Strategic Management Journal

Strat. Mgmt. J., 38: 1062–1081 (2017)

Published online EarlyView 6 October 2016 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2554
Received 11 October 2014; Final revision received 2 May 2016

ALLIANCE PORTFOLIO RECONFIGURATION

FOLLOWING A TECHNOLOGICAL DISCONTINUITY
NAVID ASGARI,1,* KULWANT SINGH,2 and WILL MITCHELL3
1
Gabelli School of Business, Fordham University, New York, New York, U.S.A.
2
NUS Business School, National University of Singapore, Singapore
3
Rotman School of Management, University of Toronto, Toronto, Ontario, Canada

Research summary: We study how technological discontinuities generate first- and second-order
effects on alliance formation and termination, leading to reconfiguration of firms’ alliance
portfolios. Following technological shocks, we argue that firms often seek alliances that provide
new resources while also having incentives to form alliances for reinforced and challenged
resources that complement the new resources. In parallel, alliance terminations, even involving
resources otherwise unaffected by the discontinuity, increase due to limits in firms’ alliance
carrying capacity. We study biopharmaceutical firms between 1990 and 2000, which faced a
technological discontinuity in 1995 in the form of combinatorial chemistry and high-throughput
screening. We improve understanding of how technological discontinuities affect the value of
resources and how firms reconfigure alliance portfolios in response.
Managerial summary: When firms form alliances to gain new resources during technological
discontinuities that disrupt their industry, they cannot consider only the focal new partnerships.
Instead, new alliances create complementarity and substitution pressures that lead to broader
reconfiguration of the firms’ alliance portfolios: (1) complementarity creates incentives to also
form alliances for resources that the technological discontinuity reinforces or challenges in order
to improve the collective value of co-specialized assets; (2) substitution creates incentives to
terminate existing alliances, even if their value is otherwise unaffected by the discontinuity, in
order to create carrying capacity for new alliances. Thus, one new alliance can generate a cascade
of reconfiguration that challenges the balance between the benefits of stability and the need for
change in an alliance portfolio. Copyright © 2016 John Wiley & Sons, Ltd.

INTRODUCTION is a set of partnerships that the firm manages

When technological discontinuities disrupt markets
(Dosi, 1982; Pavitt, 1998; Tushman and Ander-
son, 1986), firms have incentives to form alliances
in order to gain access to relevant new resources
(Lavie and Singh, 2012). Such alliances for new
resources add to a firm’s alliance portfolio, which
Keywords: alliance portfolio reconfiguration; technolog-
ical discontinuities; firm’s resources; biopharmaceutical
industry
*Correspondence to: Navid Asgari, Gabelli School of Business,
45 Columbus Avenue, New York, New York 10023. E-mail:
nasgari@fordham.edu
collectively (Hoffmann, 2007; Lavie, 2007; Ozcan
and Eisenhardt, 2009; Wassmer, 2010). Yet, adding
to an alliance portfolio often creates the need
for complementary investments and/or termination
of existing relationships; to date, we have lim-
ited understanding of the pressures to reconfig-
ure alliance portfolios that arise when firms form
new alliances. This article focuses on how different
forms of changes in the value of resources follow-
ing an exogenous technological discontinuity lead
to formations and terminations within an alliance
portfolio.
We frame our arguments using studies of
technological discontinuities (Dosi, 1982; Pavitt,

Copyright © 2016 John Wiley & Sons, Ltd.

 Alliance Portfolio Reconfiguration and Discontinuities
1998), resource-based theory (Barney, 1991; Helfat
et al., 2007; Siggelkow, 2001; Sirmon et al., 2011;
Wernerfelt, 1984), and alliance portfolios (Lavie,
2007; Lavie and Singh, 2012; Wassmer, 2010). Our
core argument is that technological discontinuities
generate first- and second-order incentives for
firms to reconfigure their alliance portfolios. A
technological discontinuity is a “technical advance
so significant that no increase in scale, efficiency,
or design can make older technologies competitive
with the new technology” (Tushman and Anderson,
1986: 441). We argue that technological discon-
tinuities create demand for new resources, while
having a range of effects on existing resources,
including reinforcing, challenging, leaving unaf-
fected, and obsolescence. Some firms will form
alliances to access new resources required by the
discontinuity. In turn, the new alliances create com-
plementarity and substitution effects that lead to
second-order reconfiguration of the firms’ alliance
portfolios: (1) complementarity leads to forming
alliances for reinforced and challenged resources
that improve the collective value of firms’ bundle
of co-specialized assets; and (2) substitution leads
to terminating otherwise unaffected alliances in
order to create carrying capacity for new alliances.
We test these ideas on a longitudinal sample of
285 biopharmaceutical firms with 5,699 alliances
between 1990 and 2000; the industry experienced
a technological discontinuity with the emergence
of combinatorial chemistry and high-throughput
screening (hereafter, combinatorial chemistry)
in 1995.
We advance conceptual understanding of how
firms reconfigure their alliance portfolios in
response to technological shocks that change the
nature of competition in their industries. We first
develop a more fine-grained categorization of how
technological discontinuities affect the value of
resources. We then focus on how the changes
in resource value affect first- and second-order
incentives to form and/or terminate alliances, such
that one new alliance can generate a cascade of
reconfiguration.
BACKGROUND
Technological discontinuities and resources
Technological discontinuities typically occur
through sudden, major advances in the scien-
tific or technical fundamentals of technologies
Copyright © 2016 John Wiley & Sons, Ltd.
1063
(Dosi, 1982; Pavitt, 1998), which Tushman and
Anderson (1986), and Lavie (2006) argue can
enhance or destroy the value of resources. Building
on the idea in resource-based theory that firms
generate value from combining diverse resources
into co-specialized assets (Karim, 2006; Teece,
1986), it is useful to extend the basic compe-
tence enhancing-destroying framework into a
somewhat more fine-grained set of categories.
Table 1 and Figure 1 summarize our typology
of five categories based on how technologi-
cal discontinuities affects resource value: new,
reinforced, unaffected, challenged, and obsolete
resources.
The emergence of combinatorial chemistry for
drug discovery that arose in the biopharmaceuti-
cal industry in the mid-1990s illustrates the tech-
nological discontinuity categories. Combinatorial
chemistry involved computer-aided generation of
vast libraries of chemical compounds to iden-
tify possible lead candidates for drug develop-
ment. These compounds were then tested through
high-throughput screening (Persidis, 1997, 1998;
Thomke and Kuemmerle, 2002).
Combinatorial chemistry was a major change
from organic synthesis and testing of chemicals.
New resources: The discontinuity required firms to
develop new resources in the form of information
technology (IT) and other combinatorial platforms
and screening tools to facilitate rapid evaluation
and management of large volumes of complex data.
Without these new resources, firms would not be
able to adopt or gain from the new technology. Rein-
forced resources: To gain from the new resources,
firms also invested in complementary areas such as
artificial intelligence and mathematical modelling,
which could be applied to instrumentation and
robotic testing for rapid screening of compounds.
The discontinuity reinforced the value of such
resources. Challenged resources: The value of
other complementary resources was challenged by
the technological discontinuity. These resources
needed to be transformed through changes to their
technical or functional bases to co-specialized
assets that support new resources. For example,
traditional bioinformatics resources could not
process the vast and complex data for combinato-
rial chemistry methods; nonetheless, firms could
potentially preserve the value of such challenged
resources by investing in improving their capa-
bilities. Unaffected and obsolete resources: Other
resources were unaffected by the discontinuity, and
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1064 N. Asgari, K. Singh, and W. Mitchell
Table 1. Changes in the value of resources following a technological discontinuity

Impact of technological Fit with Tushman and

Type of resource discontinuity on value of resource Anderson (1986)

New: A resource made valuable From zero to positive New competence

in a particular market context
by the discontinuity. The
resource was not required
before the discontinuity, and
therefore, had limited value
in the relevant context,
although it may have existed
in other contexts

Reinforced: A resource whose From positive to more positive as a Competence enhancing

value increases following the complement to the new resource
discontinuity

Challenged: A resource whose
value declines following the
discontinuity. This value may
be retrieved through
transformation
From positive to (1) less positive if
not transformed, (2) equally or
even more positive if
transformed to complement the
new resource
Toward competence destroying if
untransformed; toward
competence enhancing if
transformed
This is the major extension of the
competency enhancement-
destruction framework,
highlighting the idea that firm
agency in the form of investment
decisions can shape the nature of
a technological discontinuity

Obsolete: A resource whose From positive to zero Competence destroying

value is reduced to zero
following the discontinuity

Unaffected: A resource that is Remains positive Outside the context of the

unaffected by the technological discontinuity, yet
discontinuity, so that its pre- may be relevant for firm carrying
and post-discontinuity values capacity
are unchanged

therefore, retained their value, while others were
made obsolete.
Alliance portfolio reconfiguration
Despite incentives to form and terminate alliances
in response to changes in the value of resources,
alliance portfolio reconfiguration following a
technological discontinuity faces three constraints.
First, reconfiguration is costly. Forming alliances
requires searching for and evaluating partners,
achieving agreement, managing relationships,
and developing alliance-specific assets (Dyer and
Singh, 1998; Reuer and Ariño, 2007; Singh
and Mitchell, 1996; Williamson, 1991). Termi-
nation, meanwhile, incurs costs in dismantling
Copyright © 2016 John Wiley & Sons, Ltd.
governance and operating structures, mitigating
negative reputation, and finding alternate sources
of resources (Gulati and Singh, 1998; Park and
Ungson, 2001). A second constraint arises from
the need to maintain the collective properties of
an alliance portfolio. Firms face the challenge of
forming a new alliance while maintaining needed
legal and operational separation across alliances
(Lavie, 2007) and integrating resources across
multiple relationships (Vasudeva and Anand,
2011). Third, technological discontinuities create
uncertainty about the nature and impact of change
(Anderson and Tushman, 1990; Milliken, 1987);
the uncertainty will hinder firms’ decisions about
the need for resources and the need to reconfigure
the portfolio.
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 Alliance Portfolio Reconfiguration and Discontinuities 1065

Figure 1. Change in the value of resources following a technological discontinuity.

Notes: V1: value of new resources before the discontinuity. V2: value of new resources after the discontinuity. V3: value
of reinforced resources before the discontinuity. V4: value trajectory of reinforced resources after the discontinuity. V5:
value of unaffected resources before the discontinuity. V6: value of unaffected resources after the discontinuity. V7: value
of challenged resources before the discontinuity. V8: value trajectory of challenged resources after the discontinuity. V9:
value trajectory of challenged resources after the discontinuity, with transformation. V10: value of obsolete resources
before the discontinuity. V11: value of obsolete resources after the discontinuity

Nonetheless, the need for resources will drive
some firms to form new alliances following a
technological discontinuity. In doing so, firms
have incentives to form alliances for complemen-
tary resources while terminating less valuable
alliances to create capacity for new partnerships.
Our arguments follow from the idea that firms
manage the collective benefits and costs of their
partnerships as alliance portfolios, rather than as
independent ties.
HYPOTHESES
Our argument about how technological discontinu-
ities affect alliance portfolio reconfiguration relies
on four conceptual building blocks. (1) Techno-
logical discontinuities create the need for new
resources; firms that react to a discontinuity by
introducing new resources into their resource bases
will often also need to integrate complementary
resources. (2) Some firms will use alliances as their
resource sourcing mode; a direct effect of the dis-
continuity is to increase the formation of alliances
for new resources (other options for responding
to a discontinuity, such as acquisitions, fall out-
side the scope of our discussion, although we
address them empirically). (3) Forming alliances for
new resources often triggers formation of alliances
for other resources, including reinforced and chal-
lenged resources; therefore, an indirect effect of the
discontinuity involves complementary alliance for-
mation. (4) Formation of alliances leads firms to
Copyright © 2016 John Wiley & Sons, Ltd.
evaluate the value of their existing alliances; a sec-
ond indirect effect of the discontinuity is to create
substitution among alliances, where the capacity to
form alliances requires termination of others.
Hypothesis 1: alliance formation
Figure 2 summarizes possible courses of action
for a firm facing a technological discontinuity. We
argue that many firms that react to the discontinuity
will form alliances for new resources (choice A in
Figure 2), which are particularly attractive during
the uncertainty following a discontinuity (Mitchell
and Singh, 1992). We focus on the formation of
at least one alliance for new resources as a key
indication of responding to a discontinuity; this
is a sharp, observable event that triggers changes
in a firm’s resource bundle. In contrast, firms
that choose not to react to the discontinuity (B),
possibly because of uncertainty or because they
lack the capabilities to react (King and Tucci, 2002;
Milliken, 1987; Mitchell, 1991), or use some other
mode to react, such as acquisitions or internal devel-
opment, will not form alliances for new resources
and will undertake limited alliance portfolio
restructuring.
Now consider the incentives for further recon-
figuration of alliance portfolios of firms that create
alliances for new resources versus those that do not.
Firms that respond to the discontinuity by forming
alliances for new resources will need to decide
whether to transform complementary resources,
including reinforced and challenged resources.
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1066 N. Asgari, K. Singh, and W. Mitchell
A: Modify resource base
Form at least one alliance for new
resources
A1:
A1a. Reinforced resources: Invest
A1b. Challenged resources: Invest
A1c. Unaffected resources: May or may
not invest
Figure 2. Alliance decisions following a technological discontinuity
First, consider reinforced resources. Having com-
mitted to developing new resources required by
the discontinuity, these firms are likely to invest
in reinforced resources. Firms that possess the
reinforced resources due to previous investments
(Barney, 1991; Dierickx and Cool, 1989) will be
attractive alliance partners for firms seeking those
resources. We therefore expect firms that form
alliances for new resources to be more likely to
form alliances for reinforced resources (A1a and
A2a) than firms that do not form alliances for new
resources (B).
Second, consider challenged resources. Firms
face a greater dilemma with challenged resources
as investments are required to transform these
resources to their pre-discontinuity value. Nonethe-
less, some firms that form alliances for new
resources will invest in and form alliances for
challenged resources (A1b); this will complement
their investments in new and reinforced resources,
while ensuring their resource bases are compatible
with and co-specialized to post-discontinuity
technology. However, resource constraints together
with the cost and uncertainty of recovering the
value of challenged resources will inhibit oth-
ers from forming alliances for these resources
Copyright © 2016 John Wiley & Sons, Ltd.
React to technological
discontinuity?
B: Do not modify resource base or use
alternative modes to react
Do not form alliances for new resources
Little alliance portfolio reconfiguration
A2:
A2a. Reinforced resources: Invest
A2b. Challenged resources: Do not invest
A2c. Unaffected resources: May or may
not invest
(A2b). Thus, firms that form alliances for new
resources will be more likely to form alliances
for challenged resources relative to firms that
do not form alliances for new resources (A1b
versus B), but with a lesser tendency toward for-
mation of alliances for reinforced resources (A2b
versus A1b).
In summary, when firms respond to a dis-
continuity by forming at least one alliance for
new resources, they will also tend to form more
alliances for reinforced resources and for chal-
lenged resources relative to firms that do not
respond to the discontinuity. In turn, firms that
form alliances for new resources are more likely to
form alliances for reinforced than for challenged
resources (we do not make predictions about for-
mation of alliances for unaffected resources [A1c
and A2c] because their value is not affected by the
discontinuity).
Hypothesis 1 (complementarity of reinforced and
challenged resources with new resources [H1]):
Following a technological discontinuity, firms
that form alliances for new resources will form
more alliances for reinforced (H1a) and chal-
lenged resources (H1b) than firms that do not
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 Alliance Portfolio Reconfiguration and Discontinuities
form alliances for new resources, with stronger
impact on alliances for reinforced than for chal-
lenged resources (H1c).
Hypotheses 2 and 3: termination of alliances
The second means of portfolio reconfiguration is
termination, which takes place through two mecha-
nisms. First, firms can terminate alliances to reflect
reduction in the value of particular resources, which
we term a resource-value mechanism. Second, firms
can drop alliances from their portfolios in order
to reduce the cost of managing multiple alliances,
which is a carrying-capacity mechanism (Singh and
Mitchell, 1996).
We are particularly interested in the
carrying-capacity mechanism as an incentive
for alliance portfolio reconfiguration. Firms that
form alliances for new resources face incentives
to terminate existing alliances in order to free
carrying capacity within their alliance portfolio.
The more such new-resource alliances a firm
forms, the stronger the incentives to terminate
other partnerships. The question we are concerned
with is the relative incentives to terminate existing
alliances for reinforced, challenged, and unaffected
resources.
We start with a base case of reinforced resources.
Since the value of reinforced resources increases
after the discontinuity, firms with existing alliances
for reinforced resources are likely to maintain
them as complements to their alliances for new
resources (A1a and A2a). Indeed, there may
well be a positive complementarity effect via the
resource-value mechanism, in which the more
new-resource alliances that a firm forms, the fewer
existing alliances for reinforced resources that it
terminates.
For challenged resources, the question of whether
to terminate existing alliances is more mixed. Some
firms that undertake alliances for new resources will
also invest in complementary challenged resources
(A1b) and so are unlikely to terminate existing
alliances for those resources. Other firms, though,
may lack the time or expertise needed to invest in
transforming challenged resources (A2b) and may
well terminate existing alliances for them. Thus,
firms that invest in alliances for new resources
are more likely to terminate existing alliances for
challenged resources than for reinforced resources.
Now consider termination of unaffected
resources (A1c and A2c) relative to reinforced
Copyright © 2016 John Wiley & Sons, Ltd.
1067
resources. Because the value of unaffected
resources is unchanged, firms may continue to use
these resources. However, carrying capacity limits
may lead firms to terminate alliances for unaffected
resources in order to focus on the alliances for new
resources. Again, then, as firms undertake alliances
for new resources, they will be more likely to
terminate alliances for unaffected resources in
comparison with termination of alliances for
reinforced resources.
Hypothesis 2 (substitution of challenged and
unaffected versus reinforced resources when
firms form alliances for new resources [H2]):
Following a technological discontinuity, the
more alliances firms form for new resources,
the more alliances for challenged (H2a) and
unaffected resources (H2b) they will terminate
relative to alliances for reinforced resources.
The potential that the resource-value mecha-
nism will lead firms to form new alliances for
reinforced and/or challenged resources, as com-
plements to the technological discontinuity, raises
a further issue with termination of alliances for
unaffected resources. The new formations create a
carrying-capacity challenge for the alliance portfo-
lio. We expect a substitution effect in which the
more alliances firms form for challenged and rein-
forced resources, the more alliances they will termi-
nate for unaffected resources.
Hypothesis 3 (substitution of unaffected
resources when firms form alliances for
reinforced and challenged resources [H3]):
Following a technological discontinuity, the
more alliances for reinforced resources (H3a)
and challenged resources (H3b) that firms form,
the more alliances for unaffected resources they
will terminate.
DATA AND METHODS
Empirical setting
The setting for this study is the global biophar-
maceutical industry. The industry experiences
high rates of change through frequent scientific
discoveries and technological revolutions, some of
which strike as technological discontinuities. Firms
commonly use alliance portfolios to address
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1068 N. Asgari, K. Singh, and W. Mitchell
technological and resource challenges in the
industry (Rothaermel and Boeker, 2008; Vassolo,
Anand, and Folta, 2004).
As we noted above, the industry experienced a
major technological discontinuity in 1995 through
the introduction of combinatorial chemistry and
high-throughput screening. These technologies
were partly based in IT and robotics, and originated
mainly from academic research laboratories;
hence, the discontinuity largely emerged exoge-
nously from the biopharmaceutical industry. Firms
required new resources that differed from those
for traditional chemical and manual processes.
At the same time, firms relied on conventional
bioinformatics and testing resources to develop
and deal with the new molecular diversity that the
discontinuity produced. Though some firms with
experience in conventional methods hesitated to
shift because of challenges and uncertainty, the
potential benefits offset concerns and led many
firms to experiment with the new technology in the
1990s (Persidis, 1998; Thomke and Kuemmerle,
2002). These technologies quickly revolutionized
the early stages of the drug discovery process, sub-
stantially reducing the cost and time for developing
candidates for drugs. A chemist using traditional
chemistry could screen four compounds per month,
with average cost of $7,500 per compound; by con-
trast, combinatorial chemistry allowed screening of
3,300 compounds per month, with average cost of
$12 (Persidis, 1997). Hence, combinatorial chem-
istry was a technological discontinuity that altered
the value of resources, increasing the value of some
resources while reducing the value of others.
Trends in publication data reported by Thomke
and Kuemmerle (2002) suggest that the techno-
logical discontinuity centered sharply on 1995.
Publication began in 1986 and grew gradually to
163 publications in 1994; publications then jumped
drastically to 1,179 in 1995, 1,386 in 1996, and
1,459 in 1997, then fell to 666 in 1998 (Appendix 1
in File S1 depicts the trends). The surge in the
number of scientific papers on these two technolo-
gies in 1995 is consistent with exponential patterns
indicating discontinuities reported in studies of
technology diffusion (Bass, 1969). According to
Swanson (2002), 1995 marked the first application
of information systems and computer sciences
to compound library design, an issue of great
importance for these technologies. Therefore,
we treated 1995 as the year of the technological
discontinuity. We confirmed this conclusion with
Copyright © 2016 John Wiley & Sons, Ltd.
industry executives as well as through reviews of
industry and scientific material.
Data
Our initial sample comprised the 519 firms listed in
the Osiris database between 1990 and 2000 with the
primary NAICS (North American Industrial Clas-
sification System) codes for biopharmaceuticals.
We restricted our analysis to 1990–2000 as this
period was long enough to permit alliance formation
and termination around the discontinuity in 1995.
We also ended the study period before the human
genome mapping discontinuity in the early 2000s
to avoid confounding effects.
We collected alliance data from the Recap
database (www.recap.com), a reliable source
of biopharmaceutical alliance data (Schilling,
2009). We screened all 519 firms in our initial
sample to identify those that had at least one
alliance between 1990 and 2000; incorporating
firms without alliances would have biased results
against termination and formation of alliances.
Some alliances formed before 1990 would have
continued and may have influenced the formation
and termination of ties during the study period.
Therefore, we searched the Recap database back to
1986 for alliances formed by the sample firms.
We then screened the ties reported by Recap and
excluded those that were not alliances, but instead
exchanges of letters of intent, warrants, and other
contractual arrangements. We also excluded firms
that exited the industry before 1995 or entered
after this year because they did not experience the
technological discontinuity.
Our final sample consists of 285 firms with
5,699 alliances, comprising 5,269 formed between
1990 and 2000 as well as 430 formed between
1986 and 1989 that were in existence at the start
of our study period in 1990. Geographically, the
firms were distributed as follows: 75 percent United
States, 5 percent United Kingdom, 4 percent Japan,
2 percent Germany, 2 percent Sweden, 2 percent
France, and 10 percent from 14 other countries.
Firms remained in the sample throughout the period
unless they exited the industry or were acquired; we
treated exits and acquisitions as censored cases.
Dependent variables
The dependent variables for Hypothesis 1 are
the number of alliances for reinforced resources
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 Alliance Portfolio Reconfiguration and Discontinuities
formed (H1a) and the number of alliances for
challenged resources formed (H1b). Hypothesis
1c compares the coefficients for these dependent
variables. The dependent variables for Hypoth-
esis 2 are number of alliances for reinforced,
challenged, and unaffected resources terminated.
Hypothesis 2a compares the coefficients for
reinforced resources and challenged resources,
while Hypothesis 2b compares the coefficients
for reinforced resources and unaffected resources.
For Hypothesis 3, the dependent variable is the
number of alliances for unaffected resources
terminated.
Although Recap reliably reports alliance for-
mation, it reported termination dates for only
303 (5.3% of 5,699) alliances during the study
period (1990–2000) because most firms do not
publicly disclose the termination of alliances
(Schilling, 2009). We performed an extensive
search of alliances in our dataset to establish
whether they continued to exist up to the year
2000. We searched Factiva (www.dowjones.com/
factiva) for press releases using partners’ names
and other alliance characteristics. This identified
press releases that discussed alliance termination
for 433 alliances (7.6%), which we adopted as the
date of termination.
For the remaining alliances, we followed the
stream of press releases and recorded the last year
in which there was a press release referring to
an alliance as its termination year. The process
estimated termination dates for another 1,324
(23.2%) alliances between 1990 and 2000. This is
a reasonable approximation of termination because
alliances in the biopharmaceutical industry are
closely tracked by media and industry analysts, and
capital markets are sensitive to alliance announce-
ments (Kale, Dyer, and Singh, 2002). Alliances
are important for biopharmaceutical firms, which
often provide public updates on their progress.
This procedure provides a more reliable estimate
of alliance termination than the common approach
of assuming that alliances exist for fixed periods
of between three and five years. In total, we estab-
lished that 2,060 alliances (36.1% of 5,699) were
terminated during the study period. We treated the
remaining 3,639 alliances as continuing at the end
of our study period.
We used Recap and Factiva to identify mergers
and acquisitions (M&As). For each M&A, we
traced the acquired firms’ alliances to establish if
they were inherited by the acquirer in the years
Copyright © 2016 John Wiley & Sons, Ltd.
1069
after the acquisition. These alliances constituted
7.3 percent of our sample.
The next step in building the variables was
to identify how the technological discontinuity
affected the value of the resources provided by each
alliance. Recap indicates the primary technological
resources exchanged for each alliance, using a
classification of 53 technology areas. We used the
technology areas as indicators of the resources
exchanged in each alliance. Two of these areas
were combinatorial chemistry and high-throughput
screening, which we treated as requiring new
resources. We consulted industry experts as well
as industry and scientific material on the emer-
gence of combinatorial chemistry to classify each
of the other 51 technology areas as reinforced,
challenged, or unaffected by the discontinuity. We
did not classify any category as obsolete because
Recap continued to report on every category after
the discontinuity.
We used this categorization and Recap’s alliance
information to classify each alliance as focused
on new, reinforced, challenged, or unaffected
resources. Some alliances exchange more than one
type of resource; we recorded separate alliances
for each type exchanged. We computed the various
dependent variables by counting the number of
alliances formed or terminated within each cate-
gory for each year. Appendix 2 in File S1 lists the
classifications.
Explanatory variables
Our treatment indicator for Hypothesis 1 is a
dummy variable reporting if a firm formed an
alliance for new resources between 1996 and 2000
to distinguish firms that reacted to the technological
discontinuity from those that did not. The explana-
tory variable for Hypotheses 2a and 2b is the num-
ber of alliances for new resources formed in a year.
The explanatory variables for Hypothesis 3 are the
number of alliances for reinforced resources formed
(H3a) and the number of alliances for challenged
resources formed (H3b).
Controls
We addressed three sets of firm-level factors
that may influence portfolio reconfiguration:
alliance experience (Number of alliances formed
before 1995; Alliance familiarity), resources for
internal adaptation (Debt-equity ratio; Return
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1070 N. Asgari, K. Singh, and W. Mitchell
Table 2. Control variables

Variable Measure Purpose

Alliance experience: Cumulative number of alliances formed by Notes firms’ propensity to ally and their
Number of alliances each firm from 1986 to 1994, measured likelihood of being accepted as partners
formed before 1995 at the end of each year (Gulati, 1998)

Alliance experience:
Alliance familiarity
Alliance familiarityit = Controls the extent to which a firm’s new
T=t
∑ alliances were with previous partners,
(familiar partners)iT to indicate preference and lower costs
T=1986 of allying with familiar partners
Familiar partners: Alliances that firm i (Gulati, 1995)
formed in year t with firms it partnered at
least once between 1986 and year t – 1
Alliance familiarity in year t : Cumulative
familiar partners from 1986 to year t

Internal adaptation: Total liabilities/shareholders’ equity Controls organizational slack, which may
Debt-equity ratio allow firms to absorb discontinuities or
buffer their technical core from external
influences (Bourgeois, 1981)

Internal adaptation: Net income/shareholders’ equity Controls firm profitability, which may
Return on equity provide resources for internal
adaptation

Technological resources:
Number of technology
areas
Count of technology areas of cooperation
for a firm’s current alliances
Broader resource access may provide
stronger capabilities for exploration and
dealing with resource diversity
(Mitchell and Singh, 1992; Sorenson
et al., 2006)

Technological resources:
Number of clinical trials
Count data from the U.S. National Institute Controls involvement in drug discovery
of Health (NIH) (http://clinicaltrials
.gov/) and Recap, which together
provided clinical trials information from
1960

Technological resources: Annual counts of applications Controls possession of innovation

Number of patents capabilities

Technological resources: R&D expenditure as a proportion of sales Controls innovation capabilities

R&D intensity (Rothaermel and Hill, 2005)
Number of M&As Count of prior acquisitions Acquisitions may substitute for alliances
(Dyer, Kale, and Singh, 2004)
Sales (log) Annual revenue Resource availability
Firm age Years since founding Firm experience (Rothaermel and Boeker,
2008)
Primary NAIC Six-digit level coding Industry segment effects
Country of origin Location of headquarters National specialization

on equity), and technological resources (Number
of technology areas; Number of clinical trials;
Number of patents; R&D intensity). We also
controlled other firm-level factors: Number of
M&As, Firm sales, Firm age, Primary NAIC,
and Country of origin. Table 2 describes the
controls.
Copyright © 2016 John Wiley & Sons, Ltd.
Table 3 presents descriptive statistics. High cor-
relations among the alliance measures reinforce
the argument that firms do not form or terminate
alliances independently, but treat them as portfolio
decisions. The correlations do not hinder our anal-
ysis because these variables are used in separate
models.
Strat. Mgmt. J., 38: 1062–1081 (2017)
DOI: 10.1002/smj
 Table 3. Descriptive statistics (N = 1,425)

Variables (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (18) (19) (20) (21) (22)

1. Number alliances for new 1

resources formed
2. Number of alliances for 0.28 1
challenged resources formed
3. Number of alliances for 0.4 0.35 1
reinforced resources formed
4. Number of alliances for 0.16 0.26 0.16 1
challenged resources
terminated

Copyright © 2016 John Wiley & Sons, Ltd.

5. Number of alliances for 0.27 0.33 0.52 0.35 1
reinforced resources
terminated
6. Number of alliances for 0.28 0.31 0.45 0.24 0.57 1
unaffected resources
terminated
7. Number of alliances formed 0.39 0.3 0.56 0.17 0.5 0.59 1
before 1995
8. Alliance familiarity 0.37 0.21 0.45 0.12 0.29 0.38 0.52 1
9. Debt-equity ratio 0 −0.01 −0.01 0.01 0.03 −0.01 0 −0.01 1
10. Return on equity 0.15 0.08 0.17 0.05 0.09 0.11 0.11 0.1 0.01 1
11. Number of technology areas 0.64 0.49 0.78 0.21 0.52 0.61 0.66 0.56 −0.01 0.16 1
12. Number of clinical trials 0.28 0.28 0.34 0.25 0.46 0.34 0.45 0.42 0 0.11 0.42 1
13. Number of patents 0.49 0.38 0.54 0.22 0.48 0.51 0.62 0.57 0.01 0.16 0.66 0.53 1
14. R&D intensity −0.05 −0.03 −0.05 −0.02 −0.05 −0.06 −0.07 −0.05 −0.01 −0.09 −0.07 −0.03 −0.05 1
15. Number of M&As 0.2 0.2 0.35 0.16 0.28 0.29 0.27 0.25 −0.01 0.11 0.36 0.27 0.33 −0.04 1
16. Sales (log) 0.28 0.21 0.4 0.15 0.34 0.34 0.4 0.29 0.02 0.43 0.42 0.29 0.45 −0.32 0.31 1
17. Firm age 0.21 0.23 0.36 0.1 0.28 0.24 0.3 0.18 0 0.23 0.33 0.18 0.38 −0.08 0.25 0.53 1
18. Familiar and diverse 0.06 0.07 0.06 0.04 0.05 0.07 0.06 0.05 −0.04 0 0.09 0.06 0.07 0 0.06 0 0 1
knowledge recombination
19. Novel and distant knowledge 0.04 0.02 0.03 0.01 0.04 0.06 0.05 0.04 −0.03 0.05 0.04 0.03 0.07 −0.06 0.04 0.15 0.26 −0.13 1
recombination
20. Number of reciprocal 0.63 0.4 0.63 0.21 0.47 0.56 0.58 0.52 0 0.15 0.84 0.4 0.6 −0.07 0.34 0.38 0.3 0.06 0.05 1
alliances
21. Number of sequential 0.48 0.42 0.79 0.2 0.51 0.55 0.64 0.53 −0.01 0.17 0.89 0.42 0.62 −0.07 0.4 0.43 0.35 0.08 0.05 0.65 1
alliances
22. Number of pooled alliances 0.06 0.08 0.24 0.06 0.14 0.18 0.19 0.17 0 0.07 0.21 0.1 0.17 −0.02 0.09 0.15 0.19 0 0 0.17 0.22 1
Mean 0.28 0.05 0.7 0.03 0.34 0.65 4.59 0.21 2.21 −52.68 2.72 0.69 8.22 162.1 0.23 9.29 23.58 0.52 0.07 0.7 1.51 0.01
S.D. 0.97 0.31 1.55 0.2 0.9 1.54 7.51 0.6 37.75 99.02 5.09 2.84 34.42 970.08 0.66 3.58 34.24 0.19 0.16 1.53 2.5 0.1
Alliance Portfolio Reconfiguration and Discontinuities

Minimum 0 0 0 0 0 0 0 0 −171.9 −974.95 0 0 0 0 0 2.3 2 0 0 0 0 0

Maximum 12 6 16 4 11 15 47 7 1013.5 141.33 40 58 203 10076.29 8 17.51 332 0.91 1 12 19 1

All correlations greater than |0.05| are significant (p < 0.05).

Strat. Mgmt. J., 38: 1062–1081 (2017)

DOI: 10.1002/smj
1071
1072 N. Asgari, K. Singh, and W. Mitchell
Methods
We use two approaches to test the hypothe-
ses: difference-in-difference (DiD) analysis to
test Hypothesis 1 and two-stage least squares
fixed-effect models to test Hypotheses 2 and 3. All
independent variables in the two-stage least squares
fixed effect models were lagged by one year.
Difference-in-difference models
Our intent in Hypotheses 1a and 1b is to compare
firms that responded to the discontinuity by forming
alliances for new resources and those that did not.
We employed difference-in-difference analysis
using propensity score (Rosenbaum and Rubin,
1983) and kernel-based matching (Heckman,
Ichimura, and Todd, 1998) to compare the control
group (those that did not form an alliance for new
resources) with the treatment group (those that
formed one or more alliances for new resources).
We do not have a shock of the form commonly
employed with DiD analyses. However, the for-
mation of at least one alliance for new resources
distinguished firms that reacted to the discontinuity
from those that did not; the failure to react may
suggest that these firms were not directly affected
by the discontinuity. Differences in the formation
of alliances for reinforced and challenged resources
between firms that formed alliances for new
resources and those that did not provide evidence
of how the discontinuity affects alliance portfolio
reconfiguration. We assigned firms to the treatment
group if they formed at least one alliance for new
resources between 1996 and 2000, and to the
control group otherwise. The treatment and control
groups comprised 82 (28.8%) and 203 (71.2%)
firms. The larger number of firms in the control
group improves matching with the treatment group.
DiD analysis calculates the “average treatment
effect on the treated” (ATET) for the outcome
variable of interest using the following formula:
[ ]
1 ∑ treated ∑ control
ATET = ypost − w (i, j) ypost
n diverse knowledge recombination; novel and dis-
j
[ ]
1 ∑ treated ∑ control
− ypre − w (i, j) ypre
n j
In this formula, Y is the average of the out-
come variable of interest (Number of alliances for
Copyright © 2016 John Wiley & Sons, Ltd.
reinforced [H1a] and challenged [H1b] resources),
measured across two groups (treated versus con-
trolled) and two time periods (post-discontinuity
versus pre-discontinuity).
The control observations are weighted using
kernel-based matching with weights calculated by
the following function:
( p −p )
j i
k h
w (i, j) = .
n0 ( )
∑ p −p
k jh i
j=1
In this function, pi and pj are the propensity scores
of the treatment and control observations, respec-
tively, and h is the bandwidth (we used the default
h = 0.06). Appendix 3 in File S1 describes the
matching process in more detail.
This procedure accounts for differences among
firms in terms of their pre-discontinuity propensi-
ties to form alliances for reinforced (H1a) and chal-
lenged (H1b) resources. We used “diff” in Stata for
this analysis (Villa, 2011). For Hypothesis 1c, we
compare the coefficients of interest in Hypotheses
1a and 1b.
Two-stage least squares models
The explanatory variables in Hypotheses 2 and 3
may be influenced by an unobservable variable that
may also influence alliance termination, leading to
biased estimates. To address possible endogeneity,
we employed two-stage least squares fixed-effect
models with estimators that are robust to autocor-
relation and heteroskedasticity (Newey and West,
1987), using “xtivreg2” in Stata.
Instrumental variables
The independent variables in Hypotheses 2 and 3
are the number of alliances formed for different
types of resources. We used two sets of instruments
on how firms recombine knowledge (familiar and
tant knowledge recombination) and on focal firms’
task interdependence with their allies (recipro-
. cal interdependence; sequential interdependence;
pooled interdependence).
Familiar and diverse knowledge recombination
used backward patent citations to indicate how
firms recombine knowledge. For each patent, we
Strat. Mgmt. J., 38: 1062–1081 (2017)
DOI: 10.1002/smj
 Alliance Portfolio Reconfiguration and Discontinuities
calculated the diversity of backward cited classes
j=n
∑ alliances terminated, as termination is mainly driven
2
using the formula 1 − Spj 2
, where Spj is the
j=1
proportion of backward citations in patent p that had
been cited by the firm in the previous five years in
technology class j. We averaged the measure across
all patents firm i applied for in year t to estimate the
firm’s propensity to recombine familiar and diverse
knowledge in that year.
The variable novel and distant knowledge recom-
bination was measured as follows: For each patent
belonging to a firm, we measured the proportion of
its backward citations to new patents that the firm
had not cited in the past five years from technology
classes the firm had not filed any patents in over the
past five years. We averaged this proportion across
all patents the firm applied for in a year to calculate
the extent of this recombination in that year.
The second set of instrumental variables measure
task interdependence between the focal firm and its
portfolio partners: The variables reciprocal interde-
pendence, sequential interdependence, and pooled
interdependence counted the number of alliances
within a portfolio characterized by each form of
interdependence, drawing from Thompson (1967).
We followed Gulati and Singh (1998), who pro-
posed that the logic for value creation in an alliance
leads partners to share their resources in certain
ways, which in turn, creates task interdependence.
Appendix 4a in File S1 presents our adaptation of
the Gulati and Singh (1998) value creation logics
and assignments to the three types of interdepen-
dencies. We used Recap’s contract descriptions to
define the value creation logic of each alliance,
and then assigned each type of contract to a cate-
gory of interdependence (Appendix 4b in File S1).
If an alliance involved more than one contract
with different degrees of task interdependence, we
assigned the greatest degree of interdependence to
the alliance. We chose these instruments as they are
likely to correlate with our potentially endogenous
independent variables while not correlating with
other determinants of the outcome variable (Angrist
and Pischke, 2009).
The first set of instrumental variables address
how firms recombine knowledge, an indication of
the tendency to explore and respond to changes in
the environment, which may signal willingness to
form alliances for new, challenged, and reinforced
resources (Vasudeva and Anand, 2011). At the same
time, how firms recombine knowledge is unlikely to
Copyright © 2016 John Wiley & Sons, Ltd.
1073
have any impact on the number of specific types of
by the alliance resource-value and carrying capacity
mechanisms.
The second set of instrumental variables proxy
how firms exchange resources with their partners,
which may indicate the propensity and capabil-
ity for resource sharing and alliance formation
(Gulati and Singh, 1998), affecting our potentially
endogenous independent variables. As our measure
captures how partners share their resources and not
how interdependent the partners are, consistent with
the logic of Puranam, Raveendran, and Knudsen
(2012), these instruments are unlikely to directly
correlate with the determinants of alliance termi-
nation. As we argued above, alliance termination
is mainly shaped by changes in resource value and
the number of alliances the focal firm maintains
(carrying capacity). We further confirmed that the
instruments satisfied key statistical criteria, as we
report below.
RESULTS
We first estimated a probit selection model for the
propensity to form alliances for new resources.
This likelihood permits matching firms that did
or did not form alliances for new resources on
observed covariates, allowing estimation of the
effects of alliance formation for new resources on
formation of alliances for reinforced and challenged
resources (H1a and H1b). We use the same set of
control variables in the first stage as in our main
models.
The results reported in Appendix 5 in File S1
provide insights about how the discontinuity
affected formation of alliances for new resources.
Firms are more likely to establish alliances with
familiar partners. Number of patents is significant.
The marginal effect of one more patent was to
increase the probability of establishing at least one
alliance for new resources by 0.02, a relatively
small effect for firms with limited patent activity,
but relevant for established pharmaceutical compa-
nies that have extensive patent portfolios. Another
indicator of capabilities, the number of clinical
trials, is significant. The marginal effect indicates
that conducting one more clinical trial increases
the probability of forming at least one alliance for
new resources by 0.32, also a material effect. Most
generally, then, the firms that formed alliances
Strat. Mgmt. J., 38: 1062–1081 (2017)
DOI: 10.1002/smj
1074 N. Asgari, K. Singh, and W. Mitchell
for the new resources were more innovative firms
and/or firms with relevant partnership experience.
Table 4 presents the DiD tests of Hypothesis
1. Model 1a shows that control and treatment
groups differed significantly before and after the
discontinuity. The test of Hypothesis 1a (Model
1a: b = 0.76; p = 0.00) shows that firms that
form alliances for new resources form 0.76 more
alliances for reinforced resources following the dis-
continuity than before the discontinuity, relative to
firms that do not form alliances for new resources.
This supports Hypothesis 1a.
Model 1b shows that the control and treatment
groups did not differ in the formation of alliances
for challenged resources prior to the discontinu-
ity but differed significantly following the discon-
tinuity (b = 0.13; p = 0.00). The DiD result between
the two groups is significant (b = 0.11; p = 0.00)
and supports Hypothesis 1b: following the tech-
nological discontinuity, firms that formed alliances
for new resources formed 0.11 more alliances for
challenged resources than firms that did not form
alliances for new resources.
As well as being significant, these effects are
material. On average, treatment group firms formed
1.49 reinforced alliances and 0.50 challenged
alliances after the discontinuity. In turn, the results
in Model 1c show that formation of alliances for
new resources led firms to form more alliances for
reinforced resources than for challenged resources
(b = 0.65; p = 0.00). This comparison is consistent
with Hypothesis 1c.
Appendix 6 in File S1 presents the results of the
first stage of the two-stage models for Hypotheses
2 and 3. It proved to be difficult to identify one set
of instruments that was valid across models. As a
result, we tested different lags of the instruments as
well as different combinations of the instruments
across models. Though it would be parsimonious
to use the same instruments across models, using
different instruments for models testing different
hypotheses does not create bias. The F tests of
excluded instruments support the validity of the
instruments.
Table 5 presents the second-stage models for
Hypotheses 2 and 3. Hypothesis 2a proposes that
the more alliances firms form for new resources,
the fewer alliances they terminate for reinforced
resources relative to termination of alliances for
challenged resources. Model 1 shows that as
firms form more alliances for new resources, they
terminate fewer alliances for reinforced resources
Copyright © 2016 John Wiley & Sons, Ltd.
(b = -0.74; p = 0.00). This result is consistent with
complementarity between new and reinforced
resources (Arora and Gambardella, 1990). Model
2, then, shows that forming more alliances for new
resources has little effect on terminating alliances
for challenged resources (b = 0.02; p = 0.51). The
nonsignificance of this result may reflect the oppos-
ing effects of firms that invest in new resources both
investing (path A1b in Figure 2) and not investing
(A2b) in challenged resources, which will impact
termination of alliances for these resources.
Hypothesis 2a proposes that firms will termi-
nate fewer alliances for reinforced than challenged
resources. The difference in the coefficients of num-
ber of alliances for new resources formed across
Models 1 and 2 is statistically significant (b = -0.76;
p = 0.00), supporting Hypothesis 2a.
Next, Hypothesis 2b proposes that following the
discontinuity, the more alliances firms form for
new resources, the fewer alliances they terminate
for reinforced resources relative to alliances for
unaffected resources. The difference in the coeffi-
cients of the number of alliances for new resources
formed in Model 1 (b = −0.74; p = 0.00) and Model
3 (b = −0.70; p = 0.00) is significant (b = −0.04;
p = 0.00), supporting Hypothesis 2b. This result
suggests that new resources may have stronger com-
plementarity with reinforced resources than with
unaffected resources, so that resource constraints
lead firms to terminate alliances for unaffected
resources ahead of those for resources directly
impacted by the discontinuity.
Models 4 and 5 test Hypotheses 3a and 3b. Model
4 (b = 0.88, p = 0.00) supports Hypothesis 3a both
statistically and materially, showing that forming
one more alliance for reinforced resources increases
termination of alliances for unaffected resources by
0.88. Model 5 (b = 2.30, p = 0.03) supports Hypoth-
esis 3b and shows that forming one more alliance
for challenged resources increases termination of
alliances for unaffected resources by 2.3. These
also are material effects; the mean number of ter-
minated alliances for unaffected resources is 0.65.
These results suggest that when firms invest in
challenged or reinforced resources (A1a, A1b, and
A2a in Figure 2), carrying capacity constraints cre-
ate incentives to terminate alliances for unaffected
resources.
Further exploratory tests show that the coeffi-
cient in Model 5 (from formation of challenged
resource alliances) is significantly greater than
that in Model 4 (formation of reinforced resource
Strat. Mgmt. J., 38: 1062–1081 (2017)
DOI: 10.1002/smj
 Table 4. Difference-in-difference (DiD) tests of Hypotheses 1a and 1b

Period 1 (P1): 1990–1994 Period 2 (P2): 1996–2000 P2 vs. P1

Copyright © 2016 John Wiley & Sons, Ltd.

Control (no Treated
Outcome new-resource (new-resource
variable alliances) alliances) Difference Control Treated Difference Difference-in-difference

Model 1a Number of alliances for 0.26 0.56 0.29 0.43 1.49 1.06 0.76
H1a (+) reinforced resources (0.05/0.00) (0.08/0.00) (0.10/0.00) (0.07/0.00) (0.23/0.00) (0.24/0.00) (0.26/0.00)
formed
N 178 82 178 82
Model 1b Number of alliances for 0.01 0.02 0.02 0.01 0.14 0.13 0.11
H1b (+) challenged resources (0.01/0.26) (0.01/0.08) (0.02/0.28) (0.01/0.14) (0.03/0.00) (0.03/0.00) (0.04/0.00)
formed
N 178 82 178 82
Model 1c Difference in formation 0.65 (p = 0.00)
H1c coefficient of alliances for
for H1a > H1b reinforced and
challenged resources

The first number in parentheses is robust standard errors; the second number is p > |t|.
For Hypotheses 1a and 1b, treatment group: Firms that formed at least one alliance for new resources after 1995; control group: Firms that did not form any alliances for new resources after
1995. Treatment and control groups were matched using the following variables: number of alliance formed before 1995, alliance familiarity, debt-to-equity ratio, return on equity, number
of technology areas, number of clinical trials, number of patents, R&D intensity, number of M&As, sales (log), firm age, country, and NAIC.
Alliance Portfolio Reconfiguration and Discontinuities

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DOI: 10.1002/smj
1075
 Table 5. Fixed-effect 2SLS estimates of the effects of formation of alliances on alliance termination following the discontinuity (H2 and H3)
1076

Model 1 Model 2: H2a Model 3: H2b Model 4: H3a Model 5: H3b

Number of alliances Number of alliances Number of alliances Number of alliances Number of alliances
for reinforced for challenged for unaffected for unaffected for unaffected
Variables resources terminated resources terminated resources terminated resources terminated resources terminated

Number alliances for new resources formed −0.74 0.02 −0.70

(0.14/0.00) (0.03/0.51) (0.21/0.00)
Number of alliances for reinforced resources 0.88
formed (0.25/0.00)

Copyright © 2016 John Wiley & Sons, Ltd.

Number of alliances for challenged resources 2.3
formed (1.04/0.03)
Alliance familiarity −0.04 −0.02 −0.27 −0.36 −0.29
(0.06/0.51) (0.01/0.23) (0.08/0.00) (0.10/0.00) (0.09/0.00)
Debt-equity ratio −0.00 −0.00 0.00 0.00 −0.00
(0.00/0.82) (0.00/0.83) (0.00/0.96) (0.00/0.71) (0.00/0.97)
Return on equity 0.00 0.00 −0.00 −0.00 −0.00
(0.00/0.64) (0.00/0.43) (0.00/0.73) (0.00/0.88) (0.00/0.70)
N. Asgari, K. Singh, and W. Mitchell

Number of technology areas 0.14 0.00 0.22 −0.05 0.08

(0.02/0.00) (0.01/0.56) (0.03/0.00) (0.05/0.34) (0.03/0.00)
Number of clinical trials 0.03 0.00 0.08 0.08 0.09
(0.01/0.01) (0.00/0.24) (0.02/0.00) (0.02/0.00) (0.02/0.00)
Number of patents 0.00 −0.00 0.00 0.01 0.00
(0.00/0.54) (0.00/0.39) (0.00/0.90) (0.00/0.03) (0.00/0.26)
R&D intensity −0.00 0.00 −0.00 −0.00 0.00
(0.00/0.87) (0.00/0.97) (0.00/0.66) (0.00/0.97) (0.00/0.92)
Number of M&As 0.25 0.06 0.027 0.15 0.18
(0.05/0.00) (0.01/0.00) (0.07/0.00) (0.09/0.08) (0.08/0.03)
Sales (log) 0.01 −0.00 −0.01 −0.02 0.02
(0.02/0.57) (0.01/0.86) (0.03/0.72) (0.04/0.52) (0.04/0.66)
N 1,425 1,425 1,425 1,425 1,425
F 7.50 4.48 10.92 8.51 9.60
Kleibergen-Paap rk LM statistic 80.14 80.14 80.14 43.68 22.81
Kleibergen-Paap rk Wald F statistic 28.58 28.58 28.58 22.45 5.75
Sargan statistic 1.97 0.00 0.73 0.02 1.33

First number in parentheses is standard errors; the second is p > |z|. Standard errors and covariance matrices are heteroskedastic and autocorrelation consistent (HAC). Year dummies are
included in all models. Variables number of alliances formed before 1995 and firms age were dropped due to multicollinearity. For all models, the Kleibergen-Paap rk LM test rejects the
null hypothesis of under-identification. The Kleibergen-Paap rk Wald F statistic exceeds the Stock and Yogo (2005) critical values for weak identification. The Sargan statistics fails to reject
the joint null hypothesis that the instruments are uncorrelated with the error term and that they are correctly excluded from the second stage.

Strat. Mgmt. J., 38: 1062–1081 (2017)

DOI: 10.1002/smj
 Alliance Portfolio Reconfiguration and Discontinuities 1077
Table 6. Test of parallel-paths assumption

S=1 S=2 S=3 H0: q = q – 1 H0: s = s – 1

A: Unconditional fully flexible model for the number of alliances formed for reinforced resources
Alliances for reinforced resources q = 1 0.18 0.46 0.54 1.41
(0.30/0.53) (0.32/0.15) (0.33/0.10) [0.84]
q=2 −0.06 −0.03 −0.21 0.25 2.46
(0.43/0.88) (0.62/0.96) (0.81/0.80) [0.22]a [0.65]
B: Unconditional fully flexible model for the number of alliances formed for challenged resources
Alliances for challenged resources q = 1 0.03 0.05 0.16 5.60
(0.04/0.04) (0.04/0.28) (0.06/0.01) [0.23]
q=2 0.03 0.04 0.15 0.00 4.59
(0.06/0.64) (0.10/0.69) (0.14/0.29) [0.92]b [0.33]

a N = 2,265. This sample includes pre-discontinuity data to allow testing of the parallel path assumption. The first number in parentheses

is robust standard errors; the second number is p > |z|. P-values in brackets. The null hypothesis is for parallel paths. The results do not
reject this hypothesis, supporting the validity of the DiD analysis: common pre-discontinuity dynamics = 1.53 (p-value = 0.22).
b
N = 2,265. This sample includes pre-discontinuity data to allow testing of the parallel path assumption. The first number in parentheses
is robust standard errors; the second number is p > |z|. P-values in brackets. The null hypothesis is for parallel paths. The results do not
reject this hypothesis, supporting the validity of the DiD analysis: common pre-discontinuity dynamics = 0.01 (p-value = 0.92).

alliances) (b = 1.42; p = 0.00). The implication here
is that investment in challenged resources (A1b) and
the consequent complementarity with reinforced
resources create particularly strong pressures on
alliance portfolios, increasing the carrying capac-
ity need to create space by terminating alliances for
unaffected resources.
The controls offer insights. Firms were less likely
to disband alliances for unaffected resources with
familiar partners; by contrast, alliance familiarity
did not affect termination of alliances for chal-
lenged or reinforced resources. One interpretation
is that resource needs dominate when firms use
alliances to serve new tasks, such as investing
in challenged or reinforced resources. However,
partner familiarity is important when deciding to
maintain alliances that focus on on-going tasks,
such as providing unaffected resources. Firms with
greater competencies, as reflected in the number of
technology areas they operate in and the number
of clinical trials they conducted, were more likely
to terminate alliances, though not in the case of
alliances for challenged resources. The number
of patents had limited impact on termination.
M&As were associated with greater termination
of all types of alliances, consistent with their being
partial substitutes for alliances (Dyer et al., 2004).
Robustness tests
The parallel paths assumption in DiD analysis
requires that the average change in the outcome
Copyright © 2016 John Wiley & Sons, Ltd.
variable for both treated and control groups are
similar in the absence of treatment (Mora and Reg-
gio, 2012). If this assumption does not hold, the sec-
ond differencing that compares groups before and
after the discontinuity will contain pre-treatment
diverging trends. An effective control group is one
whose pre-discontinuity plot is parallel to the treat-
ment group’s plot. We assess this assumption by
graphing the values of outcome variables across the
treated and controlled groups. In Panels A and B
of Appendix 7 in File S1, the control and treatment
groups for reinforced and challenged resources have
similar paths prior to the 1995 discontinuity; they
diverge strikingly after the discontinuity.
We use Stata procedure “dqd” (Mora and
Reggio, 2014) to assess the plots. Our panel data
structure allows a stringent test of the parallel path
assumption and of the more demanding parallel
growth assumption, which also requires similarity
in the patterns of growth for treated and control
groups. Panels A and B in Table 6 show the results
of unconditional fully flexible models. The null
hypotheses of parallel paths cannot be rejected
for the two plots, supporting the validity of the
assumption of parallel paths.
The DiD estimates in Table 4 may be sensitive
to the choice of the kernel-function for matching
treatment and control observations. We repeated the
DiD analysis with Gaussian, uniform, biweight, and
triweight kernel functions, finding similar results,
except that the effect of the formation of alliances
for new resources on formation of alliances for
Strat. Mgmt. J., 38: 1062–1081 (2017)
DOI: 10.1002/smj
1078 N. Asgari, K. Singh, and W. Mitchell
reinforced resources was not significant in one
test. We tested the robustness of the probit-based
propensity scores in Appendix 5 in File S1 with
logit analysis, finding similar results to those pre-
sented.
Next, we tested Hypotheses 1a and 1b with a
Heckman two-stage regression model (Heckman,
1979) to deal with the selection of being part of the
treatment versus control group. The results did not
change materially from the DiD analysis.
To ensure that results were not confounded
by alliances that terminated according to a pre-
determined schedule rather than because of the
technological discontinuity, we identified alliances
whose termination dates coincided with the expiry
dates specified in the initial agreements. Sensitivity
analyses removed these alliances, finding similar
results.
For alliances involving more than one type of
resource, our research design recorded separate
alliances. It is possible, though, that firms viewed
these as single alliances. We tested possible bias by
dropping all such multi-resource alliances, finding
equivalent results.
If firms manage their alliances as portfolios,
it is possible that the total formation or termi-
nation of alliances, including for resources not
affected by the discontinuity, will confound the
formation and termination of alliances affected
by the discontinuity. We tested this possibility
by introducing two variables in all models: total
alliances formed and total alliances terminated by
each firm in the previous one and two years. The
results remained unchanged for Hypotheses 2 and
3 when we included formation and termination
variables for the previous one year. When we
included formation and termination variables for
the previous two years, the results remained the
same for Hypothesis 2, but lost significance for
Hypothesis 3.
Finally, we replaced instrumental variable
estimators with Generalized Method of Moment
(GMM) estimators that are suitable for nonlinear
models (Cameron and Trivedi, 2010) for testing
Hypotheses 2 and 3; the results were similar,
except that the effect of formation of alliances
for new resources on termination of alliances for
reinforced resources was not statistically different
from the effect of formation of alliances for new
resources on termination of alliances for unaffected
resources (H2b).
Copyright © 2016 John Wiley & Sons, Ltd.
DISCUSSION AND CONCLUSIONS
We examined how firms reconfigure their alliance
portfolios following a technological discontinu-
ity. We used a quasi-natural experiment to test
how an exogenous event disrupted the value of
resources, and triggered the formation and termi-
nation of alliances that provided access to these
resources. The results support our prediction that
firms that use alliances to obtain new resources
have incentives to undertake broader reconfigura-
tion of their alliance portfolios: adding comple-
mentary alliances for reinforced and challenged
resources, while terminating substitute alliances,
even involving resources otherwise unaffected by
the discontinuity, in order to free carrying capac-
ity for the new alliances. The interaction of the
incentives makes alliance portfolio reconfiguration
a complex process in which changes in resource
values lead to the formation of alliances for new
resources, which triggers the formation and termi-
nation of alliances for other resources.
The study contributes to the literature on alliance
portfolios and technological discontinuities in three
ways. First, we improve theoretical understanding
of technological discontinuities and how they affect
the value of resources. Disaggregating the effects
of discontinuities in terms of new, reinforced,
challenged, unaffected, and obsolete resources
allows more nuanced evaluation of how they affect
firms and their alliance portfolios. The concept
of challenged resources is particularly important
because it highlights the idea that firm agency
in the form of decisions of whether to invest in
transforming resources can shape the nature of a
discontinuity. The results reinforce the importance
of studying discontinuities in terms of complemen-
tarity and substitution among firm-level resources
rather than as shocks that uniformly affect industries
or economies (Gatignon et al., 2002; Lavie, 2006).
Second, we show that firms actively reconfigure
their alliance portfolios to meet resource needs
that arise from exogenous changes. Our focus on
how changes in resource values influence changes
in inter-firm relationships aligns with perspectives
that attribute firm-level exchange relationships
to micro attributes of transactions (Williamson,
1991). The results support the importance of firm
agency in the management of alliance portfolios.
This finding is important in balancing the view
that the evolution of alliances tends to be driven
Strat. Mgmt. J., 38: 1062–1081 (2017)
DOI: 10.1002/smj
 Alliance Portfolio Reconfiguration and Discontinuities
by path-dependency, repeated interaction, or life
cycles (Gulati, 1995; Uzzi, 1996).
Third, we contribute to empirical research by
demonstrating a rigorous approach to establishing
alliance termination. The paucity of data on ter-
mination of alliances is an obstacle to research on
the evolution of alliances, alliance portfolios, and
networks (Schilling, 2009). The study provides a
reliable alternative to assuming fixed durations for
alliances.
More broadly, this study has implications for the
literature on asset orchestration and business recon-
figuration (Helfat et al., 2007; Karim and Capron,
2016; Siggelkow, 2001; Sirmon et al., 2011). When
firms add a new resource, they commonly need to
tranform other components within their bundle of
resources to ensure fit. The evolution of alliance
portfolios is a key element of firms’ ongoing recon-
figuration in response to changes in their techno-
logical environments. Combining insights from the
asset orchestration, business reconfiguration, and
alliance portfolio literatures offers new areas for
investigation.
Limitations of the study point to six opportuni-
ties for future research. First, research can examine
settings with different forms of discontinuities. Sec-
ond, future studies could attempt to observe changes
in values at the resource-level as well as the direct
costs of forming and terminating alliances. Third,
further studies could examine how reconfiguration
is affected by the architecture of portfolios, which
influence interdependence and integration among
firms. Fourth, alliance portfolios often overlap with
networks of competitors, incorporating firms that
compete within the portfolio. Evaluating how net-
works of competitors influence firms’ formation or
termination of alliances will provide understand-
ing of another dimension of influence on alliance
portfolio reconfiguration. Fifth, it would be useful
to evaluate the performance implications of port-
folio reconfiguration, particularly in determining
the boundaries on the benefits of reconfiguration.
Sixth, further research can identify shocks that more
clearly discriminate treated and control firms for
DiD-type analysis. We recognize that some read-
ers may prefer to interpret our results as corre-
lations rather than causal influences; nonetheless,
we believe that the correlations involving highly
detailed data highlight important patterns in the
reconfiguration of alliance portfolios.
In sum, the article addresses an important
phenomenon in the form of alliance portfolio
Copyright © 2016 John Wiley & Sons, Ltd.
1079
reconfiguration, in the presence of an unam-
biguous technological discontinuity that created
reconfiguration incentives. We were able to assess
detailed data about alliances and resources that the
discontinuity affected in different ways. In doing
so, we demonstrate strong interactions among
firms’ decisions to form and terminate alliances
associated with the resources. The study highlights
opportunities to investigate how firms reconfigure
alliance portfolios as well as improves theoretical
and empirical understanding of technological
change and how firms respond to the change.
ACKNOWLEDGEMENTS
We thank Benjamin Cole, Annapoornima Subra-
manian, Falguni Sen, Gautam Ahuja, Ishtiaq Mah-
mood, and Editor Alfonso Gambardella for their
many valuable inputs.
Navid Asgari thanks the Strategy Research Foun-
dation (SRF) program for Dissertation Research
Grant DP 12-82, which supported this study.
Kulwant Singh acknowledges support from NUS
Research Grant R-313-000-098-112.
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SUPPORTING INFORMATION
Additional supporting information may be found
in the online version of this article:
File S1. Alliance portfolio reconfiguration follow-
ing a technological discontinuity.
Strat. Mgmt. J., 38: 1062–1081 (2017)
DOI: 10.1002/smj