Charlotte Ren, Fox School of Business
Abstract: This study examines the extent to which firms that are collaborating with other firms in a particular area of business subsequently change modes of governance and undertake independent activities in the same area of business. Drawing upon insights from the Behavioral Theory of the Firm, prospect theory and the learning view in inter-firm collaboration, we argue that a firm’s collaborative performance mediates the relationship between its collaborative experience and its subsequent make-or-ally choices. Specifically, collaborative experience is positively associated with collaborative performance, and collaborative performance then has a U-shaped effect on the likelihood of subsequent independence. We also propose that former collaborators that switch to independent operations tend to achieve breakthrough performance in their new endeavors than firms that opt to collaborate again, when their ‘switching’ decision was driven by well-above-aspiration performance of their prior collaborative activities. Data on product innovations in the global aircraft manufacturing industry provide support for our claims. We contribute to the alliance literature and the product innovation literature and extend research on how firms’ performance relative to aspirations influences their subsequent choices of innovation management.