THE EFFECTS OF ALLIANCE PORTFOLIO DIVERSITY ON INNOVATION PERFORMANCE: A STUDY OF PARTNER AND ALLIANCE CHARACTERISTICS IN THE BIO-PHARMACEUTICAL INDUSTRY

Abstract

This study investigates the effects of alliance portfolio diversity on the innovation performance of firms. Alliance portfolio diversity is defined using partner characteristics (partner industrial background) and alliance characteristics (alliance objective). We also investigate the interaction between these two measures of diversity on innovation performance. The hypotheses are tested on a dataset of R&D alliances in the US biopharmaceutical industry from 1998–2002. We find an inverted U-shape relationship between the diversity of alliance partners’ industrial background and innovation performance, and a negative interaction of partner diversity and the diversity of the alliance objectives. This study contributes to the growing field of alliance portfolio diversity research by introducing a new alliance characteristic-based dimension of diversity and testing the interaction of different diversities. Our findings imply that firms with diverse alliance partners in particular need to be careful not to focus on too many objectives at the same time.