Honeymoons and Liabilities: The Relationship between Age and Performance in Research and Development Alliances

Journal of Product Innovation Management, Vol. 20, pp. 468-484, 2003

Posted: 19 Sep 2004

See all articles by David L. Deeds

David L. Deeds

University of St. Thomas - Opus College of Business; Case Western Reserve University - Department of Marketing and Policy Studies

Frank T. Rothaermel

Georgia Institute of Technology; Georgia Institute of Technology - Scheller College of Business

Abstract

The use of strategic alliances by technology ventures has increased dramatically over the last twenty years. During this period companies not only increased the use of alliances, but have also used them in more strategically important areas, particularly in R&D and new product development. Thus, successful management of strategic alliances in high-technology industries has become critical to a firm's new product development and ultimately to firm performance. Yet, little is known about what determines the performance of individual alliances. This article examines the relationship between the age of an alliance and the performance of the alliance.

We develop and test two competing hypotheses regarding the form of the functional relationship between alliance age and alliance performance. First, we test a liability of newness hypothesis, which posits that alliance performance increases in a linear fashion over time. We then test a honeymoon hypothesis, which posits that the relationship between age and alliance performance is non-linear with alliance performance decreasing initially but increasing over time. We further propose that alliances that are more important to the focal firm exhibit longer honeymoon periods.

We develop a measure of individual alliance performance based on our field study in the biotechnology industry. We test the competing hypotheses using regression analysis on our sample of 115 R&D alliances. We then extend the analysis by splitting the sample into high and low importance alliances to enhance the robustness of our findings. Further, such a split-sample approach enables us to test for a potential moderating effect of alliance importance on the hypothesized relationship between alliance age and alliance performance.

The results suggest that the relationship between age and alliance performance seems to be U-shaped curvilinear rather than linear, with the minimum point of alliance performance occurring after approximately four and one-half years. Thus, the results indicate that strategic alliances appear to face a liability of adolescence rather than a liability of newness. Contrary to our expectation, we also find that important alliances exhibit generally shorter honeymoons.

Keywords: Strategic alliances, research and development, alliance age, alliance performance, biotechnology industry

JEL Classification: L14, M1, M13, O31, O32, O33, R1

Suggested Citation

Deeds, David L. and Rothaermel, Frank T., Honeymoons and Liabilities: The Relationship between Age and Performance in Research and Development Alliances. Journal of Product Innovation Management, Vol. 20, pp. 468-484, 2003, Available at SSRN: https://ssrn.com/abstract=592174

David L. Deeds

University of St. Thomas - Opus College of Business ( email )

1000 LaSalle Avenue
TMH 443
Minneapolis, MN 55403
United States

Case Western Reserve University - Department of Marketing and Policy Studies ( email )

Cleveland, OH 44106
United States

Frank T. Rothaermel (Contact Author)

Georgia Institute of Technology ( email )

800 West Peachtree Street NW
Atlanta, GA 30308-1149
United States
404-385-5108 (Phone)
404-894-6030 (Fax)

HOME PAGE: http://mgt.gatech.edu/rothaermel

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

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