Alliance-Based New Product Development Success The Role of Formalization in Exploration and Explo

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Alliance-Based New Product Development Success: The Role of Formalization in Exploration and Exploitation Contexts
C. Jay Lambe a; Robert E. Morgan b; Shibin Sheng c; Gopal Kutwaroo d a Albers School of Business and Economics, Seattle University, Seattle, WA b Sir Julian Hodge Chaired Professorship in Marketing and Strategy at the Cardiff Business School, Cardiff University, Cardiff, United Kingdom c School of Business, Adelphi University, Garden City, New York d UK and Ireland Channels Marketing, Cisco Systems Inc., Surrey, England, UK
To cite this Article Lambe, C. Jay, Morgan, Robert E., Sheng, Shibin and Kutwaroo, Gopal(2009) 'Alliance-Based New
Product Development Success: The Role of Formalization in Exploration and Exploitation Contexts', Journal of Business To Business Marketing, 16: 3, 242 275 To link to this Article: DOI: 10.1080/10517120802484593 URL: http://dx.doi.org/10.1080/10517120802484593
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Journal of Business-to-Business Marketing, 16:242275, 2009 Copyright Taylor & Francis Group, LLC ISSN: 1051-712X print/1547-0628 online DOI: 10.1080/10517120802484593
1547-0628 1051-712X WBBM Journal of Business-to-Business Marketing, Marketing Vol. 16, No. 3, July 2009: pp. 159
Alliance-Based New Product Development Success: The Role of Formalization in Exploration and Exploitation Contexts
C. JAY LAMBE ROBERT E. MORGAN
Albers School of Business and Economics, Seattle University, Seattle, WA
Alliance-Based C. J. Lambe et al. New Product Development Success
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Sir Julian Hodge Chaired Professorship in Marketing and Strategy at the Cardiff Business School, Cardiff University, Cardiff, United Kingdom
SHIBIN SHENG
School of Business, Adelphi University, Garden City, New York
GOPAL KUTWAROO
UK and Ireland Channels Marketing, Cisco Systems Inc., Surrey, England, UK
Purpose: Although alliances offer tremendous strategic potential, firms still struggle to successfully manage new product development alliances (NPD alliances). A prominent explanation for this is the institutional economics view (see Williamson 1985) that, in general, a key disadvantage of alliances versus vertical integration is that administrative control mechanisms are weaker. Here, a key control mechanism is formalization (the use of explicit rules to govern business activities). However, regarding formalizations influence on both NPD and alliance performance, conceptual views and empirical findings are mixed, which suggest that unexamined variables moderate formalizations influence on NPD performance. Therefore, it is surprising that there is no research on whether formalizations influence differs in alliances pursuing an NPD exploration strategy versus an NPD exploitation strategy because
The authors gratefully acknowledge the valuable comments provided by Jeff Dyer, Andrew Inkpen, Duane Ireland, and Jeff Reuer on previous drafts of this manuscript and also Rohit Deshpande, Kathryn Harrigan, Robert M. Morgan, and Nigel Piercy, whose advice helped to design the research program from which this study is drawn. Address correspondence to C. Jay Lambe, Albers School of Business and Economics, Seattle University, Pigott 415, 901 12th Avenue, Seattle, WA 98122. E-mail: lambecj@seattleu.edu 242
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both (1) require varying levels of freedom of action and adherence to procedural rules to achieve success, and (2) are extensively employed in NPD. Further, there is also surprisingly little intrafirm NPD and nonNPD alliance research on formalization in exploration and exploitation contexts because here as well formalizations influence on performance (1) is central, and (2) differs based on the projects innovative and learning intent. The purpose of this research is to begin to close important literature and industry practice knowledge gaps about formalizations influence on NPD alliance performance in exploitation versus exploration strategic contexts. Originality, value, and contribution: This research is the first examination ever of two key NPD strategiesexploration and exploitationin an NPD alliance context. The research sheds light on conflicting views about formalizations NPD performanceenhancing and inhibiting aspects, and offers implications for industry best practices. Methodology/approach: Empirical examination of survey data from 151 NPD alliances via hierarchical regression and tests of group moderation. Findings: Results shed light on when and why formalization moderates the influence of key fundamental alliance success mechanisms on NPD alliance performance based on strategic context. KEYWORDS new product development, NPD alliances, exploration, exploitation
Strategic alliances are cooperative arrangements between two or more firms to improve their competitive position and performance by sharing resources (Ireland, Hitt, and Vaidyanath 2002, p. 413; see also Rindfleisch and Moorman 2001, 2003; Sivadas and Dwyer 2000). Consequently, alliances offer an external-to-the-firm option for companies to pursue business and strategic goals that would be difficult to achieve on their own (Bucklin and Sengupta 1993; Varadarajan and Cunningham 1995). Alliance research is of great interest to both executives and researchers for two fundamental reasons. First, because alliances are increasingly used to facilitate strategic outcomes, they have a critical impact on the business performance of most firms (Sarkar et al. 2001; Sivadas and Dwyer 2000). For example, the percentage of large firm revenues resulting from alliances is more than 30% with alliances witnessing an annual growth rate of 25% and an estimated value of US$40 trillion in 2004 (Parise and Sasson 2002); and many large global firms have thousands of alliances at any given point in time (e.g.,
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Trust us 2000; Sparks 1999). Second, despite this significant alliance impact on firm performance and past alliance research efforts, there remain many critical knowledge gaps about what factors drive successful alliances because of the complexity of alliances as an organizational form (Nygaard and Dahlstrom 2002; Rindfleisch and Moorman 2003; Sivadas and Dwyer 2000). New product development (NPD) is a specific business activity where firms commonly use alliances as a vehicle for firm growth (Doz and Baburoglu 2000; Sampson 2005). Instead of internalizing NPD processes (e.g., Cooper 1979; Souder 1981), firms increasingly conduct NPD through alliances because of their potential to: (1) reduce significant risks often associated with NPD, (2) enhance NPD process and outcomes, (3) increase speed of innovation, and (4) allow access to resources (e.g., know-how, technology, financial, marketing, or production infrastructure) that they lack internally (Grant and Baden-Fuller 2004; Rindfleisch and Moorman 2001, 2003). Despite their seductive appeal, however, firms frequently report difficulties in managing those alliances (Sivadas and Dwyer 2000). Even more problematic are the disappointing returns (Ario and Doz 2000) and high failure rates from alliance activitiesreported to be up to 70% in some sectors (Duysters, Kok, and Vaandrager 1999). Thus, although there is a compelling logic to collaborate, firms still struggle to create effective NPD alliances. Institutional economics (see Williamson 1985) suggests that a general explanation for the relatively high level of alliance failure is that alliances provide relatively lower levels of administrative control over business activities. In other words, when engaging in strategic activities, it has been argued that an advantage of vertical integration versus alliances is the strength of its administrative control or direction mechanisms (Grant and Baden-Fuller 2004; Nygaard and Dahlstrom 2002). Here, a key control mechanism is formalization, defined as the use of explicit rules to govern business activities (e.g., Sivadas and Dwyer 2000). Research suggests that such direction provides multifunction NPD teams with a measure of certainty regarding roles and procedures for making decisions and determining the scope of participants who provide input (Sivadas and Dwyer 2000, p. 32). Given that, however, there are conflicting views about the influence of formalization on NPD performance. For example, it has been argued that the intensity of administrative mechanisms such as formalization is a weakness of vertical integration because it inhibits the freedom of action and spontaneity needed for NPD success (Bidault and Cummings 1994). Moreover, empirical findings are mixed regarding the influence of formalization, and multiple studies find its influence is nominal (e.g., Ayers, Dahlstrom, and Skinner 1997). Further, the institutional economics viewthat administrative control afforded by vertical integration is greater than that found in allianceshas been questioned by those who counter that alliances can approximate the hierarchical control found within a firm (e.g., Dahlstrom,
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Dwyer, and Chandrashekaran 1995). Here, just as with internal NPD (Ayers, Dahlstrom, and Skinner 1997), researchers argue that alliances might experience a similar tension between the degree of formality and flexibility required for successful NPD (e.g., Bidault and Cummings 1994; Fredericks 2005; LaPlaca 2005). Such conflicting views of formalizations influence on NPD alliances success suggest that there are hitherto unexamined variables that might significantly moderate this relationship. Therefore, it is surprising that there is no study that systematically examines whether the influence of formalization might differ in alliances pursuing an NPD exploration strategy versus an NPD exploitation strategy because both strategies: (1) require varying levels of freedom of action and adherence to procedural rules to result in success (e.g., Moorman and Miner 1997) and (2) are extensively employed in NPD (e.g., Kyriakopoulos and Moorman 2004). Exploitation strategies are those in which firms refine current knowledge/skills, and exploration strategies involve experimentation with new knowledge/skills (March 1991). It is also surprising that in the marketing literature there is a general dearth of research on exploitation and exploration strategies because, prima facie, it seems likely that the influence of formalization on NPD success differs based on the innovative and learning intent of the project in question. Yet, despite their centrality in the strategy literature and repeated calls to examine their influence in NPD contexts, only a handful of papers . . . [has] attempted to examine exploitation and exploration empirically (Kyriakopoulos and Moorman 2004, p. 235). Further, empirical examinations of exploration and exploitation strategies in an alliance context would shed light on questions extant research has raised such as: (1) Might exploration be more effectively pursued with alliances than exploitation? (e.g., Grant and Baden-Fuller 2004; Lambe and Spekman 1997); (2) Is the influence of alliance success mechanisms affected by the context of the strategy being pursued? (Rindfleisch and Moorman 2001, 2003; Sivadas and Dwyer 2000); and (3) What prompts alliance partners to use certain types of administrative mechanisms and not other types? (Sivadas and Dwyer 2000, 46). In turn, such research would also offer critical and useful insights for executives and practicing managers about how to better manage and, in turn, improve the business performance of their NPD alliances. The purpose of this research is to begin to address these important literature and industry-practice knowledge gaps with the following empirical investigations. First, we examine the moderating role of exploration and exploitation strategies with respect to the influence of standard fundamental literature-based NPD alliance success mechanisms. Then, we examine the moderating role of formalization with respect to the influence of those success mechanisms, followed by an investigation of whether that moderating role differs in NPD alliances that are exploration versus exploitation in nature.
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CONCEPTUAL MODEL AND HYPOTHESES NPD Alliance Success Mechanisms and Replicated Hypotheses
This research begins by first replicating/confirming and then extending (see Figure 1) the literatures standard fundamental model of NPD alliance success (e.g., Sivadas and Dwyer 2000). Here, the key fundamental NPD alliance success mechanisms are: (1) cooperative factors (trust, communication, coordination) (e.g., Rindfleisch and Moorman 2001; Sivadas and Dwyer 2000) and (2) complementary resources (e.g., Rindfleisch and Moorman 2001; Sivadas and Dwyer 2000). Sivadas and Dwyer (2000) refer to those two mechanisms as cooperative competency and complementarity of partner competencies (hereafter, we refer to the latter as complementarity). They define cooperative competency as a midrange variable composed of three interrelated facets: trust, communication, and coordination . . . [and] is a property of the relationship among the organizational entities participating in NPD (p. 33). Complementarity is the degree to which the NPD alliance makes up activities that complement and build on NPD alliance partners core competencies; hence, the degree to which the partners contribute complementary project-related capabilities that individually they would not have access to internally and may find difficult or too expensive to acquire on [their] own (p. 36). Sivadas and Dwyer (2000) develop the following
FIGURE 1 An extended model of NPD Alliance success.*
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hypotheses to test the influence of those two central mechanisms on NPD alliance success and find support for both. Because those mechanisms are the platform of the model we seek to extend, we begin by replicating and testing these hypotheses in the context of our examination. Hla: Cooperative competency among NPD alliance partners is related positively to NPD alliance success. H1b: Complementarity is related positively to NPD alliance success.
Exploration-Exploitation and NPD Alliance Success Mechanisms

A significant area of inquiry in the strategy literature is: How can firms learn and successfully engage in strategies where they primarily exploit current knowledge and skills, or explore new knowledge and skills? (March 1991). Despite some research that suggests that exploitation and exploration are competing strategies (e.g., Galbraith 1973; Miller and Friesen 1986), a growing body of work argues that firms must be able to effectively engage both strategies (e.g., Levinthal and March 1993; Lewin and Volberda 1999). Therefore, research in this area, including that in an NPD context, has shifted from examinations of whether those strategies are contradictory to how firms can effectively implement both of those strategies (Kyriakopoulos and Moorman 2004; Moorman and Miner 1997; Song and Parry 1997). That said, however, there remains relatively little systematic conceptual and empirical research on how firms can successfully employ exploitation and exploration strategies in alliances used to conduct NPD. Here, consistent with the exploitation-exploration literature (e.g., March 1991), we conceptualize exploitation NPD alliance strategies as those in which a firms primary motivation for the alliance is to enhance and refine its current NPD skills and capabilities in an effort to improve the performance of the NPD project in question. In other words, the literature suggests that such a strategy pursued by a firm through an alliance:
operate[s] on a firms existing learning curve by strengthening its current routines (March 1991), core competences (Prahalad and Hamel 1990), and capabilities (Collins and Montgomery 1995; Leonard-Barton 1992). An example of a pure exploitation strategy is an experience curve in which a firm generates low price through cumulative production. Exploitation strategies have also been referred to as adaptive learning (Slater and Narver 1995) and a single-loop system (Argyris and Schn 1978). (Kyriakopoulos and Moorman 2004, 221)
Conversely, and yet again consistent with the literature (e.g., March 1991), we conceptualize exploration NPD alliance strategies as those in which a firms primary motivation for the alliance is to gain access to new
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skills and capabilities possessed by a partner to challenge prior approaches to NPD in an effort to enhance the performance of the NPD project in question. Here, another way to identify and distinguish between alliances engaging in exploitation versus exploration is offered by Kyriakopoulos and Moorman (2004) who point out that:
An alternative perspective from the organizational learning (e.g., Huber 1991; March 1991; Slater and Narver 1995) and capabilities literatures (e.g., Day 1994; Leonard-Barton 1992; Prahalad and Hamel 1990) suggests that the type of strategy [exploitation or exploration] should be deduced from whether or not the firm does or does not rely on its current knowledge and skills or whether it must acquire new knowledge and skills. (p. 222)
Therefore, such conceptualizations of exploitation and exploration build on a resource-based view of the firm (Kyriakopoulos and Moorman 2004), a theory that views resources as combinations of knowledge, routines, and skills or competences (Amit and Schoemaker 1993; Day 1994, 1995; Lambe, Spekman, and Hunt 2002; Leonard-Barton 1992; Peteraf 1993; Rumelt, Schendel, and Teece 1991). Consistent with that view, we seek to explain how firms, through alliances, can exploit existing firmspecific resources (Mahoney and Pandian 1992) or create new resources to cope with change (Barney 1991; Wernerfelt 1984) in order to enhance NPD performance. Thus, alliances offer the potential to augment a firms dynamic capabilities, that is, its ability to engage in both the exploitation of existing internal and external firm-specific capabilities and developing new ones (Teece, Pisano, and Shuen 1997, p. 515; see also Eisenhardt and Martin 2000). With respect to the implementation of exploitation and exploration strategies in alliances used to conduct NPD, it should be noted that the alliance literature suggests that the positive influence of cooperative competency and complementarity on alliance success is generalizable across a broad range of alliance contexts (e.g., Day 1995; Varadarajan and Cunningham 1995). However, empirical tests of the generalizability of the success mechanisms are limited, and they have not been tested in contexts in which their effects might reasonably be expected to vary (Sivadas and Dwyer 2000). Here, because of their contextual characteristics, we believe that exploration and exploitation strategic contexts might moderate the influence of cooperative competency and complementarity (cf. Rothaermel and Deeds 2004). Therefore, to test the generalizability of their effects in both strategic contexts, we develop extension hypotheses to investigate whether exploration and exploitation strategies moderate the influence of cooperative competency and complementarity on NPD alliance success (cf. King, Covin, and Hegarty 2003).
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COOPERATIVE
COMPETENCY
Regarding the trust dimension of cooperative competency, we advance that trust, ceteris paribus, plays a more pivotal role in exploration than in exploitation NPD alliances because a key formal governance mechanism, and a central substitute for trusta contractis a less reliable safeguard. That comparative unreliability is the result of the high level of uncertainty (about goals, outcomes, etc.) that is characteristic of an exploration strategy given its evolving, less predictable nature (e.g., Kyriakopoulos and Moorman 2004). Such uncertainty inhibits the degree to which important elements of the exchange relationship can be comprehensively, or accurately, codified in a contract (Gundlach and Murphy 1993; Lambe, Spekman, and Hunt 2000). Further, because the evolutionary nature of exploratory NPD alliance projects increases the possibility of major shifts in partner dependence (e.g., Lambe and Spekman 1997), it seems reasonable to expect that in such projects partners view informal safeguards such as interdependence as less reliable than in exploitation. Therefore, with less reliable formal and informal governance mechanisms (or substitutes for trust), a lack of trust is more likely to cause firms to perceive that they are vulnerable to the actions of alliance partners (Parkhe 1993). In turn, such elevated perceptions of vulnerability increase the desire of firms to protect themselves in so-called prisoners dilemma fashion by maximizing their own gains at their partners expense (Parkhe 1993; Williamson 1985), and any level of such preemptive opportunistic behavior reduces NPD alliance effectiveness (Sivadas and Dwyer 2000). Thus, it seems likely that trust in exploration NPD alliances plays an elevated role in determining NPD alliance performance because firms cannot rely as much on contractual substitutes for trust. That conclusion leads us to posit that trust has a greater positive influence on NPD alliance success in exploration than in exploitation NPD alliances. Also, because exploration strategies are both evolutionary and pursue more radical innovations (e.g., Kyriakopoulos and Moorman 2004) the communication and coordination dimensions of cooperative competency should also play more central roles in exploration than in exploitation NPD alliance success. As Sivadas and Dwyer (2000) point out, The higher stakes, demands, unfamiliarity, and unpredictability of radical innovation make these projects more prone to communication breakdowns and make the task of coordinating the projects more difficult (p. 35). More specifically, the relatively higher level of project changes and required learning inherent in exploration NPD alliance projects increases the need for communication, and elevates the role it plays in NPD alliance success. Here, Sivadas and Dwyer (2000) note that projects that evolve and are radical in nature:
may tax existing systems of communication and patterns of collaboration more than incremental innovation . . . Radical innovations require participants to engage in more learning and unlearning and to develop
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new capabilities. Consequently, there is greater need for reorientation of existing structures and processes . . . Long-standing patterns of informal communication might be absent in radical innovation projects. In contrast, incremental innovations benefit greatly from existing competencies, and organizational relationships and demands placed on participants are comparatively lower. (p. 35)
Similarly, just as for communication, and as Sivadas and Dwyer (2000) previously point out, coordination plays a more central role in radical and evolutionary NPD projects because of the significant ongoing coordination and recoordination required by the highly evolving nature of such projects routines (Nord and Tucker 1987). Conversely, because structures and processes in exploitation projects are more stable on an ongoing basis, it seems reasonable to expect that coordination has a greater positive influence on NPD alliance success in exploration NPD alliances. Therefore, considering the likely effect of each of its three dimensions, we hypothesize the following for cooperative competency. H2a: Cooperative competency has a greater positive influence on NPD alliance success when an exploration NPD strategy is being pursued than when an exploitation NPD strategy is being pursued. COMPLEMENTARITY We also posit that the positive influence of complementary competencies on NPD alliance success is greater for exploration than for exploitation strategies for the simple reason that by definition (e.g., March 1991), exploration success is based less on a firms present competencies and more on the competencies it lacks. In other words, although for both types of alliances the motivation is for firms to pool their resources (e.g., knowledge, physical assets) to achieve mutually compatible goals that they could not easily achieve alone (Lambe, Spekman, and Hunt 2002, p. 141), in exploration NPD alliances a firms achievement of its goals is less easily achieved alone because goal achievement is determined less by its own competencies. Therefore, ceteris paribus, complementarity should have a stronger positive influence on NPD alliance success for an exploration strategy than for an exploitation strategy. H2b: Complementarity has a greater positive influence on NPD alliance success when an exploration NPD strategy is being pursued than when an exploitation NPD strategy is being pursued.
Formalization and NPD Alliance Success Mechanisms

Regarding formalization, although the literature argues that an inherent tension results from a concurrent quest for structure and flexibility in NPD
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projects, the literature also suggests that there is a need to pursue both simultaneously (Kyriakopoulos and Moorman 2004). As noted, some argue that formalization impedes the spontaneity and flexibility needed for internal and alliance innovation (Bidault and Cummings 1994). Others counter that multifunction teams and alliances require administrative mechanisms such as formalization in order to provide parties with a degree of certainty regarding: (1) roles and responsibilities, (2) procedures for making decisions, and (3) direction regarding which participants provide input (Sivadas and Dwyer 2000). Further, although it has been argued that formalization might detract from NPD alliance success, as it might with intrafirm NPD projects, empirical findings tend to indicate that in alliances, formalization enhances not only cooperation but also effectiveness (Dahlstrom, Dwyer, and Chandrashekaran 1995; Sivadas and Dwyer 2000). Those alliance findings are consistent with institutional economic theory, which would predict based on governance mode that although formalization might impede to some degree creativity and flexibility, its net moderating effect should enhance the positive influence of standard alliance success mechanisms for two reasons. First, in general, formalizations inhibiting effects are more limited in alliances than in internal projects because institutional control in alliances is relatively weaker (Williamson 1985). Second, in general, formalizations performance-enhancing effects are greater for alliances than for internal projects in which direction and resource knowledge is relatively stronger than in alliances (Williamson 1985). Therefore, consistent with mainstream institutional economic theory, we first posit that cooperative competencys positive influence on NPD outcomes is enhanced by formalization because it provides guidance that facilitates goaldirected behavior (Hausler, Hohn, and Lutz 1994; Lorange and Roos 1992). We also advance that formalization enhances the positive influence of complementarity because it provides a guiding routine that reduces role ambiguity (Nygaard and Dahlstrom 2002) that might slow the integration of partner resources. Such integration is critical because although complementary resources offer potential performance advantages, the realization of such performance advantages is based on the degree to which they are effectively coupled or combined (e.g., Dyer and Singh 1998; Harrigan 1985; Lambe, Spekman, and Hunt 2002). Further, because those capabilities are less visible in alliances than in firms (Williamson 1985), formalization also serves as a learning vehicle, or a linking capability, that enables partners to more quickly learn about and, in turn, integrate each others capabilities (Kogut and Zander 1992; Moorman and Minor 1997, 1998). Therefore, it is not surprising that formalization has been shown to facilitate the effective integration of such partner capabilities in an alliance context (Nygaard and Dahlstrom 2002). H3a: Formalization enhances the positive influence of cooperative competency on NPD alliance success.
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H3b: Formalization enhances the positive influence of complementarity on NPD alliance success.
Formalization and NPD Success Mechanisms in the Contexts of Exploitation-Exploration

We also believe, as discussed previously, that conflicting extant literature views and findings regarding formalizations effect on NPD performance are at least to some degree attributable to differences in contexts that might enhance or inhibit formalizations various positive and negative influences on NPD performance. One such set of differences, we argue, is between exploration and exploitation strategy contexts, and we posit that the different characteristics of each affect the degree to which formalization enhances the positive influence of alliance success mechanisms on NPD success. With respect to exploration NPD alliances, the literature provides evidence that formalization offers some degree of beneficial effects for exploratory NPD projects. For example, Eisenhardt and Tabrizi (1995) argue that firms in the computer industry were successful in their NPD efforts because they engaged in experiential explorative NPD whereby the project team was rapidly building intuition and flexible options in order to learn quickly about and shift with uncertain environments (p. 91). Their research also suggests, however, that formalization enhances the success of such exploratory efforts by project teams when they note: At the same time, it is also important to create structure because in such settings uncertainty can create paralyzing anxiety about the future (p. 91). Further, project teams that are skilled at engaging in exploration NPD tend to overlook the value of systematically engaging in a learning process that allows them to take advantage of the learning curve, which diminishes the rents that are captured from their discoveries and innovations (e.g., Bierly and Chakrabarti 1996). Here, project teams spend too much time exploring and experimenting and too little time exploiting what they have discovered and learnedthe result is that they experience a so-called failuretrap. Thus, because of a lack of direction to keep them on track, unfortunately, time and again strong explorers lay the groundwork for imitators who tend to outperform them and enjoy a higher level of NPD success (Levinthal and March 1993; Teece 1986). In summary, research suggests that even in an exploration strategy context some degree of structure is necessary for innovation because it helps product teams stay focused on innovative objectives and avoid chaos and procrastination (Kyriakopoulos and Moorman 2004, p. 226; see also Brown and Eisenhardt 1997; Weick 1993). Given the relatively high requirement for flexibility and spontaneity in exploration NPD, however, it seems likely in those alliances that the performance-enhancing effects of formalization are, to a significant degree, offset by the rigidity imposed by formalization. That is, in exploration NPD
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alliances, formalization seems likely to have substantial performance tradeoffs. For example, formalization can detract from the success of exploration projects if the structure it provides inhibits the necessary development of novel ideas or new approaches to innovation (Leonard-Barton 1992; Moorman and Miner 1997). Therefore, we posit that for exploration NPD alliances, formalization is more likely to result in both positive and negative moderating effects on the influence of alliance success mechanisms that, on the whole, tend to offset each other. With respect to exploitation NPD alliances, the literature suggests that formalization may induce performance tradeoffs in exploitative projects as well. On one hand, formalization can exacerbate the inherent tendency of project teams pursuing an exploitation NPD strategy to become hyper-focused, causing them to lose touch with changes that might occur in the marketplace (Kyriakopoulos and Moorman 2004). Further, formalization can encourage the tendency of exploitative teams to become overly reliant on established routines so that even modest inquiry and flexibility necessary for exploitative success is inhibited (Cyert and March 1992; Day 1999; Leonard-Barton 1992; March 1991). Such a phenomenon has been referred to as a competency trap (Levitt and March 1988) or success trap (Levinthal and March 1993). On the other hand, it seems likely that such performance-inhibiting effects of formalization in exploitation projects are significantly offset by the economies of a more certain routine offered by formalization. Indeed, given the incremental objectives inherent in exploitation NPD strategies, such economies are key contributors to exploitation NPD success (Sorenson and Sorensen 2001). Here, the costs of role confusion can reasonably overtake the incremental margins and enhancements to NPD performance that motivate firms to engage in exploitation NPD alliances (Nygaard and Dahlstrom 2002; Vestring, Rouse, and Rovit 2004). In addition, successful exploitation NPD strategies require a significant degree of adherence to formalized routines to ensure that firms in NPD alliances do not engage in such a high degree of exploration that they are unable to garner the modest exploitative efficiency potential of their joint resources. That is, too much of an exploration deviation from exploitative objectives reduces focus on extracting the incremental economic improvements offered by the firms combined resources in the pursuit of exploration objectives that may extend beyond the reach of the exploitative nature of the firms complementary competencies. Moreover, the literature in general overwhelmingly supports the notion that flexibility and creativity are required, and desired, to a far lesser degree in exploitation than in exploration projects. Thus, although formalization may inhibit the creativity and flexibility of exploitation NPD alliances, those attributes are required to a lesser degree in exploitation than in exploration NPD projects in which novel ideas and approaches are critical. In turn, we conclude that even though formalization in exploitation NPD alliances has
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some degree of performance tradeoffs, the positive influences of formalization outweigh the negative, and the overall positive performance influence of formalization in exploitation NPD alliances is relatively greater than in exploration NPD alliances. Therefore, we hypothesize a three-way interaction effect between alliance success mechanisms, formalization, and exploitationexploration. H4a, b: Formalization enhances to a greater degree the positive influence of (a) cooperative competency and (b) complementarity on NPD alliance success when an exploitation NPD strategy is being pursued than when an exploration NPD strategy is being pursued.
METHOD The Context for Theory Testing

The UK information, communication, technology (ICT) sector provides the broader research context for our study. The incidence of alliances among high-technology firms is remarkable (Vassolo, Anand, and Folta 2004), but it is especially prolific among ICT partners (Nordberg, Campbell, and Verbeke 1996; Reuer, Zollo, and Singh 2002). Sample homogeneity was considered important in this study so as to standardize, as far as possible, for industry effects that could potentially compromise the validity of our findings (Kalleberg et al. 1990). While some empirical studies of strategic alliance have adopted single-sector studies (e.g., Sampson 2005), we seek to standardize even further by adopting a single-sector, single-firm (hereafter referred to as the focal company), multialliance study. The focal company is a large global ICT firm that enjoys a leading market position that has enabled it to be active across the entire ICT spectrum, and our unit of analysis is its two-firm (i.e., the focal firm and one partner firm) alliances. Like others (e.g., Ramaswami and Singh 2003), we chose to test our hypotheses within a tight single-firm context for several reasons. First, we wanted to limit various extraneous sources of variance. For example, given that this sampling frame was elicited from one firm, it was possible to standardize for the general industry environment specific corporate policies and top management team strategic dispositions, which can confound theoretical conclusions from strategic alliance studies (Ireland, Hitt, and Vaidyanath 2002). Also, the goals and objectives of alliances for this firm, by and large, tend to be standardized for one partner. Second, such a tightly circumscribed research context enabled us to focus on testing theoretical links as opposed to testing the generalizability of those linkages to a wide variety of contexts (McGrath and Brinberg 1983). Third, this approach enables clarity in the sampling method by being able to impose natural limits on the sampling frame (Short, Ketchen, and Palmer 2002).
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Sampling Frame
At the time of the survey, the focal company maintained 665 alliances that were identified from data held on the firms Partnerships and Third Party Alliances database. Those alliances were then screened against five criteria that reduced the sample size to 584 strategic alliances. The criteria were that: (1) each alliance had to be classified with ICT identifiable partners; (2) alliances had to be actively partnering with the focal company, and in order to satisfy the longitudinal elements of the alliance assessment, the relationship had to have been actively partnering for a minimum of three years; (3) alliances had to be value-added suppliers within the ICT sector, meaning that formal strategic alliance agreements between partners were necessary where each added value either from a service or in the provision and repair of products and services to business customers; (4) alliances needed to be dyadic relationshipswhere the focal company was allied with only one partner; and (5) the partner needed to be a strategic equity partner with the focal company, meaning that resources had been invested in the relationship across the different business functions.
Respondent Considerations
During the process of designing the survey methodology, we placed emphasis on identifying the most appropriate individual available in each sampling unit from whom to elicit the requisite information. It was found that the most common job title for the alliance owner or senior executive in charge was Senior Partnership/Alliance Manager. Despite the fact that it has been argued that measurement error can arise from differences among informants within the same sampling unit, the nature of the empirical approach and the conceptual character of the study justified why a single key informant needed to be selected. Guidelines provided by Huber and Power (1985) for using the key informant technique were followed in an attempt to minimize the effects of potential systematic and random sources of measurement error.
Survey Administration
We employed an electronic questionnaire as the method for capturing survey responses. The survey was administered pursuant with Dillmans (2000) guidelines for the Tailored Design Method. Prenotification e-correspondence, questionnaire e-mailing, and a series of reminder e-correspondence were respectively sent to key informants. In the end, a total of 223 surveys were completed, of which three were ineligible, resulting in 220 eligible responses and an eligible response rate of 38%. To assess potential nonresponse bias in the data set, an extrapolation test advocated by Armstrong and Overton (1977) was performed to compare
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early and late survey respondents. When all of the scales used in this study were compared, no significant differences (at conventional levels) were found between those two groups. Accordingly, it was possible to claim that nonresponse bias was not a significant issue and respondents were representative of the population under investigation. In order to ensure that the appropriate key informant within sampling units had completed the questionnaires, analysis of the respondents job titles was made. It was concluded that all were senior alliance personnel charged with strategic roles within the alliance. This assured the reliability of generated data, given that key informants responded to questions within their domain and sphere of responsibility. An inter-rater reliability test was also carried out. We mailed surveys to the alliance counterpart executives in the dyadic relationshipthe executives in the partner companies who owned the alliance for the partner side of the dyadic relationship. That ensured that the data received from the focal company was consistent with the perceptions held by the respondent from partner companies. Paired samples t tests were used to test the null hypothesis that the two population means were equal. Twenty alliance counterpart executives provided data on financial performance and customer relationship performance. It was found that the population means were equal in both instances. That is, financial performance calculated a t value of 0.36 (p = 0.71) while customer relationship performance calculated a t value of 0.44 (p = 0.66). This demonstrates that inter-rater reliability is generally acceptable across the two populations. Further demonstration comes from the fact that the opinions, attitudes, and perceptions provided by the key informants within the focal company surveyed are generally representative of the dyadic strategic alliances.
Measures
As noted previously, measures of exploration and exploitation NPD alliance strategies do not exist in the extant literature. Consequently, we sought to determine a classification system based on theoretical literature. Consistent with that view (e.g., Koza and Lewin 1998; Kyriakopoulos and Moorman 2004; March 1991), we distinguished NPD alliance strategy according to the firms motivation to exploit vis--vis their motivation to explore. Previously we defined an exploration NPD alliance strategy as a collaborative effort between two or more firms in which they pool their resources to gain access to new skills and capabilities in order to engage in a process of discovery that challenges and/or changes prior approaches to NPD in an effort to enhance outcomes from the NPD project in question. An exploration NPD alliance strategy was defined as a collaborative effort between two or more firms in which they pool their resources in an effort to improve incrementally current NPD skills and capabilities to enhance the outcomes from the NPD project in question. Based on these definitions and from the eligible sample of 220 alliances, the focal company was asked to identify those that
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were NPD alliances that were clearly pursuing either an exploration or an exploitation NPD alliance strategy. A focal company expert, who had knowledge of the companywide strategic alliance unit and its internal procedures, was identified. Following briefings based on the previous NPD alliance strategy definitions, the expert classified 151 of the eligible alliances as unambiguously pursuing either an exploration or an exploitation NPD alliance strategy. Those 151 alliances make up the final eligible sample analyzed in our examination, with 37 classified as exploratory and 114 as exploitative. NPD success refers to the success of the project and was measured using a three-item scale similar to that of Sivadas and Dwyer (2000). The measure evaluates the project based on quality, time taken to introduce propositions to the market, and relative development cost. Complementarity was measured using a three-item, seven-point scale. The items are similar to those of Sivadas and Dwyer (2000) and captured the extent to which there was a synergy between the objectives and capabilities of the partners. Formalization, an alliance-control mechanism, is conceptualized as the degree to which explicit procedures and rules govern the alliance partners business interactions with each other. Ayers, Dahlstrom, and Skinner (1997) note that formalized procedures can regulate the tasks people perform in the development process or the role responsibilities granted to specific persons in the NPD process (p. 108). Although both regulation and role-specification dimensions of formalization may influence integration, like Ayers, Dahlstrom, and Skinner (1997) our analysis focuses on role-specification because prior research suggests that integration is associated with such formalization. Accordingly, formalization is examined with a one-item measure that is a slightly modified version of the measure used by Sivadas and Dwyer (2000) to capture the extent to which the alliance partners business arrangements have been explicitly specified. Similar to Sivadas and Dwyer (2000), we combined three related variablestrust, communication, and coordinationto develop the secondorder construct of cooperative competency. Trust is conceptualized as the degree to which an organization is confident that its alliance partner has the motivation and ability to facilitate positive outcomes for the organization, and our three-item trust measure is similar to that of Sivadas and Dwyer (2000). Communication is defined as the formal, informal, timely, and adequate sharing of critical and proprietary information among the alliance partners. Our communication measure is a three-item, seven-point Likert-type scale similar to that of Sivadas and Dwyer (2000) that captures the adequacy and timeliness of information sharing and extent to which important and proprietary information is exchanged. Coordination is the degree to which the alliances activities, personnel, routines, and work assignments are well harmonized and organized. Our coordination measure is a three-item scale similar to that of Sivadas and Dwyer (2000) and assesses coordination in an interorganizational context. In turn, cooperative competency is reflective of those three related variablestrust, communication, and coordinationas a higher-order construct.
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A second-order factor analysis (i.e., trust, communication, and coordination as first-order indicators of the second-order cooperative competency construct) fits the data acceptably (c2 = 23.49, df = 12, p = 0.024; GFI = 0.97; CFI = 0.98; NFI = 0.98; RMSEA = 0.08) and the composite reliability of cooperative competency is 0.83. We examined convergent validity of the second-order factor by examining whether each indicators estimated coefficient was significant (greater than twice its standard error). All the factor loadings were significant (p < 0.001), indicating convergent validity (Gerbing and Anderson 1987). CONFIRMATORY
FACTOR ANALYSES
We assessed the reliability and construct validity of all of the constructs through an overall confirmatory measurement model. Each questionnaire item was set to load only on its respective latent construct, and all latent constructs were allowed to correlate with each other. The chi-square statistic for the confirmatory factor analysis model was statistically significant (c2 = 140.34, df = 57, p < 0.01), and the GFI = 0.91, CFI = 0.95, NFI = 0.93, and RMSEA = 0.09 were within acceptable standards (Bentler 1990; Jap and Ganesan 2000). Overall, the model fit the data adequately. All factor loadings were statistically significant (p < 0.001). Each construct manifests a composite reliability (see Appendix for reliability of each construct) greater than the recommended threshold value of 0.6 (Bagozzi and Yi 1988). All cross-construct correlations were significantly (p < 0.001) less than 1.0, signifying the discriminant validity of the construct measures. Overall, those results show that the measures in this study possess adequate reliability and construct validity. In addition, we employed the procedure suggested by Podsakoff and Organ (1986) to assess the degree to which the correlations among the measures might be the result of common method variance. Exploratory factor analysis revealed that the first factor explains only 41.2% of the total variance. Using the eigenvalue criterion, no general factor was apparent (e.g., Podsakoff et al. 2003). In addition, the measurement model for the one-factor test provides evidence that common-method variance does not fit the data well (c2 = 1021.62, df = 104, p = 0; GFI = 0.51; CFI = 0.48; NFI = 0.45). Finally, Singh (2000) suggests that self reports are more likely to bias the mean values (upward) but less likely to bias their correlations with other constructs (p. 31). Thus, we conclude that common-method variance is not an adequate explanation for the construct relationships in this study.
FINDINGS
The data were analyzed using a hierarchical regression procedure (cf. Aiken and West 1991; Jaccard, Turrisi, and Wan 1990). First, as a replication of
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Sivadas and Dwyer (2000), we regressed NPD success on cooperative competency and complementarity to test hypotheses 1a and 1b. Then, we split the full sample into exploration and exploitation alliances to test hypotheses 2a and 2b. Finally, the interaction terms of formalization were entered to test hypotheses 3a, 3b, and 4a, 4b. Averaged scales for the constructs are used in the regressions. Table 1 reports the correlations, means, and standard deviations of these constructs. Hypotheses 1a and 1b replicate Sivadas and Dwyers (2000) propositions that cooperative competency and complementarity are positively related to NPD success. We first ran the following regression model to test those two hypotheses:
NPD Success = b0 + b1 cooperative competency + b2

complementarity + error
(1)
Consistent with our predictions, those regression results (see Table 2) indicate that cooperative competency (b = 0.440, t = 4.944, p < 0.001) and complementarity (b = 0.468, t = 4.736, p < 0.001) are positively related to NPD success. Thus, hypotheses 1a and 1b were supported. Hypotheses 2a and 2b predict that cooperative competency and complementarity have greater positive influences on NPD success when an exploration NPD strategy is being pursued than when an exploitation NPD strategy is being pursued. We partitioned the full sample into two groups, the exploration alliance and the exploitation alliance, and ran regression
TABLE 1 Correlations, Means, Standard Deviations Variable 1. 2. 3. 4. 5. 6. 7. 8. 9. NPD Success Trust Communication Coordination Cooperative competency Complementarity Formalization Formalization cooperative competency Formalization complementarity M SD 1 1.000 0.662** 0.441** 0.450** 0.651** 2 3 4 5 6 7 8 9
1.000 0.362** 1.000 0.499** 0.591** 1.000 0.784** 0.822** 0.815** 1.000
0.646** 0.586** 0.511** 0.562** 0.684** 1.000 0.148** 0.259** 0.590** 0.215** 0.465** 0.107** 1.000 0.558** 0.519** 0.176* 0.341** 0.426** 0.452** 0.141 1.000 0.521** 0.432** 0.263** 0.291** 0.412** 0.220** 0.047 0.600** 1.000 4.848 0.966 4.141 1.193 4.656 1.236 4.453 0.788 4.416 0.865 4.671 0.778 5.397 1.452 0.580 1.043 0.120 1.030
**Correlation is significant at the 0.01 level (2-tailed). *Correlation is significant at the 0.05 level (2-tailed).
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TABLE 2 Cooperative Competency, Complementarity, and NPD Success Unstandardized coefficients Construct Constant Cooperative competency Complementarity
R2 = 0.50.
Standardized coefficients Beta 0.394 0.377 T 86.650 4.944 4.736 p 0.000 0.000 0.000
B 4.848 0.440 0.468
Std. Error 0.056 0.089 0.099
TABLE 3 Exploration-Exploitation Moderating Influence on Cooperative Competency and Complementarity Effects

Exploration (R2 = 0.76) Construct Constant Cooperative competency Complementarity Coefficients 4.998 0.618 0.567 Std. error t P
Exploitation (R2 = 0.44) Coefficients 4.811 0.493 0.330 Std. error t p
0.110 45.300 0.000 0.177 3.486 0.001 0.135 4.192 0.000
0.070 68.384 0.000 0.114 4.318 0.000 0.135 2.440 0.016
Equation 1 for each group. Table 3 reports the results. Consistent with our predictions, cooperative competency had a greater influence on NPD success for exploration alliances (b = 0.618, t = 3.486, p = 0.001) than exploitation alliances (b = 0.493, t = 4.318, p < 0.001). That moderating effect, however, was not significant (t = 0.59, p = 0.56). Similarly, complementarity had significant positive effect on NPD success in exploration alliances (b = 0.567, t = 4.192, p < 0.001), whereas its effect in exploitation alliances was smaller (b = 0.330, t = 2.440, p = 0.016). The comparison of those two coefficients for exploration and exploitation alliances, however, was not statistically significant (t = 1.24, p = 0.22). Thus, we failed to find full support for hypotheses 2a and 2b even though our results were directionally consistent with our hypotheses. We suspect a larger sample size might help us observe significant effects here. In order to test hypotheses 3a, 3b, and 4a, 4b, we used the following moderated regression model (cf. Aiken and West 1991; Jaccard, Turrisi, and Wan 1990):
NPD Success = b0 + b1 cooperative competency + b2 complementarity + b3 formalization cooperative competency + b4 formalization complementarity + error
(2)
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That regression model contains two two-way interaction terms representing the moderating effects of formalization. To minimize possible multicollinearity in the regression model each scale used in constructing an interaction term was mean centered (Aiken and West 1991; Jaccard, Turrisi, and Wan 1990). As a result of the mean-centering procedure, no substantial correlations between the interaction terms and their components were found. The largest variance inflation factor (VIF) in the regression containing interaction terms is 2.20, which is substantially less than the critical multicollinearity threshold of 10.0 (Myers 1990). Therefore, multicollinearity does not appear to be a significant issue in this research. Table 4 reports the results of the moderated regression model. The estimated model explains 60% of variation in NPD success, an amount significantly greater than zero (F = 55.67, p < 0.001). In addition, with the interaction terms being entered into the moderated regression model, R2 changed from 0.50 to 0.60, indicating a significant change of variance explained by the moderated regression model (F = 18.45, p < 0.001). As predicted, the moderating effect of formalization on the relationship between cooperative competency and NPD success was marginally significant (b = 0.124, t = 1.875, p = 0.063). Similarly, formalization was found to exert a significant (b = 0.246, t = 3.794, p < 0.001) moderating effect on the relationship between complementarity and NPD success. Thus, hypotheses 3a and 3b were supported. To more fully understand formalizations moderating effect, we decomposed the significant interaction terms by comparing the impacts of cooperative competency on NPD success at low, moderate, and high levels of formalization. That decomposition involved partially differentiating Equation 2 with respect to each predictor in the model. Following the usual practice in decomposing interaction terms (Aiken and West 1991; Jaccard, Turrisi, and Wan 1990), we set the low level of formalization as one standard deviation below the mean formalization score, moderate as the mean (i.e., zero, because it was mean centered), and high as one standard deviation above the mean.
TABLE 4 Formalization Moderating Influence on Cooperative Competency and Complementarity Effects Unstandardized coefficients Construct Constant Competency Complementarity Formalization cooperative competency Formalization complementarity
R = 0.60.
2
Standardized coefficients Beta 0.235 0.367 0.134 0.263 t 77.689 3.053 4.800 1.875 3.794 p 0.000 0.003 0.000 0.063 0.000
B 4.746 0.263 0.455 0.124 0.246
Std. error 0.061 0.086 0.095 0.066 0.065
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TABLE 5 Decomposed Moderating Influence of Formalization Hypothesis Coefficients Std. error T p
H3a: Effect of cooperative competency on NPD success given various levels of formalization Low formalization 0.082 0.108 0.759 0.449 Moderate formalization 0.124 0.066 1.875 0.063 High formalization 0.443 0.058 7.645 0.000 H3b: Effect of complementarity on NPD success given various levels of formalization Low formalization 0.097 0.139 0.701 0.484 Moderate formalization 0.246 0.065 3.794 0.000 High formalization 0.813 0.144 5.653 0.000
Following Jaccard, Turrisi, and Wan (1990), we also calculated the standard errors, t values, and p values of these coefficients. The results are reported in Table 5. Table 5 shows how cooperative competency impacts NPD success for various levels of formalization. The coefficient of the effect of cooperative competency on NPD success is 0.082 (p = 0.449), given a low level of formalization. The same coefficient for a moderate level of formalization is 0.124 (p = 0.063), and 0.443 (p < 0.001) for a high level of formalization. Thus, we conclude that increasing levels of formalization do indeed enhance the impact of cooperative competency on NPD success, and these findings lend additional support to hypothesis 3a. Hypothesis 3b examines the moderating effect of formalization on the relationship between complementarity and NPD success. Table 4 indicates that that moderating effect is statistically significant (b = 0.246, t = 3.794, p < 0.001). Table 5 shows that with low levels of formalization, the coefficient of the effect of complementarity on NPD success is 0.097 (p = 0.484). With moderate levels of formalization, the coefficient is 0.246 (p < 0.001) and it is 0.813 (p < 0.001) with a high level of formalization. These results clearly indicate that increasing levels of formalization also enhance the positive effect of complementarity on NPD success and, hence, provide further support for hypothesis 3b. In hypotheses 4a and 4b we posit two three-way interactions, arguing that the moderating effect of formalization on the relationship between cooperative competency and complementarity and NPD success is stronger for exploitation alliances than for exploration alliances. We partitioned the full sample into two groups, the exploration alliances and the exploitation alliances, and then ran regression Equation 2 for each group. Table 6 reports the results. Table 6 shows that the coefficient for the interaction between formalization and cooperative competency was greater in exploitation alliances (b = 0.183, t = 2.441, p = 0.016) than that in exploration alliances (b = 0.068,
Alliance-Based New Product Development Success TABLE 6 Moderating Influence of Formalization in Exploration-Exploitation Contexts Exploration (R2 = 0.76) Construct Constant Cooperative competency Complementarity Formalization cooperative Competency Formalization Complementarity
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Exploitation (R2 = 0.61) P Std. Coefficients error 4.628 0.318 0.309 0.183 0.299 t p
Std. Coefficients error 4.994 0.767 0.501 0.068 0.137
0.115 43.509 0.000 0.245 3.133 0.004 0.172 0.125 2.910 0.007 0.543 0.591
0.073 63.449 0.000 0.099 3.204 0.002 0.119 0.075 0.072 2.608 0.010 2.441 0.016 4.174 0.000
0.153 0.899 0.375
t = 0.543, p = 0.591), directionally consistent with hypothesis 4a. However, the three-way interaction was not significant (t = 0.79, p = 0.43) and, thus, we failed to find full support for hypothesis 4a. With respect to hypothesis 4b, the interaction between formalization and complementarity was stronger in exploitation alliances (b = 0.2999, t = 4.174, p < 0.001) than in exploration alliances (b = 0.137, t = 0.899, p = 0.375). Further, a t test of the comparison of these two coefficients indicated that this three-way interaction was significant (t = 2.59, p = 0.01). Therefore, the findings lend support to hypothesis 4b.
DISCUSSION AND CONCLUSIONS

In this study we seek to determine the effect of two centralyet unexamined in an NPD alliance contextNPD strategies (exploration and exploitation) on the influence of two central alliance success mechanisms considered by many to be generalizable in nature (cooperative competency and complementary competencies), and, in the process, shed light on the performanceenhancing role of formalization in NPD alliances that are explorative versus exploitative in nature. Findings from this research hold implications that make both useful and groundbreaking contributions to the body of knowledge about factors that influence NPD alliance success. With respect to those contributions, our findings endorse those of Sivadas and Dywer (2000). Thus, our study is the first step toward confirming the generalizability of their findings to other industry contexts. Similarly, our findings lend additional support to empirical alliance research that consistently suggests that formalization exerts a positive influence on alliance outcomes (e.g., Dahlstrom, Dwyer, and Chandrashekaran 1995; Sivadas and Dwyer 2000).
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Regarding the more significant contributions, our research represents a noteworthy extension of previous research. It is the first to show that formalization is an NPD alliance rules-based context that exerts an enhancing moderating influence on the positive effect of standard NPD alliance success mechanisms on NPD alliance performance. Here a key implication of our findings is that formalization may be a much more powerful contributor to, and predictor of, NPD alliance success than previously thought because it not only influences positively the development of alliance success mechanisms (e.g., Sivadas and Dwyer 2000), but also their effect on NPD alliance performance. Indeed, given the findings for formalization in exploration and exploitation strategy contexts, this research suggests that, far from being detrimental to NPD alliance success, formalization is itself a key (or, perhaps the key) NDP alliance success mechanism. Another major contribution of this research is the groundbreaking finding that efficacy of standard alliance success mechanisms varies by NPD strategy context, which also calls into question the degree to which those success mechanisms might be generalizable to other nonindustry contexts. Further, the finding that formalization enhances and helps maintain the positive influence of standard alliance success mechanisms across both exploration and exploitation NPD strategies sheds light on why formalization in an interfirm NPD alliance context, unlike in an intrafirm context, tends to consistently elevate performance. Moreover, these findings provide a deeper understanding of the factors that lead to alliance success.
Implications for Research on NPD Best Practices

This research suggests that the influence of standard literature-based alliance success mechanisms varies based on the strategic context in which they operate, and offers insights on how and why their influence might vary. Ceteris paribus, the findings provide some degree of empirical support for our hypotheses that standard alliance success mechanisms, that is, cooperative competency and complementarity, have a greater positive influence in exploration than in exploitation NPD alliances. We find that the differences in those mechanisms coefficients across exploration and exploitation strategies are directionally consistent with the hypothesized moderating effect. And, although this moderating effect is not significantly supported by t tests of the differences in cooperative competency and complementarity coefficients between the two strategies, this lack of significance might well be an artifact of sample size. Here, as discussed in the hypotheses, from a theoretical standpoint the partial support we found is intuitively appealing for cooperative competency because in exploration NPD alliances it seems likely that: (1) firms must rely more on trust because contracts are relatively more difficult to reliably codify, and (2) communication and coordination are relatively more critical given explorations inherent lack of structure.
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Similarly, these findings are theoretically appealing for complementarity because, relatively speaking, firms in exploration NPD alliances rely far less on their own extant resources, and the success of such alliance is determined to a much greater degree by resources they gain from their partner. This research also sheds light on conflicting views about performanceenhancing and performance-inhibiting aspects of formalization. We find support for our argument that in exploratory alliances formalizations performance-enhancing effects are offset by the rigidity imposed by formalization, which inhibits the flexibility necessary for exploration NPD success. With respect to exploitative alliances on the other hand, the findings support our premise that compensation for such performance-inhibiting effects of formalization is provided by the economies of a more certain routine offered by formalization. Indeed, given the findings for exploitation alliances it seems even more plausible that when a lack of formalization exists the costs of role confusion and exploration deviation might easily overtake any potential incremental margin enhancements that typically motivate firms to engage in such alliances.
Implications for Industrial NPD Best Practices

Given the fragility of alliances, the plethora of factors (many of which are still unknown) that might upset the chemistry necessary for their success, and their significant importance to the strategic and financial performance of many firms, alliance executives, much like physicians, are guided in their actions to first, do no harm. Here, this study suggests that, at least in an NPD alliance context, there might be less risk of harm from formalization than previously thought. Our findings indicate that even when the trade-off influence of formalization might be the most detrimental (i.e., in exploratory alliances), the net influence of formalization is relatively benign. Therefore, this study suggests that formalization might pose little downside performance risk to NPD alliances, yet might offer some degree of upside performance enhancement, and significantly so in exploitation NPD alliances. Failure to construct such a process often leads to arbitrary and ad hoc relationships that often fail to get alliance executives engaged appropriately. Quite often the absence of such formalization causes frustrations for alliance executives who need to make those relationships work both for a variety of reasons and for themselves to progress in their own careers. Many of the ICT vendor alliances in the early 1990s failed for these reasons. If alliance executives are uncertain about the degree to which they should formalize an alliance, it appears that it would be more prudent for management to err on the side of overformalization rather than underformalization. It is important to note, however, that other research suggests that such implications might not or, indeed, will not hold true for intrafirm NPD projects because of the relative powerfulness of administrative control mechanisms
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within a firm in comparison to alliances. Also, that question is beyond the scope of our research. Therefore, it is still suggested that firms be judicious with their use of formalization for intrafirm NPD projects, regardless of whether exploration or exploitation is employed, because here it is less certain that formalization will at worst do no harm. In addition, regardless of whether NPD is being conducted in an alliance or intrafirm, the process of codifying and promoting formalization is expensive and ties up valuable firm resources. Therefore, because the efficacy of alliance success mechanisms in exploration alliances appear to be less affected by formalization, firms have an opportunity to improve their efficiency by reducing the degree to which they formalize their exploration NPD alliances.
Limitations and Directions for Future Research

As with any study, ours has a number of limitations that can be overcome in future research, and some of these are discussed here. One limitation is that this research did not also examine NPD from an intrafirm NPD project perspective. As discussed previously, there is good reason to suspect that the results of this study would be significantly different for intrafirm NPD projects, especially with respect to the influence of formalization. Thus, replicating and extending the findings of our study in an intrafirm context would appear to be an attractive future research opportunity and findings from such a study would be of great interest to both researchers and executives. Another limitation of this research is that it only examines the potential moderating role of formalization even though there are other administrative control mechanisms, for example, centralization and clan (e.g., Ayers, Dahlstrom, and Skinner 1997; Sivadas and Dwyer 2000), which might also moderate the influence of alliance success factors. Those administrative control mechanisms present future research opportunities to explore not only the potential moderating role of such administrative mechanisms but also whether their potential moderating effects are influenced by strategy context. Indeed, our research suggests that there might be many nonindustry influences that moderate the effect of alliance success mechanisms, which provides researchers with numerous interesting research possibilities. Also, similar to a large body of prior NPD research, our measure of new product success might also be improved. First, as in many studies, our measure (which is based on extant research) is subjective, self-reporting in nature, and does not capture specific financial returns over time. While some (including us) would argue that it could be worthwhile for future research to attempt to capture such information, two points should be noted: (1) there is research that indicates that subjective measures are often as valid as objective measures (e.g., financial returns), and (2) it is well-known by those who regularly conduct research with businesses (and, it is well-established in the literature as well) that firms and executives are understandably apprehensive
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(because the reality is that nondisclosure and confidentiality agreements are by no means perfect safety nets) to disclose specific NPD project financial resultsand, further, they are often reluctant to disclose nonpublic financial results of any kind. Second, although our subjective dependent variable limitations are relatively circumscribed and reasonable with respect to the definition of success differences between exploration versus exploitation projects through our use of (1) relative to similar projects in our items and questionnaire instructions and (2) a tight single-firm study context, future research could develop and employ a subjective measure that is better tailored to capture differences and nuances between success in exploration versus exploitation NPD projects. This is also a consideration for future research that might also develop and employ an objective (e.g., financial return) dependent variable. For example, because exploration NPD alliances have more uncertainty, their financial objective benchmark metrics might be more higher return given higher riskor, looser and more forgiving if viewed more leniently as an experimental investmentthan the metrics for exploitative NPD alliances. Further, any future dependent variable measure that seeks to be an improvement must take into account that it is challenging to predict accurately the time and cost for exploration projects; whereas, on the other hand, it is significantly easier to have good estimates for exploitation projects. Needless to say, this point will pose a challenge for future objective measures of success in research that examines both exploration and exploitation NPD alliances, and points to some of the advantages of subjective dependent measures of success in this line of inquiry. In addition, because our study captures only one partners perspective of the relationship, it provides an incomplete view of the alliance. It is conceivable that data from both sides of the alliance dyad might result in a more complete picture of the alliance relationship (Anderson, Zerrillo, and Wang 2006). Such data, however, are often problematic and have limitations of their own (Jap 1999; Sivadas and Dwyer 2000). Therefore, following well-established empirical conventions (e.g., Sivadas and Dwyer 2000), we chose one firms perspective as a starting point to more deeply understand the factors that impact NPD alliance success. Nonetheless, our approach presents an opportunity for researchers to further expand and extend our understanding of factors that influence alliance success by examining both sides of the alliance dyad.
REFERENCES
Aiken, L. S. and S. G. West (1991). Multiple regression. Newbury Park, CA: Sage. Amit, R. and P. J. H. Schoemaker (1993). Strategic assets and organizational rent. Strategic Management Journal 14(January): 3346.
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APPENDIX. Measures Used

1. Cooperative Competency (CR = 0.83) 1a. Trust (CR = 0.92) In your relationship with firm X: They are perfectly honest. They can be trusted completely. They can be counted on to do what is right. 1b. Communication (CR = 0.75) Your company shares proprietary information with firm X. Both parties are expected to keep each other informed about events or changes that may affect the other party. In the relationship, firm X keeps us informed of new developments. 1c. Coordination (CR = 0.66) Staff from both companies do their jobs properly and efficiently.
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All related activities are well timed in the everyday management of the relationship. The work assignments of the staff from both companies who work together are well planned. 2. Complementarity (CR = 0.67) In retrospect there has been a good match between your company and firm Xs objectives for developing new products. The product development effort benefited from its closeness to both companys existing products. Your company uses knowledge and experience from different functional areas in firm X.
3. Formalization The details of tasks, activities, and schedules relating to our business with firm X are specified in written documents. 4. NPD Success (CR = 0.67) The target time for introducing product into the market (idea-to-market) is achieved. Relative to similar projects within your company, substantial costs are incurred in product development disproportional to potential revenues gained under this relationship agreement with firm X (e.g., costs exceed potential revenues for this project). (R) Relative to similar projects within your company product quality is high. Notes: CR = composite reliability. All items are phrased in a Likert-type (strongly disagree to strongly agree) seven-point scale format.
IMPLICATIONS FOR BUSINESS MARKETING PRACTICE

The implications of this research contribute in two ways to business marketing practice (i.e., offers managerial relevance) with respect to NPD, alliances, and NPD alliances. First, for NPD executives this research provides an expanded perspective and new insights that are additional considerations for the ongoing development and application of industry best practices for not only NPD alliances but also nonalliance NPD. Second, although they are beyond the scope of this exploratory research and, hence, our ability to answer sufficiently at this time, this research also raises new important questions and considerations for industry practice that should be considered in
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future studies to further improve NPD alliance, as well as alliance and intrafirm NPD, knowledge, best practices, and business performance.
Implications for NPD Alliance Best Practices

Given the fragility of alliances, the plethora of factors (many still unknown) that might upset the chemistry necessary for NPD alliance success, and the critical impact of NPD alliances on firms strategic and financial performance of many firms, alliance executives, much like physicians, are guided in their actions to first, do no harm. Here, at least in an NPD alliance context, this study suggest that there might be less risk of harm from establishing a highly rules-based (i.e., a highly formalized) alliance than previously thought. Our findings indicate that even when the flexibility (or, the freedom of action) trade-off influence of formalization might be the most detrimental with respect to inhibiting to some degree of innovation (i.e., in exploration alliances), the net influence of formalization is relatively benign. Thus, this study suggests that formalization might pose less downside performance risk to NPD alliances (especially in the case of exploration alliances) than current best practices thinking might suggest. Further, instead of being a significant risk to innovative action and NPD performance as much current thinking goes (even for exploitative alliances where the concern is that formalization can lead to a success or competency trap), our research findings suggest that formalization holds significant potential to enhance NPD alliance performance. This finding is strongest for exploitation NPD alliances, but our findings hint that this could be the case with exploration alliances as well. Based on our observations during this study, failure to construct a strongly formalized process often leads to arbitrary and ad hoc relationships that, more often than not, lead to a situation where alliance executives are not engaged appropriately. Quite often the absence of such formalization causes both frustrations for alliance executives who need to make those relationships work for a variety of reasons and also for themselves to progress in their own careers. Many of the ICT vendor alliances in the early 1990s failed for these reasons. If alliance executives are uncertain about the degree to which they should formalize an alliance, it appears that it would be more prudent for management to err on the side of overformalization rather than underformalization. Further (and although this should be confirmed by future research), it appears that even exploration alliances (where innovation and innovative performance is at a premium) may, counterintuitively, benefit from a strongly formalized alliance. Here, such formalization may provide sufficient structure to help alliance teams avoid analysis paralysis and help prevent alliance teams from spending too much time exploring and experimenting and too little time exploiting what they have discovered and learned.
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However, it is important to note that we advise caution when considering whether to extend the implications of our research for NPD alliance best practices to intrafirm (or primarily one firm) NPD projects. With respect to intrafirm NPD projects, other research suggests that our formalization findings might not, or indeed, will not hold true for intrafirm NPD projects because of the relative powerfulness of administrative control mechanisms within a firm in comparison to alliances. Also, that question is beyond the scope of our research. Therefore, it is still suggested that firms be judicious with their use of formalization for intrafirm NPD projects, regardless of whether exploration or exploitation is employed because here it is less certain that formalization will at worst do no harm. Finally, regardless of whether NPD is being conducted in an alliance or intrafirm, the process of codifying and promoting formalization is expensive and ties up valuable firm resources. Therefore, because the usefulness of common alliance success mechanisms (i.e., a strong relationship between the alliance partners and a high level of complementary resources that the partners bring to the alliance) in exploration alliances appear to be less affected by formalization, firms have an opportunity to improve their efficiency by reducing the degree to which they formalize their exploration NPD alliances.

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