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Research Summary: This paper extends the relational view to offer a dynamic perspective on the factors that drive value creation and value capture over the alliance life cycle. We argue that access to complementary resources provides an initial rationale for forming alliances, but benefits from complementarity can attenuate over time. Indeed, viewed dynamically, factors that often lead to higher value creation—informal trust, repeated ties, customized assets—may also lead to diminished alliance performance. We highlight interdependence between the complementary resources of partners as the critical factor determining the pattern of alliance value creation, notably how quickly alliances generate value and how quickly they are likely to dissolve. We identify factors, both internal and external to the alliance, that trigger diminished value creation and increased competition for value capture among partners. Managerial Summary: The “relational view” perspective has shown that firms create value in alliances when they identify partners with complementary resources, when they build high levels of informal trust and they share knowledge and make investments that are customized to the partner. The level of resource interdependence in alliances determines how quickly alliances can reach their potential in value creation and how quickly they are likely to dissolve. Viewed dynamically, factors that often lead to higher value creation—like informal trust, repeated ties, customized assets—may also lead to diminished alliance performance. Finally, a number of factors both internal to and external to an alliance may trigger competition between the partners within an alliance to capture the value created by the alliance and also diminish the value created within the alliance.

This paper addresses whether cohesive networks of socially embedded ties or sparse networks rich in structural holes are more conducive to the success of new firms. We propose that the networks of emerging firms evolve in order to adapt to the firm's changing resource needs and resource challenges. As firms emerge, their networks consist primarily of socially embedded ties drawn from dense, cohesive sets of connections. We label these networks identity based. As firms move into the early growth stage, their networks evolve toward more ties based on a calculation of economic costs and benefits. This shift from identity-based to more calculative networks is manifested in the evolution of the firm networks: (1) from primarily socially embedded ties to a balance of embedded and arm's-length relations; (2) from networks that emphasize cohesion to those that exploit structural holes; and (3) from a more path-dependent to a more intentionally managed network. Thus, this paper suggests that both cohesive and sparse networks are conducive to firm performance when they are aligned with and address firms' evolving resource challenges.

A vast array of organizational innovations and changes are transforming US corporations. Large firms have dramatically downsized, refocused, and vertically disaggregated. They increasingly obtain goods and services, pursue complex development efforts, and exploit horizontal synergies without the aid of formal hierarchy. Large firms are also internally disaggregating into smaller, more autonomous units that are treated much like external subcontractors. The authors argue that these organizational innovations share an important underlying commonalty: economic activity is converging toward exchange involving either internal (within-firm) or external (between-firm) networks of small, autonomous production or service units. Small units and small firms have become the basic building block, the molecular units, of these new forms. Further, exchange among the small, autonomous units is commonly a mix of both market-like and hierarchical features. The authors develop a theoretical explanation for these trends. They argue that disaggregation is motivated by the powerful performance incentives that accompany small size. They further argue that disaggregation is facilitated by recent innovations in information technology, organizational design, and performance measurement that permit the selective intervention of market elements in hierarchy and hierarchical elements in markets. The enhanced ability to intervene selectively necessitates a rethinking of traditional assumptions about the discreteness of governance choices. Innovations in organization, measurement, and technology shift decisions about optimal governance from simple market versus hierarchy choices to choices of an optimal mix of hierarchical and market elements. Consequently, managers and scholars must increasingly view organizations as complex webs of governance arrangements rather than as entities with definable boundaries.

Constellations—alliances among multiple firms—are used to perform complex, customized work in professional service. We examine two tensions inherent in multi-party collaborative work: managing hybrid systems, which are composed of individual and group tasks and outcomes, and aligning partners' logics of action. These two tensions provide firms the strategic choice with emphasizing individual or collective advantage. When constellation members pursue an individualist strategy, they employ an entrepreneurial logic. Constellations are a vehicle for honing their firm-distinctive expertise and enhancing their own opportunities. Given these firms' need for exposure to new learning and new markets from different partners and clients, the stability of the constellation is not of primary importance. This strategy promotes membership shifts in constellations and requires governance mechanisms for coordinating interactions among relative strangers. When constellation members pursue a collectivist strategy, they focus on their mutual benefits and employ a relational logic. Given these firms' need for intensifying relations with partners and clients, constellation members restrict interactions to certain select partners and clients and intensify their interactions. This strategy promotes stability in constellation membership and allows governance mechanisms specific to partners to develop. Due to positive feedback, these strategies develop certain capabilities and create specific relational patterns, which reinforce prior choices.

A phenomenon of the last 20 years has been the rapid rise of the network form of governance. This governance form has received significant scholarly attention, but no comprehensive theory for it has been advanced. A theory is presented that explains under what conditions network governance has comparative advantage. The theory integrates transaction cost economics and social network theories, and asserts that the network form of governance is a response to exchange conditions of asset specificity, demand uncertainty, task complexity, and frequency.

Hirsch, Friedman, and Koza (1990) published a caveat to researchers about possible pitfalls of using economic models in behaviorally oriented strategy and policy research. A response seeks to clarify where economics stands with respect to fundamental assumptions about humans, organizations, markets, and investors. The response concurs with warnings concerning the adoption of unrealistic assumptions but disagrees that the assumptions imputed to economics are universally held by economic models, particularly those models most often used by strategy and policy researchers. It is shown that there are significant differences among economic theories in their fundamental assumptions. Finally, suggestions on how strategy and policy researchers might constructively respond to economic approaches to strategy and organization are provided. Some ways in which collaboration may and does occur between economics and behavioral approaches to the study of organizational strategy and policy are also discussed.

In 1990, in the first issue of Organization Science , Paul Hirsch and his co-authors Ray Friedman and Mitchell Koza published a caveat to researchers about possible pitfalls of using economic models in behaviorally oriented strategy and policy research (Hirsch et al. 1990). \"Crossroads\" provides a context for a reply to this paper and Todd Zenger and William Hesterly have taken the opportunity to do so. They seek to clarify where economics stands with respect to fundamental assumptions about humans, organizations, markets and investors. They concur with many of Hirsch, Friedman, and Koza's (1990) warnings concerning the adoption of unrealistic assumptions, but disagree that the assumptions they impute to economics are universally held by economic models, particularly those models most often used by strategy and policy researchers. Zenger and Hesterly show that there are significant differences among economic theories in their fundamental assumptions. Finally, they suggest how strategy and policy researchers might constructively respond to economic approaches to strategy and organization. They argue that there is more to economic assumptions and models than was noted in the initial article and suggest ways in which collaboration may and does occur between economics and behavioral approaches to the study of organizational strategy and policy. Taken together, the papers by Hirsch et al. and by Zenger and Hesterly serve to illuminate and extend an important debate (Introduction by Peter J. Frost).