Ranjay Gulati

Does Familiarity Breed Trust? The Implications of Repeated Ties for Contractual Choice in Alliances

Exploring the factors that explain the choice of governance structures in interfirm alliances, this study challenges the use of a singular emphasis on transaction costs. Such an approach erroneously treats each transaction as independent and ignores the role of interfirm trust that emerges from repeated alliances between the same partners. Comprehensive multiindustry data on alliances made between 1970 and 1989 support the importance of such trust. Although support emerged for the transaction cost claim that alliances that encompass shared research and development are likely to be equity based, there is also strong evidence that repeated alliances between two partners are less likely than other alliances to be organized using equity.

Alliances and networks

This paper introduces a social network perspective to the study of strategic alliances. It extends prior research, which has primarily considered alliances as dyadic exchanges and paid less attention to the fact that key precursors, processes, and outcomes associated with alliances can be defined and shaped in important ways by the social networks within which most firms are embedded. It identifies five key issues for the study of alliances: (1) the formation of alliances, (2) the choice of governance structure, (3) the dynamic evolution of alliances, (4) the performance of alliances, and (5) the performance consequences for firms entering alliances. For each of these issues, this paper outlines some of the current research and debates at the firm and dyad level and then discusses some of the new and important insights that result from introducing a network perspective. It highlights current network research on alliances and suggests an agenda for future research.

Where Do Interorganizational Networks Come From

Organizations enter alliances with each other to access critical re‐sources, but they rely on information from the network of prior alli‐ances to determine with whom to cooperate. These new alliances modify the existing network, prompting an endogenous dynamic be‐tween organizational action and network structure that drives the emergence of interorganizational networks. Testing these ideas on alliances formed in three industries over nine years, this research shows that the probability of a new alliance between specific organi‐zations increases with their interdependence and also with their prior mutual alliances, common third parties, and joint centrality in the alliance network. The differentiation of the emerging network structure, however, mitigates the effect of interdependence and en‐hances the effect of joint centrality on new alliance formation.

Network location and learning: the influence of network resources and firm capabilities on alliance formation

This paper presents a dynamic, firm-level study of the role of network resources in determining alliance formation. Such resources inhere not so much within the firm but reside in the interfirm networks in which firms are placed. Data from extensive fieldwork show that by influencing the extent to which firms have access to information about potential partners, such resources are an important catalyst for new alliances, especially because alliances entail considerable hazards. This study also assesses the importance of firms’ capabilities with alliance formation and material resources as determinants of their alliance decisions. I test this dynamic framework and its hypotheses about the role of time-varying network resources and firm capabilities with comprehensive longitudinal multi-industry data on the formation of strategic alliances by a panel of firms between 1970 and 1989. The results confirm field observations that accumulated network resources arising from firm participation in the network of accumulated prior alliances are influential in firms’ decisions to enter into new alliances. This study highlights the importance of network resources that firms derive from their embeddedness in networks for explaining their strategic behavior. Copyright

Customization or Conformity? an Institutional and Network Perspective on the Content and Consequences of TQM Adoption

The authors thank Rakesh Khurana, Mark Shanley, and Edward Zajac for valuable comments on earlier versions of this paper. The paper has also benefited from the helpful comments of Christine Oliver and three anonymous reviewers for ASQ, as well as the editorial assistance of Linda Johanson. The following groups provided data used in this study: The AHA Hospital Research and Educational Trust, the AHA Data Survey Group, the Joint Commission on Accreditation of Health Care Organizations, and the Health Care Investment Analysts. We also thank the Baxter Foundation and the Graduate Program in Health Services Management at the Kellogg Graduate School of Management for generously funding this research. Additional support was provided by the A.C. Buehler Chair in Health Services Management at the Kellogg School. An earlier version of the paper received the 1996 West Press Best Paper Award in the Organization and Management Theory Division of the Academy of Management. This study develops a theoretical framework that integrates institutional and network perspectives on the form and consequences of administrative innovations. Hypotheses are tested with survey and archival data on the implementation of total quality management (TQM) programs and the consequences for organizational efficiency and legitimacy in a sample of over 2,700 U.S. hospitals. The results show that early adopters customize TQM practices for efficiency gains, while later adopters gain legitimacy from adopting the normative form of TQM programs. The findings suggest that institutional factors moderate the role of network membership in affecting the form of administrative innovations adopted and provide strong evidence for the importance of institutional factors in determining how innovations are defined and implemented. We discuss implications for theory and research on institutional processes and network effects and for the literatures on innovation adoption and total quality management.*

Cooperative or Controlling? The Effects of CEO-Board Relations and the Content of Interlocks on the Formation of Joint Ventures

This study examines the influence of the social network of board interlocks on strategic alliance formation. Our theoretical framework suggests how board interlock ties to other firms can increase or decrease the likelihood of alliance formation, depending on the content of relationships between CEOs (chief executive officers) and outside directors. Results suggest that CEO-board relationships characterized by independent board control reduce the likelihood of alliance formation by prompting distrust between corporate leaders, while CEO-board cooperation in strategic decision making appears to promote alliance formation by enhancing trust. The findings also show how the effects of direct interlock ties are amplified further by third-party network ties.

Interorganizational Trust, Governance Choice, and Exchange Performance

This paper looks at when and how preexisting interorganizational trust influences the choice of governance and in turn the performance of exchange relationships. We theorize that preexisting interorganizational trust complements the choice of governance mode (make, ally, or buy) and also promotes substitution effects on governance mode choice while impacting exchange performance. We evaluate hypotheses using a novel three-stage switching regression model and a sample of 222 component-sourcing arrangements of two assemblers in the automobile industry. Analysis of our data broadly supports our hypotheses. High levels of preexisting interorganizational trust increased the probability that a less formal, and thus less costly, mode of governance was chosen over a more formal one. This finding suggests a substitution effect of interorganizational trust on governance mode choice that in turn shapes exchange performance. We also found a complementary effect of trust on performance: Regardless of the governance mode chosen for an exchange, trust enhanced exchange performance. Additional evidence of the complementary effect of trust on performance was that trust somewhat reduced interorganizational conflict.

Renewal Through Reorganization: The Value of Inconsistencies between Formal and Informal Organization

We develop a theoretical perspective on how inconsistencies between formal and informal organization arising from reorganization can help create ambidextrous organizations. We argue that under some conditions, the informal organization can compensate for the formal organization by motivating a distinct but valuable form of employee behavior that the formal organization does not emphasize, and vice versa---an effect we label compensatory fit. We illustrate the concept of compensatory fit by drawing on qualitative data from a reorganization at Cisco Systems. We also derive formal boundary conditions for compensatory fit using a simple game theoretic representation. We show that compensatory fit can only work when there is a powerful informal organization already in existence, and when the gains from ambidexterity are substantial. Further, depending on the strength of the informal organization, breakdown in the conditions necessary for compensatory fit may lead to performance declines and further reorganizations.

Shrinking Core-Expanding Periphery: The Relational Architecture of High Performing Organizations

This article examines how firms find pathways to high performance with a simultaneous focus on their top and bottom lines by aggressively developing and managing their relationships with key stakeholders. Top-performing firms are shrinking their core while at once expanding their periphery. At the same time that they are contracting their organizational centers and outsourcing increasing portions of their activities, these firms are extending their organizational borders by trying to provide customers with greater sets of products and services. As companies refocus, they have become increasingly dependent on reinforcing mutually beneficial ties to four sets of critical stakeholders: customers, suppliers, alliance partners, and intra-organizational business units. In each of these relationship dimensions, successful firms work their way up a ladder in which they intensify their collaborative efforts with that particular constituent. This phenomenon, which is evident across an array of industries, is one of the hallmarks of a new operating model—the relationship-centered organization.

The economic modeling of strategy process: ‘clean models’ and ‘dirty hands’

We argue that our model of learning in alliances (Khanna, Gulati and Nohria, 1998) is an economic model of strategy process. We discuss implications of this view for the strategy process vs. content debate, for the appropriate testing of models of strategy process, and for the role of economics in helping understand strategy process. We propose that the ‘clean models’ from economics and ‘dirty hands’ of traditional process inquiries offer research designs that are complementary rather than incompatible (Hirsch, Michaels and Friedman, 1987). Copyright