Precarious collaboration: Business survival after partners shut down or form new partnerships

Abstract

Businesses often benefit by forming alliances with other firms but risk becoming dependent on their partners. We discuss two situations in which dependence may create serious problems: first, if a partner shuts down and, second, if a partner forms a relationship with a new partner. We examine collaborative relationships formed by businesses operating in the U.S. hospital software systems industry during the 1961-91 period. We find that businesses faced increased risk of dissolution if they did not form new partnerships after partners shut down or formed collaborative relationships with new partners. The results have implications for developing an evolutionary theory of business strategy and performance. Our approach implies that the performance of a focal business often depends on how the strategies of its business partners evolve over time. An evolutionary theory of strategy must incorporate key characteristics of actions and relationships throughout a web of business partnerships. The dual nature of interfirm relationships, which both help a business survive at one time and inhibit its ability to adapt at another, helps explain why so many successful businesses fail when their environments change.