Integrated Information Systems, Alliance Formation, and the Risk of Information Exchange between Partners

Abstract

ABSTRACT Alliances are an important strategic tool for many companies. However, they are inherently risky and a large percentage of alliances fail. We examine the effects of integrated information systems (IISs) and alliance formalization (i.e., formal alliance controls) on information exchange risk and overall alliance risk. We develop a model that predicts that when firms are engaged in alliances with greater collaboration intensity (i.e., alliances with multiple objectives) they are more likely to use an IIS and a broad portfolio of formal controls to manage alliance risk. Using a survey of chief financial officers, we find that collaboration intensity is positively associated with IIS and alliance formalization. IISs are negatively associated with information exchange risk, but this effect is mediated by alliance formalization, suggesting that the formal controls implemented throughout the alliance, and within the IIS, are integral to reducing information exchange risk and, subsequently, overall alliance risk. Our study adds to the literature examining tools and strategies for effectively managing strategic alliances. JEL Classifications: B20; C31; C42; M40.