Strategic Alliance Formation and Structural Configuration

Abstract

While previous research considering the emer-gence of strategic alliances has typically viewed their for-mation through a single theoretical lens, we suggest that multiple theoretical perspectives are needed to understand their complexity. This research conceptually integrates the resource-based view and institutional theory to assess vari-ations in firm-level motivations to form strategic alliances. Applying these ideas to the context of complex environ-mental problems, we propose that strategic alliances typi-cally are either competency-or legitimacy-oriented, and that four structural dimensions characterize both types of alli-ances—organization learning, partner diversity, governance structure, and partner relations. We present research prop-ositions that describe how alliances differ along these dimensions, and offer an important broader perspective on alliance formation that is applicable towards understanding their strategic and social outcomes.

Full text

Strategic Alliance Formation and Structural Configuration
Haiying Lin •Nicole Darnall
Received: 16 May 2012 / Accepted: 11 January 2014
ÓSpringer Science+Business Media Dordrecht 2014
Abstract While previous research considering the emer-
gence of strategic alliances has typically viewed their for-
mation through a single theoretical lens, we suggest that
multiple theoretical perspectives are needed to understand
their complexity. This research conceptually integrates the
resource-based view and institutional theory to assess vari-
ations in firm-level motivations to form strategic alliances.
Applying these ideas to the context of complex environ-
mental problems, we propose that strategic alliances typi-
cally are either competency- or legitimacy-oriented, and that
four structural dimensions characterize both types of alli-
ances—organization learning, partner diversity, governance
structure, and partner relations. We present research prop-
ositions that describe how alliances differ along these
dimensions, and offer an important broader perspective on
alliance formation that is applicable towards understanding
their strategic and social outcomes.
Keywords Institutional theory Resource-based view 
Strategic alliances Alliance orientation Alliance
structure Complex environmental problems
Introduction
Strategic alliances are voluntary collaborations between
organizations that involve product exchange, sharing or co-
development, technology development or the provision of
services that pursue a common set of goals (Gulati 1998).
Businesses are increasingly participating in these alliances
for a variety of reasons that include undertaking joint
innovations and organizational leaning (Grant and Baden-
Fuller 2004), accessing new markets (Kogut 1991), sharing
risks and costs (Eisenhardt and Schoonhoven 1996), and
enhancing public visibility and recognition (Baum and
Oliver 1991). In general, these alliances emerge as a means
to manage increased uncertainty and complexity in the
business setting. For instance, between 2000 and 2002,
firms participated in over 20,000 strategic alliances that
were designed to mitigate risk and explore new business
opportunities (Martin 2002). These alliances include
ownership agreements (e.g., joint ventures, minority equity
alliances), contractual agreements (e.g., joint research and
development, production, and marketing and promotion) or
licensing agreements, and are made with suppliers, dis-
tributers (Yoshino and Rangan 1995; Dacin et al. 2007),
industry associations and consortia, government agencies,
interest groups, and research universities and labs.
Many studies have emerged to consider alliance formation
more generally. Most have typically viewed their emergence
through a single theoretical lens—either the resource-based
view (RBV) (e.g., Eisenhardt and Schoonhoven 1996;Das
and Teng 2000; Grant and Baden-Fuller 2004) or institutional
theory (Baum and Oliver 1991; Dacin et al. 2007;Gulati1999;
Sharfman et al. 1991). However, some researchers have
argued that multiple theoretical perspectives are needed to
more appropriately reveal firms’ motivations to engage in
various organizational relationships (Barringer and Harrison
H. Lin (&)
School of Environment, Enterprise and Development, University
of Waterloo, 200 University Avenue West, EV1 231, Waterloo,
ON N2L 3G1, Canada
e-mail: h45lin@uwaterloo.ca
N. Darnall
School of Public Affairs, School of Sustainability, 411N. Central
Ave. Suite 400, Phoenix, AZ 85004-0687, USA
e-mail: ndarnall@asu.edu
123
J Bus Ethics
DOI 10.1007/s10551-014-2053-7

2000;ParmigianiandRivera-Santos2011). We posit that
firms’ decisions to form strategic alliances are influenced by
resource-based and institutional factors—to take advantage of
opportunities to extend existing capabilities and to address
institutional pressures. While other theories might be relevant
toward explaining alliance formation (e.g., transaction cost
economics), we anchor our arguments in RBV and institu-
tional theory for two reasons. First, these theories have sig-
nificant relevance in prior research that assesses alliance
formation (e.g., Eisenhardt and Schoonhoven 1996; Das and
Teng 2000; Grant and Baden-Fuller 2004;BaumandOliver
1991; Dacin et al. 2007;Gulati1999; Sharfman et al. 1991).
Second, RBV and institutional theory are widely used theories
to explain firm strategy (e.g., Bansal and Roth 2000;Bansal
2005; Darnall and Edwards 2006; Darnall etal. 2008; Delmas
and Toffel 2004; Hoffman 1997;Hart1995). In addition, the
juxtaposition of these two theories creates a parsimonious
framework for explaining firms’ differing motivations to
participate in strategic alliances that is readily supported with
examples in practice. We suggest that these differing moti-
vations lead to fundamental variations in the resulting struc-
tural dimensions of these alliances.
We apply these theories to the context of complex
environmental problems. Since 1990, over 500 alliances
have been formed in the United States and Canada
1
(SDC
2011) to address these complex environmental problems.
These alliances affect a broader array of stakeholders than
typical business concerns, and involve multiple jurisdic-
tions. They also have an undetermined regulatory trajectory
and typically lack technical solutions. Addressing these
concerns requires significant coordination among multiple
organizations. While the framework we develop is appli-
cable to the formation of all strategic alliances, we focus on
this setting because while previous research has recognized
the importance of strategic alliances in the general business
context (e.g., Mitchell and Singh 1996), we know little
about firms’ use of them to address complex environmental
problems. In addition, because of their heightened social
context, firms that form strategic alliances to address these
complex environmental problems are likely to have more
varied motivations to do so. This setting allows for greater
richness in our exposition.
This research conceptually integrates the resource-based
view of the firm and institutional theory to assess variations
in firm-level motivations to create strategic alliances. We
propose that within this setting, strategic alliances form
because of competency- or legitimacy-oriented motivations.
These alliances differ along four structural dimensions:
organization learning, partner diversity, governance struc-
ture, and relationship with alliance partners. We articulate
eight research propositions and offer conceptual support for
how variations in firms’ ex-ante motivations affect these
structural dimensions. Knowledge of these issues offers new
insight on alliance formation and structure, and is likely to
inform the alliance’s subsequent ability to achieve its stra-
tegic goals and improve social outcomes.
Complex Environmental Problems
Hardin (1968) refers to certain environmental problems as
being a tragedy of the commons. The tragedy occurs when
organizations or people seek to maximize their individual
benefit by overusing common-pool resources, such as
oceans, lakes, forests, irrigation systems, and grazing lands
(Hardin 1968;Ostrometal.1999). The outcome is that the
resources are seriously impaired or destroyed, which reduces
society’s overall benefits associated with that resource, and
ultimately the individual gains as well (Hardin 1968). These
problems tend to arise when property rights related to
common-pool resources are not well defined (Ostrom et al.
1999).
Some commons problems related to the environment are
small in scale in that they affect a limited number of people
and have a restricted geographical and jurisdictional scope.
These are non-complex environmental problems. By con-
trast, complex environmental problems have profound
impacts to the natural environment and affect many people,
across multiple jurisdictions and countries. Such scope
makes instituting multijurisdictional controls a challenge
since addressing these issues requires collective action
among numerous individuals who often have different
value systems, and may be affected differently by the same
problem. Complex environmental problems generally also
have an undetermined regulatory trajectory with variations
in political will (either at the state, national, or international
levels) to regulate these concerns. The absence of regula-
tory policy instruments encourages corporations, nongov-
ernment organizations (NGOs), and policy-makers to
develop strategic alliances (especially cross-sector part-
nerships) as alternative platforms for firms to address these
complex environmental issues (Sharma and Vredenburg
1998). These alternative governance mechanisms typically
encourage firms to go beyond compliance and adopt
innovative environmental solutions in the absence of reg-
ulatory mandates (Russo and Fouts 1997).
1
To search for environmentally related alliances in Thomson’s
Securities Data Corporation (SDC) database, we use two search
elements: alliance venture economics and industry codes (VEIC) and
alliance activity codes. These codes depict the business characteristics
of the alliances, as well as their primary activities. Including both
search items allowed for a wider collection of alliances related to
energy, recycling, waste management and disposal, environmental
services, manufacturing services, industrial maintenance services,
consulting services, educational services, water utility services,
exploration services, and marketing services. We then undertook a
content analysis to validate that the alliance was related to a complex
environmental problem.
H. Lin, N. Darnall
123

Limited or untested technological solutions also enhance
the uncertainty related to complex environmental issues. In
response, firms often voluntarily partner with diverse actors
and private partners as a strategic means to gain access to
complementary and critical assets in order to develop tech-
nical alternatives to solve these problems. Since the eco-
nomic returns from these alliances may occur only in the
long-term, endorsement and support from cross-sector
partners like environmental NGOs and government partners
are especially important to motivate corporate managers to
commit resources to proactively tackle these environmental
problems. Addressing complex environmental problems
therefore cannot be achieved by any individual organization
(Selsky and Parker 2005), but rather necessitates significant
coordination among various parties.
Numerous examples of complex environmental problems
exist. They include controlling toxic chemicals in the natural
environment, biodiversity and ecosystem preservation,
reducing pollution in sensitive water bodies, mitigating
illegal hazardous waste dumping, and addressing transna-
tional air pollution. However, perhaps the most significant is
climate change, because of its impact to the entire biosphere
and regulatory jurisdictions worldwide. Related to multiju-
risdictional controls, while the European Union (EU) ratified
the Kyoto Protocol—a unique international regulation that
attempts to reduce global GHG emissions—implementation
and compliance among participant countries has varied
significantly. EU countries, Japan, and several other devel-
oped nations have implemented regulations that mandate
carbon reductions across specific industrial sectors, how-
ever, most developing counties and the United States (US)
have rejected implementing the Protocol. Such a situation
has increased regulatory uncertainty, especially within these
countries, although there are increasing pressures for regu-
lation. For instance, in 2009 the US underwent serious dis-
cussion about the potential promulgation of mandatory
regulation to control carbon emissions (Samuelsohn 2009),
and some states had already enacted their own climate reg-
ulation policies. In addition, like other complex environ-
mental problems, the technological solutions for addressing
climate change are limited, and in many instances do not
exist. This setting imposes increased business risks, insur-
ance costs (Hertin et al. 2003), and pressures for innovation.
Moreover, recent destructive climate-related events (e.g.,
Hurricane Katrina, extreme flooding in Central Europe) has
enhanced public awareness of climate change and height-
ened societal expectations about business’ role in mitigating
its effects. Firms that fail to adhere to these pressures risk
obtaining unwanted negative media attention, community
scrutiny, consumer complaints, and public boycotts. How-
ever, undertaking measures to address these environmental
problems can also increase business risk since such actions
often add complexity to production or delivery processes
(Russo and Fouts 1997; Sharma 2000). As such, firms must
weigh the varied risks associated with societal pressures to
address complex environmental problems. In order to do so,
they must engage in sensemaking during which they inter-
pret social events related to complex environmental prob-
lems and select appropriate coping strategies.
Firms’ Motivations to Form Strategic Alliances
Managers make sense of a confronted event by employing
schema to categorize information. The categorization pro-
cess helps managers reduce the ambiguity and unpredict-
ability surrounding the event thus generating predictable
action (Dutton and Jackson 1987). One of the most relevant
of these cognitive categories involves the interpretation of
events as either an opportunity or a threat (Dutton and
Jackson 1987). In undertaking this sort of cognitive catego-
rization, managers draw on knowledge related to their
organization’s internal competencies, capital investments,
technology development, and other factors to place param-
eters around their subsequent strategic options.
Related to complex environmental problems, the link with
managerial interpretations is similar. Complex environ-
mental problems (and the enhanced societal expectations
that come with them) create decision-making risk that brings
about either positive or negative emotional associations, in
addition to gain and loss considerations (Sharma 2000).
Interpretations of these factors lead some managers to regard
complex environmental problems as being a strategic busi-
ness opportunity, while others view them as being a threat to
business (Larson 2000; Sharma and Vredenburg 1998). This
sort of cognitive categorization guides some firms to form
alliances that are either proactive (opportunity driven) or
reactive (threat driven) (London 2005; Arya and Salk 2006).
We suggest that how firms make sense of complex envi-
ronmental problems, and the sort of strategic alliance they
subsequently form is borne out of their resource- or legiti-
macy-based motivations.
Resource-Based Motivations
A firm’s motivation to form strategic alliances exists at the
time partner organizations come together to formalize their
alliance agreement. One of the primary anchoring theories
that previous scholars have used to characterize firms’
motivations to form strategic alliances is the resource-based
view (RBV) (e.g., Eisenhardt and Schoonhoven 1996; Das
and Teng 2000; Grant and Baden-Fuller 2004). RBV focuses
on the access or development of idiosyncratic resources
and competencies that lead to competitive advantage (Bar-
ney 1991). Resources can be tangible (including financial
and physical resources), intangible (including reputation,
technology, and organizational resources), or human-based
Strategic Alliance Formation and Structural Configuration
123

(including culture, training, and employee expertise) (Grant
1991). These idiosyncratic resources are assembled to per-
form some task or activity and give rise to organizational
competencies (Grant 1991) and competitive advantages
(Das and Teng 2000; Prahalad and Hamel 1990).
Applied to complex environmental problems, we posit
that there are at least two salient resource-based motivations
for firms to engage in strategic alliances. The first motiva-
tion is to combine their complementary idiosyncratic
resources (Hagedoorn 1993). These pooled resources can be
used to develop valuable organizational competencies,
especially tacit knowledge-related competencies that can
lead to competitive advantage (Das and Teng 2000). For
instance, in 1992, Ballard Power Systems Inc., Daimler-
Chrysler AG and Ford Motor Corporation formed a strate-
gic alliance to pool their resources and idiosyncratic
knowledge to research and develop new fuel-cell technol-
ogy. The goal for entering into their strategic alliance was to
establish competitive leadership in their industry related to
alternative energy storage options that help reduce green-
house gasses.
In other instances, the idiosyncratic resources that are
pooled among alliance partners may be political in nature.
Political resources relate to an understanding of nonmarket
environments, access to decision makers and opinion
makers, and an ability to bargain (Boddewyn and Brewer
1994). Other political resources are financial (Frynas et al.
2006). Firms that possess these resources are likely to have
an enhanced political reputation and greater ability to build
coalitions; they also are recognized political entrepreneurs
(Frynas et al. 2006).
Applied to complex environmental problems, firms may
seek to form a strategic alliance to gain access to political
resources that could not be acquired independently. The
acquisition of these resources can be leveraged to force
industry-wide changes by way of influencing the environ-
mental policy agenda (Darnall et al. 2008) and supporting the
promulgation of more stringent regulatory mandates that put
competitors at a disadvantage (Etzion 2007). One example is
when BP Chemicals, DuPont, Rohm and Haas, Air Products
and Chemicals, and other three firms formed a strategic
alliance to develop alternative energy solutions to mitigate
greenhouse gas emissions. The alliance was also formed to
lobby environmental regulators for ‘‘early crediting’’ of
firms’ voluntary proactive reductions of carbon dioxide and
other greenhouse gases (SDC 2011). By pooling their
resources, these firms increased the likelihood of achieving
their political goal because they elevated their visibility and
enhanced their capacity to influence the policy making
process. In pushing for more stringent climate-related poli-
cies, alliance members put their competitors at a disadvan-
tage. Indeed, their efforts forced ExxonMobil and other
competitors to soften their more defiant stances toward
climate change and consider how alternative energy tech-
nologies can help address the problem (Kolk and Levy
2001).
A second resource-based motivation that firms have for
participating in strategic alliances is the ability to increase
their organizational learning (Kogut 1988; Hamel 1991;
Gulati 1998). Organizational learning is the development
of insights, knowledge, and associations between past
actions, the effectiveness of those actions, and future
actions (Fiol and Lyles 1985). In forming a strategic alli-
ance, firms may seek to acquire critical knowledge from
other partners to develop new ideas and ways of doing
business (Kogut 1988; Hamel 1991). Related to complex
environmental problems, strategic alliances can facilitate
the flow of valuable information among participating firms,
thus promoting higher order organizational learning. Such
learning involves the development of different interpreta-
tions of new and existing information (Sharma and Vre-
denburg 1998), which enhances partnering firms’ abilities
to create, acquire, and utilize their knowledge-based
capabilities in a more effective way. For instance, in 1992,
16 US corporations formed the Buy Recycled Business
Alliance to develop and expand business demand for
recycled products and product inputs. In so doing, members
offered seminars and workshops to managers to promote
organizational learning related to recyclables (SDC 2011).
Participants acquired specific knowledge that helped them
to convert their manufacturing processes in a way that
utilized more recycled products. Equipped with this
knowledge, participants were able to critically assess their
purchasing practices, and the practices of their suppliers.
They learned how to examine their suppliers’ use of
recycled materials as product inputs, such that they could
require their suppliers to provide them with higher volumes
of recycled raw materials and greater recycled content in
finished goods (SDC 2011).
Other sorts of organizational learning may be more radical
in form. This sort of learning poises partners to collectively
examine emerging technologies and trends in the product
market, with an eye towards identifying and developing rad-
ically new alternatives to existing products. These strategic
alliances can shift existing business practices toward creating
fundamental changes that lead to the next-generation (Hamel
1991) of business models and technology development.
Fundamental repositioning of this sort is referred to as ‘‘cre-
ative destruction’’ (Schumpeter 1934), and differs from
incremental enhancements of existing technologies and
business practices because it renders them obsolete.
Related to complex environmental problems, the social
need to address these collective action concerns may be
catalysts for a new round of creative destruction that offers
unprecedented business opportunities (Hart and Milstein
1999). This setting creates incentives for firms to come
H. Lin, N. Darnall
123

together and pool their information and knowledge to
develop radically improved innovations, which preempt
existing technology to address environmental issues (Kemp
1994). Since the competencies that are developed through
creative destruction tend to be rare, idiosyncratic and dif-
ficult to imitate (Hart and Milstein 1999), strategic alliances
that develop the next-generation of business models and
technologies can enhance competitive advantages for alli-
ance partners.
When confronted with complex environmental problems
managers make sense of them by drawing on knowledge
related to their organization’s existing internal competen-
cies and capacities. This understanding helps them to
assess their subsequent strategic options. Firms that have
strong internal competencies therefore are more likely to
regard complex environmental issues as strategic business
opportunities (Larson 2000; Sharma and Vredenburg 1998)
because they have the foundational capabilities to address
them in a proactive way.
In sum, RBV offers one basis to understand why some
firms participate in strategic alliances related to complex
environmental problems. It illustrates how firms can
enhance their resources and internal competencies, thereby
creating knowledge and organizational learning. We refer
to these sorts of strategic alliances as competency-oriented
alliances.
However, not all firms regard complex environmental
problems as opportunities. Managers who make sense of
these complex problems by drawing on their organization’s
existing capital investments and technologies and industry
standing are more likely to regard them as strategic busi-
ness threats (Larson 2000; Sharma and Vredenburg 1998).
In such instances, strategic alliances many be developed
primarily to enhance the external legitimacy of alliance
partners. We suggest that firms’ motivations for developing
these sorts of alliances are better articulated using institu-
tional theory.
Institutional Motivations
Institutional theory posits that (within a common setting)
rules, norms, and values exert pressures on firms to adopt
similar practices and structures (DiMaggio and Powell
1983) in an effort to gain social legitimacy and enhance
survival prospects (Meyer and Rowan 1977). In some
instances, these pressures are exerted on firms by other
organizations upon which they are dependent, as well as by
the cultural expectations in which they function (DiMaggio
and Powell 1983). In other instances, professional norms
encourage businesses within the same industry to behave
similarly to appear legitimate in the eyes of their compet-
itors, and to mimic other organizations that they perceive
as being more successful (DiMaggio and Powell 1983).
Within complex environmental settings, institutional
pressures arise from at least three sources: the regulatory
system, industry norms, and community constituents (Hoff-
man 2000). Regulatory pressures involve coercive legal
mandates for organizations to adhere to regulations, rules, and
norms (Oliver 1991). Firms that fail to yield to regulatory
pressures risk obtaining non-compliance penalties, revocation
of permit approvals, and unwanted media attention (Henri-
ques and Sadorsky 2006). In an attempt to reduce these reg-
ulatory pressures, firms may react by forming strategic
alliances (Baum and Oliver 1991; Dacin et al. 2007). For
instance, some energy intensive firms have strategically
aligned in an effort to lobby against the passage of more
stringent climate policy. Doing so has helped justify these
firms’ current business practices, avert the promulgation of
more stringent climate policy, and avoid penalties that would
have accrued in the event that they failed to adhere to the
stricter environmental requirements. Rather than viewing the
risks associated with the passage of these climate change
policies as being an opportunity to reorient their business
practices, these firms regard regulatory pressures as a threat to
their existing business practices that is best met with political
opposition.
In other instances, firms may form strategic alliances to
enhance the industry’s social legitimacy and preempt regu-
latory pressures through some incremental behavior change
(Davidson and Worrell 2001). For example, in 1991, the
U.S. Environmental Protection Agency threatened to tighten
regulation on the production of polystyrene production, a
petroleum-based plastic that is a significant source of toxic
waste. In response, Amoco Chemical, Atlantic Richfield,
Chevron Chemical, Dow Chemical, Fina, Huntsman
Chemical, Mobil Chemical, and Novacor Chemicals signed
an agreement that formed a joint venture, which they called
‘‘National Polystyrene Recycling Corporation.’’ This stra-
tegic alliance was created to produce recycled postconsumer
polystyrene (SDC 2011). Formation of this alliance signaled
to politicians, regulators, and the public that chemical
companies could voluntarily self-regulate their environ-
mental impacts thus preempting more stringent polystyrene
regulations.
While regulatory pressures also have the potential to
foster creative thinking, and competence acquisition (Porter
1991), rather than simply justify existing practices, such
potential is contingent upon the design of these regulations
(Porter and van der Linde 1995) and managers’ interpreta-
tions (Sharma 2000) of them. In instances where firms
respond to regulatory pressures by acquiring competencies
(e.g., Sharma and Vredenburg 1998; Sharma 2000; Sharma
and Henriques 2005) such response is informed by their
existing resources and capabilities (Blum-Kusterer and
Hussain 2001; Delmas and Toffel 2004; Shrivastava 1995;
Darnall and Edwards 2006). That is, firms that possess
Strategic Alliance Formation and Structural Configuration
123

existing capabilities are more likely to develop comple-
mentary capabilities to address regulatory pressures (Darnall
and Edwards 2006) as strategic business opportunities.
Taking this logic a step further, we suggest that firms’
competency-oriented responses to regulatory pressures (and
the sense making involved in these responses) are what lead
to the acquisition of new capabilities, rather than simply the
regulatory pressure on its own.
Alliances that are borne out of regulatory pressures
therefore tend to differ from the competency-based alliances
described earlier. On one hand, competency-based alliances
seek to pool idiosyncratic political resources to support the
promulgation of more stringent environmental regulatory
mandates, or radically redesign their existing business
practices in an effort to make competitors’ products and
processes obsolete. On the other, firms that are motivated by
regulatory pressures may strategically align to legitimize
their existing business practices, products and processes.
These firms wish to safeguard their present operations, which
typically meet (rather than exceed) current environmental
requirements, and utilize political resources to do so.
Industry norms are a second type of institutional pres-
sures that motivate firms to form strategic alliances. Firms
operating within similar industries and their professional
associations exert normative pressures to collectively
improve an aspect of their operations, thereby enhancing
the industry’s overall legitimacy (Hoffman 1997; Etzion
2007). For instance, in 1994, 124 electric utilities came
together to participate in the US Department of Energy’s
Climate Challenge Program to collectively improve the
their public image and reduce the climate emissions for the
utility sector as a whole (Delmas and Montes-Sancho
2010). In so doing, allied firms were able to ameliorate
normative pressures from their professional networks, and
conform to values and social norms exerted by the indus-
trial associations.
Other industry pressures arise in response to competing
firms that seek more stringent regulatory codes or standards
for the entire industry (Hoffman 1997). In response, some
firms may choose to form a strategic alliance in an effort to
imitate their competitors’ successful business practices.
Doing so can help them maintain legitimacy within the
industry or regain standing, both of which help ensure their
long-term survival. For example, after leaders in the energy
industry formed the Responsible Energy Codes Alliance to
establish a more aggressive energy standard, other firms
felt normative pressure to align with the initiators of this
alliance to imitate their successful energy conservation
practices and maintain legitimacy among industry peers
(SDC 2011).
Community constituents (including environmental NGOs
and societalgroups) are a third source of institutional pressure
that motivates firms to form strategic alliances. As public
concerns about environmental degradation increase, com-
munity constituents increasingly are imposing pressures on
companies via environmental activism and lawsuits (Delmas
and Toffel 2004). These constituents can mobilize public
sentiment, alter accepted norms, shift firms’ environmental
perceptions, and impose new roles on the firms, especially
when they manage to align with influential regulators and
investors to advance their agenda (Hoffman 2000). In an effort
to improve their legitimacy with these constituents, firms may
be motivated to form a strategic alliance to justify their col-
lective environmental approach. For instance, in 1997, the
Environmental Defense Fund published a report entitled
Toxic Ignorance, which identified a lack of publicly available
data on the chemicals produced in the highest production
volumes. This report (and the public attention it created) put
significant pressure on the chemical industry to respond. The
pressure motivated the industry’s trade association, the
American Chemistry Council, to initiate the High Production
Volume Chemical Challenge Program. This alliance sought
ways to encourage chemical companies to voluntarily collect,
summarize, and evaluate their existing chemical data, in
addition to undertake additional testing (Kent 2004). The
alliance’s goal was to reduce community constituents’ con-
cern about high production volume chemicals, and improve
the chemical industry’s overall community standing rather
than modify its routine business practices (Kent 2004).
When confronted with complex environmental problems,
some managers make sense of them by drawing on knowl-
edge related to their existing capital investments, techno-
logical development and industry standing to inform their
subsequent strategic options. Firms that have relatively
large investments in capital and existing technologies are
more likely to respond to institutional pressures by regard-
ing them as strategic business threats (Larson 2000; Sharma
and Vredenburg 1998). Institutional theory therefore offers
an important basis to understand how business threats from
regulators, industry norms, and community constituents
motivate some firms to participate in strategic alliances.
Responding to these pressures can improve the social
legitimacy of partnering firms, which in turn may enhance
their chance of survival (Dacin et al. 2007). We refer these
sorts of alliances as legitimacy-oriented alliances.
Relationship Between Alliance Orientation
and Structure
Firms’ motivations to participate in strategic alliances—
either competency- or legitimacy-oriented—are likely to
influence alliances’ subsequent structural configurations.
Competency-oriented alliances are typically borne out of
firms’ desires to enhance their resources and internal com-
petencies, thereby creating knowledge and organizational
learning. Legitimacy-oriented alliances tend to form from
H. Lin, N. Darnall
123

firms’ desires to maintain or increase their social legitimacy.
We suggest that these distinctions affect four structural
dimensions. More specifically, we posit that competency-
oriented alliances tend to have structures of learning that are
more explorative, partners that are more diverse, governance
structures that are more flexible, and partner relationships
with stronger ties. By contrast, legitimacy-oriented alliances
tend to have a structure of learning that is more exploitative,
partners that are less diverse, governance structures that are
less flexible and partner relationships with weaker ties. The
four structural dimensions are discussed fully in the sections
that follow.
Alliance Learning: Exploration vs. Exploitation
Learning
Learning is an organization-wide continuous process that
enhances the firm’s collective ability to accept, make sense
of, and respond to internal and external change (Cyert and
March 1963). Many scholars categorize alliance learning
into exploration learning for the development of new
opportunities, and exploitation learning for the deployment
of an existing capability (e.g., Koza and Lewin 1998,
p. 256; Rothaermel and Deeds 2004). Exploration learning
tends to stimulate radical behavioral changes through risk-
taking, experimentation, flexibility, discovery, and inno-
vation, while exploitation learning facilitates incremental
changes through refinement, production, implementation,
and execution (March 1991).
Alliances that emphasize exploration learning encourage
firms to acquire novel understandings, investigate new
technologies and markets, and adapt to technological dis-
continuities (Lin et al. 2007). We suggest that this sort of
learning is borne out of alliances that form from compe-
tency-oriented motivations. Firms that implement explo-
ration learning tend to perceive the uncertainty and
unpredictability related to new competency development as
an opportunity to pool resources among alliance partners to
pursue alternative business models and advance techno-
logical leadership. These firms are more likely to make
investments in risky, long-term partnerships that involve
experimentation and innovation (Park et al. 2002; Levin-
thal and March 1993; Lin et al. 2007). Through the pro-
motion of exploration learning and innovation, these
alliances are likely to encourage firms to make far-reach-
ing, radical and transformative changes. The outcome of
these sorts of innovations include the development of new
products, the formulation of new markets, and the identi-
fication of a sustainable new means of servicing existing
markets (Etzion 2007). For instance, in 1999, Honda Motor
Corporation, General Motors Corporation, and Bayerische
Motor Werke AG combined resources to develop hydrogen
fuel cell vehicles with an aim of taking a lead in developing
fuel cell vehicles (SDC 2011). This alliance focused on
exploration learning since it developed a new line of
business and established stronger market leadership for
partnering firms. Because this sort of learning structure is
more focused on developing new competencies, novel
business opportunities, and technological innovations, we
posit that firms that are motivated to form competency-
oriented alliances are more likely to conduct exploration
learning.
Proposition 1a Competency-oriented alliances are more
likely to be associated with firms’ explorative learning.
By contrast, firms perceiving the heightened societal
pressures of complex environmental problems as being a
threat are more likely to implement exploitation learning to
increase their stability, certainty and conformance. Exploi-
tation learning focuses on refining existing business activi-
ties so as to obtain approval from regulatory, industry and
community constituents, thereby enhancing their survival
aspects. We suggest that this sort of learning is borne out of
alliances that form from legitimacy-oriented motivations.
Unlike competency-oriented alliances, which develop
structures that promote the development of new technolo-
gies, legitimacy-oriented alliances develop learning struc-
tures that promote what Barringer and Harrison (2000)
described as the replication or expansion of existing prac-
tices. This sort of learning encourages strategic alliance
partners to imitate legitimate practices, refine or standard-
ize their current routines, and reduce risks and costs
(Barringer and Harrison 2000; Lin et al. 2007).
In many instances, exploitation learning also helps
alliance partners demonstrate to the public that their current
business practices have merit, thus reduce public scrutiny
over their existing business operations. In addition, this sort
of learning assists partnered firms with commercializing
their established technologies through large-scale manu-
facturing or disseminating existing successful models and
practices through licensing. For instance, Thermal Energy
International (TEI) entered into a strategic alliance with
American Electronic Power, with the goal of deploying
TEI’s existing Thermalonox nitrogen oxide emissions
control technology in coal-fired power generating stations.
By doing so TEI was able to expand applications of its
existing technology (SDC 2011) and increase credibility of
TEI’s current business practices among key constituents.
This example illustrates how exploitation learning helps
alliance partners reap unclaimed benefits from existing
technologies and enhance legitimacy associated with firms’
existing business practices, which may improve their
prospects for long-term survival.
Proposition 1b Legitimacy-oriented alliances are more
likely to be associated with firms’ exploitation learning.
Strategic Alliance Formation and Structural Configuration
123

Partner Diversity: Heterogeneous vs. Homogeneous
Partners
A second structural dimension that differentiates compe-
tency- and legitimacy-oriented strategic alliances is partner
diversity. Partner diversity refers to organizational partic-
ipation from multiple industries and sectors (Kotabe and
Swan 1995; Powell et al. 1996) such as firms, universities,
research laboratories, suppliers, and customers (Powell
et al. 1996), in addition to regulators and NGOs. Aligning
with diverse partners increases the prospects for variability
among partnering firms’ complementary capabilities. It
also enhances innovation opportunities, since the locus of
innovation often originates from outside the base industry
(Kotabe and Swan 1995; Powell et al. 1996). We suggest
that firms with competency-based motivations are more
likely to form a strategic alliance with a partnership
structure that involves diverse partners.
One type of diverse partnership involves multiple firms
that operate in a variety of industries. Heterogeneous
partnerships such as these pool the complementary assets
of diverse members towards innovation and new market
entry (Sakakibara 1997). By their very nature, these alli-
ance structures are less likely to have overlap among the
competencies of alliance partners. By combining their
complementary assets alliance partners can enhance their
innovative productivity (Sakakibara 1997; Teece 1992).
For instance, the Buy Recycled Business Alliance (men-
tioned previously) was a partnership whose goal was to
develop and expand markets for recycled products, and
address the distribution bottlenecks and regional gluts of
recyclable materials (SDC 2011). The alliance combined
the complementary competencies of 16 firms from a vari-
ety of industries, and sought to create a new integrative
market for recycling products.
In other instances, firms’ heterogeneous partners may
include a cross-sector (non-corporate) entity, such as NGOs,
government agencies, or quasi-governmental organizations
(Rondinelli and London 2003). These partners typically have
organizational missions that diverge significantly from the
profit-making motives of private business, in that they focus
on improving societal welfare (Darnall and Edwards 2006).
Cross-sector partners therefore tend to view social chal-
lenges as opportunities for creating new service models
(Selsky and Parker 2011). Collaborating with these partners
creates a sensemaking platform (Selsky and Parker 2011)
wherein managers may conduct higher-order organizational
learning (Christmann 2000) and become more forward
thinking in addressing complex environmental problems.
The cross-sector partnership also promotes innovation
because of the unique expertise that varied alliance partners
bring into the discussion. Like alliances that include firms
from heterogeneous industries, these partnerships generally
do not have redundant capabilities. As a consequence, they
have a greater propensity to push innovative boundaries
towards investigating creative business solutions (Lin 2012).
For instance, the Pew Center on Global Climate Change and
the World Resource Institute are environmental NGOs that
are working closely with firms to promote and disseminate
environmental solutions/technologies. By exploring win–
win solutions that benefit business and society, these cross-
sector partnerships encourage partner firms to shift their
corporate mindsets toward the adoption of innovative busi-
ness models or technologies to proactively address complex
environmental problems.
Other cross-sector alliances involve universities or labs
(Rondinelli and London 2003) that help partner firms
innovate, develop upstart companies (Rothaermel and
Deeds 2004), and create new competencies that sustain
their market leadership (Powell et al. 1996; Rothaermel
and Deeds 2004). For instance, in 2007, BP partnered with
University of Berkeley in a cross-sector alliance, with the
goal of co-developing new bio-fuel technologies. BP’s
hope was that by participating in this cross-sector alliance,
it would further the company’s industry position by pro-
ducing innovative bio-fuels that mitigate climate change.
Similarly, in 1994, Allied Signal aligned with the US
Department of Energy’s National Renewable Energy
Laboratory (NREL) to develop technologies for recycling
carpets. In this alliance, NREL contributed its process
knowledge to convert carpets made of nylon-6 fiber into
caprolactam (the raw material used to make nylon 6). By
acquiring NREL’s process knowledge, Allied Signal was
able to recover and reuse caprolactam, and recycle
approximately 1.8 million tons of nylon carpet sent to
landfills each year (OIT 2001). The partnership also helped
Allied Signal gain a competitive foothold in the recycling
business. These examples illustrate how heterogeneous
partners can work together to combine their complemen-
tary capacities toward developing novel competencies and
market opportunities. They also suggest that competency-
oriented alliances are more likely to be associated with
firms’ alignment with more diverse partners.
Proposition 2a Competency-oriented alliances are more
likely to be associated with firms’ alignment with more
diverse partners.
On the other hand, firms may align with homogeneous
partners from the same industry. We suggest that legiti-
macy-oriented alliances are more likely to involve homo-
geneous partners to collectively improve their legitimacy
and avoid potential future regulations on an entire industry.
In seeking legitimacy, firms tend to adopt reactive postures
(Oliver 1991,1997; Bansal 2005; Rivera et al. 2009). More
specifically, to avoid future penalty and improve the
credibility for the whole industry, firms with legitimacy-
H. Lin, N. Darnall
123

oriented motivations are more likely to align with same-
industry partners to defensively lobby for less stringent
regulation or standards. An industry-wide alignment of this
sort may strengthen partners’ bargaining power and
enhance opportunities for them to reshape their regulatory
contexts (Oliver 1991), in favor of their existing business
practices. For instance, in the mid-1990s, many oil com-
panies perceived that regulatory pressures to address cli-
mate change were increasing. This pressure encouraged a
large number of firms within the industry to establish an
alliance—the Global Climate Coalition in Washington—to
aggressively challenge climate science and collectively
lobby against mandatory emissions regulation. In doing so,
these firms successfully thwarted the threat of climate
change-related regulations and their associated business
risks, thus legitimizing the petroleum industry’s existing
practices to policymakers.
In other instances, firms that form legitimacy-oriented
alliances are likely to develop alliance structures that
involve homogeneous partners to signal their attempt to
improve the industry’s standing. For instance, in the mid-
1980s, public concern about safety and environmental
issues related to the chemical industry’s operations (largely
due to the Bhopal chemical explosion) pushed industry
firms to develop the Responsible Care Program to signal to
the public the industry’s attempt to proactively manage its
toxic environmental chemicals. By imitating the obser-
vable aspects of successful competitors (Mauri and
Michaels 1998), some firms were able to reduce what Al-
chian (1950) refers to as the uncertainty and cost associated
with developing their own specialized internal competen-
cies. Other firms with weaker environmental records were
able to partner with greener industry firms in an effort
(either sincerely or symbolically) to improve their envi-
ronmental image (Delmas and Montes-Sancho 2010), and
reduce scrutiny from critical stakeholders.
Firms that form legitimacy-oriented alliances also tend to
involve homogeneous partners to replicate and expand their
successful business practices. For instance, in 2007, Covanta
Holding Corporation aligned with Guangzhou Development
Industry (Holdings) Corporation Ltd to provide waste-to-
energy management and disposal services. This partnership
with Guangzhou Development Industry allowed Covanta
Holding Corporation to draw on its existing businesses
models and replicate them in the global market (SDC 2011),
thus enhancing its industry standing.
Some firms with institutional motivations may seek out
cross-sector partnerships with environmental NGOs and
government agencies to reduce stakeholder pressures (Arya
and Salk 2006), without necessarily improving their envi-
ronmental performance. However, these strategic alliances
are less likely to materialize or exist over time. Environ-
mental NGOs and government agencies tend to enter
partnerships with clear expectations that doing so will
achieve a social objective. Since partners retain organiza-
tional autonomy while participating in the alliance (Selsky
and Parker 2005), cross-sector partners are still obligated to
their critical stakeholders. In the event that environmental
NGOs and government align with legitimacy-seeking firms
that have incongruent social objectives, cross-sector part-
ners risk losing credibility and appearing ‘‘captured’’ by
business interests (Carmin et al. 2003). In addition, NGO
partners, often enter a strategic alliance with the hope of
encouraging radical corporate changes, rather than incre-
mental change (Fineman and Clarke 1996). The differing
values and missions of cross-sector partners therefore make
it be less likely that strategic alliances founded on legiti-
macy principles would ever form or exist over time. For
instance, the ski industry’s trade association joined an
alliance with the Sierra Club, The Nature Conservancy, and
the National Resources Defense Council, and the U.S.
Forest Service in 2000 to reduce environmental impacts at
privately operated ski facilities (Rivera and deLeon 2004).
However, during the formation of this alliance, all three
environmental NGOs withdrew support because they
believed that the partnership’s environmental goals were
too weak and therefore incompatible with their organiza-
tional missions that foster environmental protection (Ri-
vera and deLeon 2004).
So while firms may acquire legitimacy initially by part-
nering with diverse cross-sector organizations (if they can
find a partner willing to do so), environmental NGOs and
government agencies are less likely to remain committed to
the partnership does not yield substantial environmental
improvements.
For all these reasons, legitimacy-oriented alliances are
more likely to be associated with firms’ alignment with less
diverse (same-industry) partners. Aligning with these
partners can help address external pressures to improve the
industry’s image, reputation and strategic position, and
simultaneously replicate firms’ current business, which in
turn improves their chances of survival.
Proposition 2b Legitimacy-oriented alliances are more
likely to be associated with firms’ alignment with less
diverse (same-industry) partners.
Governance Structure: Non-Equity and Equity
Governance
The third structural dimension that differentiates alliance
orientations is their governance. Alliance governance refers
to the contractual and control mechanisms that allow alliance
partners to coordinate with each other (Kok and Creemers
2008) by way of non-equity (e.g., joint R&D) or equity
structures (e.g., joint venture) (Gulati 1995a,b; Dacin et al.
Strategic Alliance Formation and Structural Configuration
123

2007; Kok and Creemers 2008). Non-equity governance
structures are loosely coupled forms of organizing which
involve less formality and joint ownership (Gulati 1995a,b;
Dacin et al. 2007). By contrast, equity governance structures
are tightly coupled forms of organizing in which participants
are linked together by formal structures that often involve
joint ownership (Dacin et al. 2007).
Firms that are motivated to form competency-based
alliances are more likely to develop non-equity governance
structures. These structures tend to emphasize new product
development (Kok and Creemers 2008; Kogut 1988; Lin-
narsson and Werr 2004), and thus have contractual agree-
ments that offer partnering firms greater flexibility,
including the ease of termination (Osborn and Baughn
1990). Contractual flexibility facilitates the alliance’s con-
tinual redefinition as new ideas evolve (Koza and Lewin
1998; Kok and Creemers 2008), and sets the stage for more
radical innovations. For instance, the European bank Eu-
robank and telecommunication operator Eurotel aligned in
1995 to produce a number of significant service innova-
tions, including developing the first Internet bank system in
Europe (Linnarsson and Werr 2004) with a novel applica-
tion to reduce waste by using electronic billing services for
European customers. In governing this alliance, the two
partnering firms did not put great effort into a detailed
contractual commitment or equity agreement (Linnarsson
and Werr 2004). Instead, alliance partners informally reg-
ulated their activities by way of a simple ‘‘letter of under-
standing’’ that specified that each party bear its own costs
(Linnarsson and Werr 2004). This non-equity structure
offered the partnering firms with flexibility to adapt to
changes during the R&D process, and continuously modify
project design, as needed. This example illustrates why
firms that are motivated to form competency-oriented alli-
ances are more likely to pursue governance structures based
on non-equity agreements. These agreements increase the
flexibility that partnering firms have toward both adapting
to change and engaging in innovative activities that lead to
innovative product developments and business models.
Proposition 3a Competency-oriented alliances are more
likely to have non-equity governance structures.
By contrast, firms that are motivated to develop legiti-
macy-oriented alliances are more likely to implement
governance mechanisms that utilize equity agreements.
Equity agreements allocate profits or benefits (and usually
decision-making control) in accordance with equity shares
(Dacin et al. 2007). They also facilitate knowledge transfer
among alliance partners (Kostova and Roth 2002; Dhnanraj
et al. 2004), which may lead to greater technological sim-
ilarities among alliance partners (Mowery et al. 1996).
Equity governance structures are concentrated in the
manufacturing sector (Kogut 1988). At the manufacturing
stage, the uncertainty related to new product development is
reduced greatly because products and processes are beyond
the prototype stage and their associated benefits are more
apparent. By relying on equity agreements, alliance partners
can more readily share in value creation through expanding
and leveraging their existing products and processes and the
competencies that support them (Koza and Lewin 1998).
While the more formal governance structure of equity
agreements can hinder creativity in decision-making pro-
cesses (because of its reduced flexibility), strong control
mechanisms facilitate alliance coordination that is required
when expanding existing competencies and products (Kok
and Creemers 2008; Koza and Lewin 1998) through large-
scale manufacturing.
Equity governance structures can also help firms enhance
their credibility in foreign markets in response to local
regulations (Kogut 1988). This sort of market legitimacy is
particularly relevant when there is significant government
regulation, and government endorsement is essential for
existence in a particular market (Dacin et al. 2007). For
instance, in 1996, the Chinese State Planning Commission
announced its ‘‘wind power development plan,’’ which
required that 60–80 % of all large-scale wind turbine fan
parts be produced in China (SDC 2011). Many international
firms responded to this regulatory mandate by forming
legitimacy-oriented alliances. Because these firms had more
certainty related to the performance of their existing pro-
ducts (and because they had the necessary competencies in
place to develop these products) firms formed alliances with
equity governance structures to formalize their alliance
agreements. Doing so helped reduce the risks of their
engagement with partnering firms and derive market legiti-
macy for the production of their wind turbines in China.
Proposition 3b Legitimacy-oriented alliances are more
likely to have equity governance structure.
Partner Relation: Strong-Tie Versus Weak-Tie
Relations
The fourth structural dimension that differentiates alliances
is their partner relation. Partner relation refers to the intensity
of collaboration and the extent to which trust can be estab-
lished among alliance partners. It is characterized by the
strength of ties (strong vs. weak). Tie strength is defined by
the amount of time firms allocate towards achieving alliance
goals, partners’ intimacy in their interaction, and their reci-
procal service among alliance partners (Granovetter 1973).
When enhancing information and knowledge flows, firms
have a choice of creating a new tie or strengthening a current
one (Parmigiani and Rivera-Santos 2011). We suggest that
firms which form competency-based alliances are more
likely to develop alliance structures with strong ties among
H. Lin, N. Darnall
123

alliance partners, whereas, firms that form legitimacy-ori-
ented alliances are more likely to develop weak ties among
partnering firms.
Strong tie structures involve partnering firms developing
substantial relational norms and trust (Granovetter 1973),
and are especially important to firms that form competency-
oriented alliances because of partnering firms’ motivations
to identify and develop radically new alternatives to exist-
ing products. In strong-tie partnerships, partners have more
interactive communications (e.g., face-to-face interaction),
which may help enhance negotiation processes, mutual
commitment, trust, and shared norms (Ostrom 1998). These
alliance structures encourage firms to shoulder risks with
less fear that their alliance partners will take advantage of
them (Ring and Van de Ven 1992). Such a setting encour-
ages partners to commit resources towards both developing
new competencies and exploring new business opportuni-
ties. Further, strong-tie relations motivate partners to
exchange social capital and transfer more complex tacit
knowledge to alliance partners (Dhnanraj et al. 2004;
Parmigiani and Rivera-Santos 2011), which facilitates the
intensity and quality of knowledge sharing (Granovetter
1973) and organizational learning. Firms are therefore more
likely to develop competitive competencies with strong-tie
relations. Moreover, the reciprocal arrangements associated
with strong-ties relations encourage novel ideas to flow in
both directions (Marsden and Campbell 1984). This situa-
tion helps shape partners’ perception of new business
opportunities related to complex environmental problems,
and encourages the development of new competencies to
address these concerns.
For instance, BP partnered with EI du Pont de Nemours
and Co (DuPont) in 1997 to develop, produce, and market
the next generation of biofuels (SDC 2011). Achieving their
goal required that each firm collectively examine emerging
technologies, and develop radically new alternatives to
existing products. The collaboration necessitated an alliance
structure based on strong ties. Such ties involved both
companies sharing their tacit competencies, delivering
reciprocal services and contributing large amount of
resources for bio-fuel development. The trust and shared
common ground established by this partnership motivated
these companies (along with 8 other US firms and 4 envi-
ronmental NGOs) in 2007 to form the US Climate Action
Partnership. The partnership sought to benefit aligned firms’
investments toward emerging environmental technologies
by influencing the policy agenda to establish a mandatory
US cap-and-trade program for carbon dioxide emissions.
This example illustrates why firms that are motivated to
form competency-oriented alliances are more likely to have
strong ties among alliance partners. Such ties increase
partners’ trust and commitment, which is necessary to
transfer complex knowledge (Parmigiani and Rivera-San-
tos 2011) and to encourage organizational learning and
innovation.
Proposition 4a Competency-oriented alliances are more
likely to be associated with strong tie partner relations.
By contrast, legitimacy-oriented alliances are more
likely to develop structures that emphasize weak ties among
alliance partners. Alliance structures that have weak tie
partner relations have less intensive interactions among
partnering firms and therefore do not foster trust to the same
extent as strong-tie relations (Gulati 1995a). Since legiti-
macy-oriented alliances are formed to enhance the credi-
bility of partners’ existing business practices, rather than
develop novel competencies, weak ties with alliance part-
ners ensure that information sharing among partners is
explicit rather than tacit. Explicit information exchange
allows firms to imitate the successful business practices of
alliance partners. Doing so helps alliance partners improve
their legitimacy with key constituents, thereby enhancing
their ability to meet social norms and expectations regard-
ing their collective environmental approach.
In addition, while the lack of trust that characterizes
weak-tie structures relations is more likely to encourage
opportunism among partner firms (Maitland et al. 1985),
Oliver (1991) suggests that this opportunism does not nec-
essarily interfere with obtaining legitimacy for aligned
companies. For instance, many firms within the US plastics
industry are members of the primary industry association,
the American Plastics Council, in addition to its environ-
mental programs. Because participation has become an
industry norm, Barringer and Harrison (2000)notethatit
would be concerning for a major plastics producer to not be
a member of the association. The same is also true for US
chemical firms’ participation the chemical industry’s pri-
mary association, the American Chemistry Council, and its
environmental program, Responsible Care (mentioned pre-
viously). However, for both strategic alliances, the envi-
ronmental legitimacy program members accrue may lack
merit as the plastics and chemical industries are cited as two
of the five most polluting industries in the US (Mani and
Wheeler 1999). Moreover, firms that have aligned as part of
the chemical industry’s Responsible Care Program did so to
increase the environmental legitimacy of partnered firms,
but failed to improve firms’ overall environmental perfor-
mance (King and Lenox 2002). Yet both strategic alliances
were successful at diminishing public concern about their
respective industry’s environmental practices, which ulti-
mately reduced calls for more stringent regulation of the
industry as a whole. These examples illustrate that while
weak-tie structures may create avenues for opportunism
among member firms, this concern may not diminish with
Strategic Alliance Formation and Structural Configuration
123

the alliance’s ability to enhance the legitimacy of partner
firms.
Proposition 4b Legitimacy-oriented alliances are more
likely to be associated with weak-tie partner relations.
In summary, strategic alliances for complex environ-
mental problems (either competency- or legitimacy-ori-
ented) are borne out of resource-based and institutional
motivations, and can be characterized along four structural
dimensions—organization learning, partner diversity,
governance structure, and partner relations. These rela-
tionships are summarized in Fig. 1.
While emphasis on these four structural dimensions
differs significantly among competency- and legitimacy-
oriented alliances, within these alliance orientations, the
four structural dimensions are complementary and self-
reinforcing. Related to competency-oriented alliances,
exploration learning involves value creation associated with
upstream activities (Kauppila 2010). Such learning is
reinforced by aligning with diverse partners such as
research institutes, universities, governments and NGOs.
Diverse partners allow firms to gain access to comple-
mentary knowledge and assets that are not available in the
market place, and expose them to different values and skills,
which helps reinforce managers’ perceptions that complex
environmental problems offer novel business opportunities.
The interaction among diverse partners and the access to
otherwise inaccessible knowledge that comes with it are
also helpful for radical exploration learning and innovation.
Similarly, partner diversity and partner relation are also
complementary structural dimensions. Diverse partnership
settings allow firms to access to complementary knowledge
and assets that are not available in the market place, and
simultaneously expose firms to different values and skills,
which are helpful for radical organizational learning and
innovation. However, such innovative leaning generally
requires a greater commitment of resources and sharing of
proprietary knowledge, which are sensitive to transactional
hazards that lead to losses of value (Li and Ferreira 2008).
By drawing on strong-tie relations, partner firms can reduce
the likelihood of opportunistic behavior among alliance
partners and build commitment and trust in order to better
integrate their tacit and idiosyncratic resources and com-
petencies (Parmigiani and Rivera-santos 2011; Simpson
et al. 2011).
Other complementarities exist between partner relation
and governance structure. While the non-equity structure
associated with competency-based alliances provides the
flexibility needed for firms to pursue innovation and pro-
active environmental improvements, such structure also
increases opportunism risks due to its relatively weak
governance control. By combining, a strong-tie, non-equity
structures, firms can enhance partner trust (Gulati 1995b),
which diminishes the need for expensive equity-based
governance structures (Li and Ferreira 2008). This more
relaxed structure also allows partners to commit resources
and share risks in the exploration of new solutions for
environmental issues. To govern these alliances, firms
often rely on bilateral interactions to facilitate their strong-
tie relations, and create what Kauppila (2010) refers to as
cohesion among explorative relationships that emphasize
trust and respect. Doing so facilitates two-way learning
(Rondinelli and London 2003) and enhances firms’ cog-
nitive and behavior change (Levitt and March 1988; Iyer
2002). In short, exploration learning, diverse partner
structure, non-equity structure, and strong-tie relation are
complements that reinforce the radical change compe-
tency-oriented alliances aim to achieve.
Related to legitimacy-oriented alliances, similar rein-
forcing arguments exist. Since firms typically have a wider
array of responses to institutional pressures (Oliver 1991),
legitimacy-oriented alliances are more likely to involve
additional strategic positions, which can range from sym-
bolic participation, information sharing, knowledge imita-
tion, to business expansion, etc. In spite of this range,
legitimacy-oriented alliances are generally associated with
Fig. 1 Relationship between alliance orientation and structure
H. Lin, N. Darnall
123

homogeneous partners, with the goal of signaling compli-
ance, protecting the core business, and improving or
expanding on existing competencies, technologies, and
products. In instances where homogeneous partners engage
in symbolic participation and explicit information sharing,
they tend to encourage exploitative learning, which is
governed by weak-tie relations. In other instances, homo-
geneous partners may engage in exploitation learning (by
way of knowledge imitation and business expansion) that
increases value to alliance partners. Such activities typi-
cally rely on equity contracts to exploit partners’ existing
knowledge and technologies (Rothaermel and Deeds 2004;
Kauppila 2010), and guarantee certain benefits associated
with business expansion (Rothaermel and Deeds 2004).
Enhanced control facilitates income stability and mini-
mizes its associated risks. In summary, like the structural
elements of competency-oriented alliances, exploitation
learning, homogeneous partners, equity structure and
weak-tie relations are complements that characterize
legitimacy-oriented alliances. These structural elements are
self-reinforcing, and explain alliance partners’ varied ran-
ges of superficial or incremental cognitive and behavior
changes associated with legitimacy-oriented alliances.
Conclusions
This research considers the proliferation of strategic alli-
ances as a way of managing increased uncertainty and
complexity in the business setting. Using the theoretical
tenets of RBV and institutional theory, and multiple
empirical examples, we articulate why firms participate in
strategic alliances. Further, we develop several proposi-
tions that explain how differing motivations lead to varia-
tions in subsequent alliance structures. This approach
offers a broader perspective of observed patterns in firms’
participation in strategic alliances. We also provide greater
depth for how organizational learning, partner diversity,
governance structure, and partner relationships relate to the
organizational structure of alliances as a whole.
For management theory, this research extends RBV and
institutional theory by providing an important mechanism
for identifying competency- legitimacy-oriented alliances,
based on firm-specific motivations. We draw on RBV to
suggest that firms that participate in competency-based
alliances are motivated to enhance their resources and
internal competencies, thereby creating knowledge and
organizational learning. These firms combine their com-
plementary idiosyncratic resources, and facilitate the flow
of valuable information among participating firms, thus
developing valuable organizational competencies that can
lead to competitive advantage. Related to institutional
theory, we extend prior literature by describing how
legitimacy-based alliances are borne out of institutional
pressures that arise from the regulatory system, industry
associations, and community constituents. In responding to
these pressures, firms can improve their social legitimacy,
thereby enhancing their chance of survival. By considering
both theoretical views together, this research responds to
calls that utilizing multiple theoretical perspectives more
appropriately reveals important variations among organi-
zational relationships (Barringer and Harrison 2000;
Parmigiani and Rivera-Santos 2011). Our more integrative
approach extends previous alliance literature, which has
considered one view in the absence of the other. We sug-
gest that both theoretical views are useful towards under-
standing why firms form strategic alliances.
We further develop this research area by articulating the
theoretical links between the varied intent of alliance for-
mation and their subsequent structural configurations. In
exploring these issues, we propose that competency-ori-
ented alliances are typically characterized by exploration
learning, diverse partners, non-equity governance struc-
tures, and strong-tie partner relations. Additionally we
suggest that legitimacy-oriented alliances are generally
characterized by exploitation learning, homogenous part-
ners, equity governance structures, and weak-tie partner
relations. This broader (yet parsimonious) perspective on
alliance formation and structure offers important insights
that should be considered when investigating the perfor-
mance of strategic alliances.
We apply our framework to the setting of complex envi-
ronmental problems. While our framework is applicable to
the formation of all strategic alliances, by focusing on this
setting we extend prior research (e.g., Mitchell and Singh
1996) by considering how alliances that address complex
environmental problems differ from other sorts of partner-
ships in they are created in response to social problems that
affect many people, involve multiple jurisdictions, have an
undetermined regulatory trajectory, and typically lack
technical solutions. Strategic alliances that address complex
environmental problems also typically require significant
coordination among multiple organizations. As such, this
setting allows for potentially more varied firm responses,
which offers a richer context to explain our arguments.
Finally, we hope that this research will fuel greater interest
in understanding the numerous factors that shape strategic
alliance formation. Future study would benefit from exploring
additional theoretical perspectives that might inform alliance
formation. The initial framework developed here is an
importantstarting place for such an investigation in as much as
it articulates four structural dimensions that are likely to be
relevant in other theoretical settings. In addition, prospective
research would benefit from investigating the dynamic inter-
actions among alliance orientations and structures, as well as
examining their subsequent environmental performance. Our
Strategic Alliance Formation and Structural Configuration
123

position is that the interconnections among the four structural
dimensions of strategic alliances are likely to affect alliance
outcomes related to improvements in environmental perfor-
mance, market share, technology development, knowledge
creation, and a host of other factors. Assessments of strategic
alliances outcomes therefore should consider both the context
of why firms align, in addition to the subsequent structure of
the alliances themselves.
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