Reports

Creating and Appropriating Alliance Value Through Customer-Centric Structures

Ju-Yeon Lee and Robert W. Palmatier, 2016, 16-127

Business practitioners have long recognized that their partners’ organizational structures affect their alliance success, yet little is known about how allying with a customer-centric partner contributes to business and alliance performance.

In two studies, Ju-Yeon Lee and Robert Palmatier examine the effects of partners’ customer-centric structure on both alliance and firm performance, analyzing secondary, multi-source data of Fortune 1000 firms over a 17-year period.

Study 1 adopts an event study methodology and shows that when two firms enter into an alliance, structural asymmetry—an alliance between two firms with different structures (such as between customer- and product-centric firms)—affects their ability to pool and integrate relational resources, such that asymmetry improves value creation in marketing alliances but undermines it in R&D alliances. They also find that firms with customer-centric structures appropriate a greater share of the created value than their product-centric partners. The effects are enhanced or suppressed by two relational factors, temporal relational overlap and spatial relational overlap.

Study 2 takes a portfolio approach and offers some guidance regarding how product-centric firms should construct their alliance portfolios to overcome strategic vulnerability in terms of appropriation of alliance value, relative to their customer-centric partners in an alliance. The findings reveal that a product-centric firm can enhance its performance by increasing the share of customer-centric partners in its alliance portfolio.

Overall, the studies reveal that a customer-centric structure enables firms not only to cultivate relational market-based resources but also to leverage those resources in alliances. Specifically, the study provides the following managerial implications:

Structural asymmetry increases the pie in marketing (but not R&D) alliances. In marketing alliances, the value created through structural asymmetry is almost four times greater than that achieved with structural symmetry. In contrast, in R&D alliances, the value created through structural symmetry is nearly three times greater than that resulting from structural asymmetry.

Firms with customer-centric structures capture more of the pie. On average, customer-centric firms capture almost three times more of the alliance value than their product-centric partners. This implies that product-centric firms pay a price to gain access to the relational resources possessed by customer-centric partners.

Customer-centric alliance portfolios only benefit product-centric firms. On average, a 1% increase in the share of customer-centric partners in an alliance portfolio increases a product-centric firm’s ROA by 18%. Yet, the effect is negative for a customer-centric firm, with a 17% decrease in its ROA. Thus, having more customer-centric partners in the alliance portfolio is only beneficial for product-centric firms (i.e., hurts customer-centric firms).

Ju-Yeon Lee is Assistant Professor of Marketing, College of Business and Economics, Lehigh University. Robert W. Palmatier is Professor of Marketing and John C. Narver Chair in Business Administration, Michael G. Foster School of Business, University of Washington.

The authors are grateful for financial support for this project from the Marketing Science Institute (RA 4-1908).

Related links

Effect of Customer-Centric Structure on Firm Performance
Ju-Yeon Lee, Shrihari Sridhar, Conor M. Henderson, and Robert W. Palmatier (2012) [Report]

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