Partnering in a Haze: Interdependence Misspecification and Firm Performance in Strategic Alliances

We examine the implications for firm performance of managers having only a partial understanding of the true nature of their inter-firm interdependence. While operating with such ex-ante uncertainty regarding inter-firm interdependency is common when selecting an approach to governing an alliance relationship, the literature offers limited guidance as to the performance implications of such “misspecifications.” We employ an agent-based simulation to model inter-firm decision making in a context where firms have either under- or over-specified views of their inter-firm interdependencies. Consistent with intuition, firm performance declines with interdependence misspecifications. We find, however, interesting variation in this effect across alternate governance modes and across levels of actual interdependency. We also find that interdependence misspecifications have differing effects on exploration and coordination, leading to tradeoffs between performance and other alliance objectives.