Dedicated alliance function vs. partner-specific experience: alternative mechanisms for managing interpartner risk in strategic alliances

Research on managing interpartner risk underscores the roles of informal and formal safeguards, such as ownership and contractual controls that regulate the partner’s behavior. We extend this research by focusing on the interplay between trust with managerial control and their contributions to value creation in alliances. We predict that the value that a firm creates in alliances will increase with the trust that evolves via recurrent alliances with the same partner and due to the managerial control instituted by a dedicated alliance function that facilitates centralization, standardization, and formalization of alliance management practices. In turn, we expect that the partner’s dedicated alliance function will restrict the firm’s ability to capture value in alliances. However, contrary to expectations, our analysis of more than 15,000 alliances in the software industry reveals that, although a firm’s dedicated alliance function can enhance managerial control, it restricts the firm’s ability to create value, especially in recurrent alliances with the same partner, where it undermines relational mechanisms such as trust. Furthermore, trust that evolves in recurrent alliances and the partner’s dedicated alliance function can benefit the firm by facilitating communication, coordination, and commitment with the partner. Our study sheds new light on the role of managerial control and its substitution with trust in mitigating interpartner risk and creating value in alliances. It shows that attempts to restrict interpartner risk can, in some cases, increase value appropriation by the partner at the firm’s expense.