30(3):9-33, 1988; and M. R. Kelly and C. R. Cook, The Institutional Context and Manufacturing Performance: The Case of the U.S. Defense Industrial Network, NBER Working Paper W6460, March 1998.

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Page 251role in facilitating R&D collaboration, some researchers argue that under some conditions the government's involvement in facilitation collaboration may be critical to success. The appropriate role of government in innovation depends at least in part on the nature of the intellectual property to be developed. According to Ouchi and Bolton, intellectual property that is “private property” can be effectively developed by private firms, whereas “public property,” and, what they call, “leaky property” require collaborative arrangements. 6 Ouchi and Bolton see university and government laboratories as well suited for developing public property, and inter-firm collaboration as a more effective means of producing leaky property because single firms acting alone will not be willing to do it due to risk and difficulties in appropriating sufficient benefits. Ouchi and Bolton argue that without sufficient inter-firm collaboration society will fail to provide an adequate level of leaky property, and, as a consequence, the nation will be at a disadvantage relative to other nations in international competition. The problem can be avoided or alleviated, they argue, if the government plays a key role in facilitating multi-firm industry collaboration needed to produce this type of intellectual property. One way that government can help overcome the lack of appropriate institutional forms is to provide a forum for firms to gain experience with collaborative innovation through government-funded research programs. Studies show a positive relationship between alliance experience and future alliance success. 7 By participating in government-sponsored multi-firm collaborations, companies increase their alliance experience and their capability at managing alliances. These studies suggest that government intervention to catalyze inter-firm collaborative innovation could be socially beneficial. By identifying opportunities to develop leaky property and by funding inter-firm collaboration to pursue these opportunities, governments could assist firms in developing knowledge and capabilities that have value to society that exceeds the funding costs. STUDY METHODS In preparation for this study, we established a general theoretical framework, but refrained from specifying hypotheses in advance. We conducted semistructured interviews of companies participating in the 18 ATP-funded joint ventures listed in Table 1. 6 W. G. Ouchi and M. K. Bolton, The Institutional Context and Manufacturing Performance, op. cit.. 7 Anand and Khanna, “Do Firms Learn to Create Value?”, op. cit.; Kelley and Cook, “The Institutional Context and Manufacturing Performance: The Case of the U.S. Defense Industrial Network,” forthcoming as an NBER Working Paper, 1998; and P. J. Kale, J. H. Dyer, and H. Singh, Alliance Capability, Stock Market Response, and Long Term Alliance Success, paper presented at Academy of Management Conference, Toronto, 2000.

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Page 252 TABLE 1 ATP Projects Included in the Study Number Project Name 91-01-0083 NCMS Rapid Response Manufacturing 91-01-0177 Development of Advanced Technologies and Systems for Controlling Dimensional Variation in Automobile Body Manufacturing 93-01-0244 Strategic Machine Tool Technologies: Spindles 94-01-0178 Rapid Agile Metrology for Manufacturing 94-02-0027 Automotive Composite Structures: Development of High-Volume Manufacturing Technology 94-02-0030 Polymer Matrix Composite Power Transmission Devices 95-02-0008 Agile Precision Sheet-Metal Stamping 95-02-0013 Intelligent Resistance Welding 95-02-0026 Flexible Low-Cost Laser Machining for Motor Vehicle Manufacturing 95-02-0035 Springback Predictability in Automotive Manufacturing 95-02-0036 Plasma-Based Processing of Lightweight Materials for Motor-Vehicle Components and Manufacturing Applications 95-02-0058 Flow-Control Machining 95-02-0062 Fast, Volumetric X-Ray Scanner for Three-Dimensional Characterization of Critical Objects 97-02-0018 Flexible Robotic Assembly for Powertrain Applications (FRAPA) 97-02-0028 Sub-Micron Precision Grinding of Advanced Engineering Materials 97-02-0047 Nanocomposites New Low-Cost, High-Strength Materials for Automotive Parts 97-02-0055 Development of the 3D Printing Process for Direct Fabrication of Automotive Tooling for Lost Foam Castings 94-01-0079 Engineered Surfaces for Rolling and Sliding Contacts To increase comparability, the joint ventures included in the study were restricted to those focusing on technologies having potential applications in the automotive industry. Each of them had invested $5 million or more, with approximately half of the funding provided by the ATP. Five of the joint ventures were funded in ATP General Competitions, open to all technologies, and 13 were funded in ATP Focused Competitions where automotive manufacturing was the area of focus. The sizes of the joint ventures varied from 2 to 21 members. All of them had been in existence for at least one year. Twelve of the 18 were still underway and six were completed (or terminated before the designated completion date). Our interview discussions centered on the following questions: 1) How would you define success in a venture like this? What makes one joint venture more successful than another? 2) Is achieving the technical and commercialization objectives proposed to the ATP a good measure of success? Did the joint venture achieve these objectives? 3) What factors influenced the success or failure of the joint venture? What are the barriers to success? What are the enablers?

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Page 253 4) What was the role of the ATP in this joint venture? Did the ATP have any influence beyond the provision of funding? From the results of the interviews, we formed tentative hypotheses about the determinants of success that we report here. We propose in the future to subject these hypotheses to further testing by administering a survey to a broader group of subjects. WHAT CONSTITUTES SUCCESS FROM THE PERSPECTIVE OF PARTICIPANTS? In order to discuss the determinants of success, we sought to define how the joint-venture participants thought about success. We discovered that the company representatives typically discussed their views of success in terms of the following five categories: (1) achievement of technical objectives; (2) commercialization of the technology; (3) generation of patents (for some but not all ventures); (4) formation of networks of relationships; and (5) generation of unanticipated benefits, such as acquisition of unanticipated technical knowledge. The most successful ventures were considered those that met the technical objectives (including generating patents) and produced a new technology worthy of commercialization. Stated one participant, “Certainly one measure of success is whether or not we were able to meet the technical objectives we laid out at the beginning of the program. But an even more important measure of success is whether or not the technology resulted in a commercializable product.” However, participants also deemed ventures somewhat successful if they generated benefits that were not directly related to the ATP technical objectives. An example of a partial success is a venture that resulted in relationships with other firms that resulted in other ventures or business opportunities, unexpected technologies, and knowledge that convinced the firm to move in different technology directions. Not surprisingly, companies tend to equate joint venture success with benefits to themselves, but even similar benefits can translate into different levels of perceived success because of different weightings. Our analysis of success from the perspective of participants suggests that companies in R&D joint ventures apply similar criteria but different weightings in assessing joint venture success. It should be noted that participants gave varied responses, and we caution that the definition of joint-venture success and the factors influencing its attainment are complex and difficult to measure. Not unexpectedly, in some cases members of the same joint venture differed dramatically in their views about the degree of success attained.

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Page 254 Determinants of Success Our interviews revealed a variety of factors that influence the performance of ATP joint ventures. At a basic level, we found that more successful joint ventures were characterized by (1) greater knowledge sharing among participants, and (2) more effective coordination (lower coordination cots) among participants. There were a variety of factors that influenced the willingness or ability of joint venture partners to share knowledge, e.g., the extent to which the participants trusted each other, and a variety of factors that influenced the cost of coordinating the venture's activities. Figure 1 captures participant responses about what determines success. It is a path diagram that shows the key factors that participants said influenced their joint-venture success or lack thereof, the direction and nature of impact, and the linkages from these factors to outcome success measures. The first set of circles on the left contains five of the factors that participants said influence their collaborative success. On the right-hand side of the figure is the participants' list of success measures. The two characteristics that the more successful joint ventures exhibited—(1) greater knowledge/information sharing and (2) lower coordination costs among participants—are shown in the center of the figure, together with “trust,” which is closely linked to information sharing. These are the key mechanisms through which the five factors influence success. ~ enlarge ~ FIGURE 1 The determinants of success in ATP-sponsored joint ventures

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Page 255 The greater the trust, the more the information sharing, and the greater is the likelihood of a successful outcome. The higher the coordination costs, in contrast, the lower the likelihood of a successful outcome. Reading from left to right along the directional lines, the plus and minus signs reveal the nature and direction of impact. Each factor contributes to, or detracts from—or both contributes to and detracts from—success. Prior Relationships Matter Thus, prior relationships have a positive influence on trust, which in turn has a positive impact on information sharing, and this in turn positively affects joint-venture success. In contrast, the presence of competitors is shown to detract from trust and from information sharing, and, hence, negatively affects joint-venture success. (Findings, however, also suggest that the ATP program facilitates the development of relationships among direct competitors beyond what they otherwise would have been, which may be considered a positive influence on this otherwise negatively perceived factor.) Consortium Size and Proximity Increasing consortium size is negatively associated with trust building and positively associated with the higher coordination costs, a negative effect. Greater personnel stability (lower turnover) is positively associated with information sharing and, hence, positively associated with success. Geographic proximity (co-location) is positively associated with the act of information sharing and, hence, positively linked to success. Geographic proximity has a reducing effect on coordination costs and, hence, a positive association with success (shown by the two negative signs linking these directional arrows). Motivation, Management, and Sharing We found several additional factors that the joint-venture participants think influence the success of their collaboration. One of these is the degree of member motivation—the stronger the motivation the more successful the project is likely to be. Another factor is whether there is a technology leader or product champion to drive the process, particularly a potential customer who exhibits strong interest in future products or processes embodying the new technology. An additional factor is the use of a hired project manager. Despite the high cost of using professional project management, the interviewees saw it as worthwhile. A final factor identified by the authors as important, particularly to the successful launch of a joint venture, is satisfactory agreement over the protection and sharing of property rights.

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Page 256 ATP'S CONTRIBUTION: BETTER ACCELERATION, STABILITY, AND ORGANIZATION Joint-venture participants reported several ways that the ATP has contributed to the success of their joint venture. By funding riskier and longer-term projects than non-government sponsored projects tend to be, the ATP accelerates this particular type of project. As one participant noted, “I think ATP accelerates the development of high risk technologies.” Another effect the participants attributed to the ATP was to gain for the projects it funds increased commitment from top management and, hence, greater project stability. This was said to lower internal monitoring and budgeting costs because the project is not constantly being re-evaluated. Participants involved in the day-to-day operations of the joint ventures valued the increased company commitment of time, funds, and resources because it allowed them to do long range planning. Though positive for staying on schedule and the success of the project, this greater commitment was said also to reduce company flexibility to change its plans and redirect resources. The interviews revealed another potential role for ATP in the seeding of joint ventures, that is, carrying them through particularly difficult periods in their life cycles. According to one participant, a major joint venture would not have survived without ATP's funding. In the participant's words, “[the ATP] really did help us get through a tough spot.” Reportedly the ATP's involvement helps to break down barriers to collaboration. Some participants felt that there were barriers to collaboration in the U.S. automotive industry, and the ATP played a role in overcoming these barriers. A related effect may be to help new organizations through the difficult period associated with newness. Just as firms must overcome a “liability of newness,” 8 so too do new research joint ventures face a similar obstacle, or, as a more recent organizational form, a greater liability. Another role that the ATP was found to play is to transform what is usually an iterative and ad hoc innovation process into a more goal-directed and organized project. It does this primarily through its demanding application process. As one respondent stated, “if all we did was write the proposal, it would be valuable.” Yet another participant described the application process as “both a plus and a negative,” mentioning on the negative side the time required to prepare it and the difficulty experienced by “a regular person” in preparing the application. But, once the application process is completed, participants generally felt that the large amount of up-front planning led to smoother running joint ventures. We found little evidence of an active role for the ATP project manager in the structure or management of the ATP joint ventures (though this may reflect the 8 M. T. Hannan and J. H. Freeman, “Structural Inertia and Organizational Change,” American Sociological Review, 49(2):149-164, 1984.

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Page 257individual project managers in the technical areas studies). Yet, in some cases the technical expertise of the ATP project manager did seem to be important in the initial stages of joint venture formation. According to one participant, preparing applications is an expensive and time-consuming process. As a result, companies are only willing to go through this process if: (a) they know their applications will be reviewed by someone who understands it and can provide valuable feedback, and (b) they believe there is a high probability of acceptance. CONCLUSION While we found that participants generally agreed on the dimensions of success, they placed different weights on these dimensions. Based on study findings, we recommend the use of multi-dimensional measures of success for monitoring success in ongoing, R&D joint ventures. We found that participants stressed four factors—prior experience, number of direct competitors, number of participants, and personnel stability—that affect knowledge sharing and coordination costs in managing the joint ventures. More specifically, we found that: Joint ventures where the participating firms have had prior collaborative experience with other joint venture members are more successful. Joint ventures with too many participants (i.e., more than 8) are less successful. (Or alternatively, there is a curvilinear relationship between the number of participants and the degree of project success; projects with too few, or too many, participants are less successful). Joint ventures with direct competitors (i.e., horizontal joint ventures) are less successful than joint ventures without direct competitors (i.e., vertical joint ventures). (It is also possibly a bimodal distribution; collaboration with competitors may turn out to be either very unsuccessful or very successful.) Joint ventures with low personnel turnover are more successful. There appear to be important contingencies operating on the determinants of performance. For example, turnover was a major issue in most R&D joint ventures, but when the lead organizations in the R&D joint ventures possessed large, established R&D groups, turnover was not mentioned as an issue. Similarly, turnover seemed to have a more detrimental impact on joint venture performance when it occurred in younger joint ventures and in small firms. The exploratory methodology applied in this study has been more suggestive than conclusive. Our analysis of the interviews we conducted provides insight, but our findings can not be considered conclusive. There are two major disadvantages to the exploratory approach of this study that future research could address: (1) The exploratory approach relies heavily on the perceptions of participants to

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Page 258disentangle complex causal relationships; and (2) the results cannot be used to generalize to the entire population of ATP R&D joint ventures. A more comprehensive study that includes statistical analysis of a large sample could verify and extend the findings of this study. REFERENCES Alliance Analyst. 1996 . Managing Alliances—Skills for the Modern Era . March 18. Anand, B. N. and T. Khanna. 1999 . “Do Firms Learn to Create Value? The Case of Alliances.” Strategic Management Journal . Special Issue Conference, Northwestern University . Bleeke, J. and D. Ernst. 1995 . “Is Your Strategic Alliance Really a Sale?” Harvard Business Review . 73(1): 97-105 Dyer, Jeffrey and Benjamin Powell, Forthcoming. Perspectives on Success and the Determinants of Success in ATP-Sponsored R&D Joint Ventures: The Views of Participants in 18 Automobile Manufacturing Projects. GCR 00-803. Hannan, M. T. and J. H. Freeman. 1984 . “Structural Inertia and Organizational Change.” American Socialogical Review . 49(2): 149-164 . Harrigan, K. R. 1985 . Strategies for Joint Ventures . New York : The Free Press . Kale, P. J., J. H. Dyer, and H. Singh, 2000 . Alliance Capability, Stock Market Response, and Long Term Alliance Success . Paper presented at Academy of Management Conference, Toronto. Kelly, M. R. and C. R. Cook. 1998 . The Institutional Context and Manufacturing Performance: The Case of the U.S. Defense Industrial Network. NBER Working Paper W6460. March. Kogut, B. 1989 . “The Stability of Joint Ventures: Reciprocity and Competitive Rivalry.” Journal of Industrial Economics . 38(2): 183-98 . Ouchi, W. G. and M. K. Bolton. 1988 . “The Logic of Joint Research and Development.” California Management Review . 30(3): 9-33 . Teece, D. J., et. al. 1997 . “Dynamic Capabilities and Strategic Management.” Strategic Management Journal . 18(7): 509-533 .