Alliance portfolio diversity, organizational slack, and firm performance

Abstract

In this paper we analyze whether and how the availability of internal resources in the form of slack influences a firm ability to deal with partner diversity in its alliance portfolio. Alliances with diverse partners provide access to a broader pool of complementary resources, but they also entail significant coordination costs. In this context, we argue that slack acts as a doubleedged sword that can either facilitate or hinder the management of interdependencies among different alliance projects. Accordingly, we further argue that the net impact of slack will depend on the firm’s experience in dealing with the challenges posed by portfolio diversity. Empirical analysis on a sample of firms from the automobile industry provides support for these arguments and confirms that slack critically moderates the relationship between alliance portfolio partner diversity and firm financial performance. In particular, our findings reveal that while at low moderate levels of partner diversity slack negatively moderates this relation, at higher levels of partner diversity this effect reverses and the moderating effect of slack turns out to be positive. These findings suggest that organizational slack is an important factor to consider in the study of alliance portfolio management.