LEARNING THROUGH ALLIANCES

An alliance is a flexible organization that allows firms with complementary strengths to experiment with new technological, organizational, and marketing strategies. The flexibility is valuable because the project undertaken through the alliance is uncertain. Flexibility is traded off against the weak incentive structure of the alliance. Although the principle goal of the experimental set-up is to learn more about technical and market parameters, learning also occurs about working in an alliance and could lead to greater competence in managing alliances, partially alleviating incentive problems. Through demonstration and externality effects. a few successful alliances can trigger more widespread alliance formation.