Honeymoons and Liabilities : The Relationship between Age and Performance in Research and Development Alliances

The use of strategic alliances by technology ventures has increased dramatically over the last twenty years. During this period companies not only increased the use of alliances, but have also used them in more strategically important areas, particularly in Ramp;D and new product development. Thus, successful management of strategic alliances in high-technology industries has become critical to a firm's new product development and ultimately to firm performance. Yet, little is known about what determines the performance of individual alliances. This article examines the relationship between the age of an alliance and the performance of the alliance. We develop and test two competing hypotheses regarding the form of the functional relationship between alliance age and alliance performance. First, we test a liability of newness hypothesis, which posits that alliance performance increases in a linear fashion over time. We then test a honeymoon hypothesis, which posits that the relationship between age and alliance performance is non-linear with alliance performance decreasing initially but increasing over time. We further propose that alliances that are more important to the focal firm exhibit longer honeymoon periods. We develop a measure of individual alliance performance based on our field study in the biotechnology industry. We test the competing hypotheses using regression analysis on our sample of 115 Ramp;D alliances. We then extend the analysis by splitting the sample into high and low importance alliances to enhance the robustness of our findings. Further, such a split-sample approach enables us to test for a potential moderating effect of alliance importance on the hypothesized relationship between alliance age and alliance performance.The results suggest that the relationship between age and alliance performance seems to be U-shaped curvilinear rather than linear, with the minimum point of alliance performance occurring after approximately four and one-half years. Thus, the results indicate that strategic alliances appear to face a liability of adolescence rather than a liability of newness. Contrary to our expectation, we also find that important alliances exhibit generally shorter honeymoons