Asymmetric Partnerships

Kirsimarja Blomqvist has devoted much of her research toward understanding the dynamics of partnerships between large and small firms¹.  Beyond the obvious asymmetry of size, Blomqvist has concluded that differences in pacing and strategic intent make such partnerships very difficult to consummate.

In asymmetric partnerships the complementary strengths, skills and knowledge may be used for common good and cooperating partners may aspire goals they could not reach for themselves.  However the small and large...firms' different logic of strategy, mode of operation and diverging cultures cause also problems...It is expected that if we can understand the core differences due to asymmetry and their effects on partnership formation, we may be able to build better partnerships with higher chance to succeed.

The perceived benefits of collaboration between large and small firms is straightforward.  Large firms want better access to promising innovations.  Small firms want access to manufacturing and marketing capacities.  Nevertheless, beyond that high level of agreement, there are at least two key differences in approach.

First of all, large and small firms view the strategic objective of partnerships differently.  Small firms view "partnership as necessity" while large firms perceive "partnership as an opportunity window."   In other words, a large firm will typically view a partnership with a small firm as a real option–the right, but not the obligation, to invest in a growth opportunity:

Partnerships allow large firms to change their focus more easily and thus cut their losses, if the new technology will not prove itself.  R&D projects with outsiders are usually much easier to terminate than internal projects, where in-house politics step into the picture.  Also the commitment to small firms need not necessarily be made until the risk is clearly reasonable and the rewards to be seen...Strategic partnerships with long-term commitment are necessary to [small firms], but large firms approach [partnerships] with small firms more like strategic options with tentative commitment.

That is, partnerships between large firms and small firms offer flexibility to the former if and only if commitment is contingent.  Small firms, of course, want the opposite–they desire the immediate commitment of their partner's manufacturing, marketing, and distribution resources.  Furthermore, "Commitment is also relative.  In large firms there are many ventures and in the small firm there may be only one venture for which the small firm is totally committed."  Even if the small firm extracts a sufficient degree of commitment from the large firm, "Commitment is person-based and...there is always the risk that [champions] change their position..."

Second of all, the pace of decision-making at large and small firms is dramatically different.  At small firms, decisions can be made almost instantaneously.  In contrast, decision making at large firms is slow, complex, and unpredictable.

The net result, quite often, is that "these differences cause unrealistic expectations, misinterpretations, confusion and mistrust among parties."  In addition, "Both parties suffer from additional transaction costs of search, negotiation and adaptation but these costs are probably relatively larger to innovative small firms."

Lack of trust may well explain much of the commonly experienced difficulties in technology partnerships among small and large technology firms.  If the parties are very different (asymmetric) from each other they might have difficulties to understand and appreciate each other.  If parties are able to build trust and obtain trusting relationships with the key actors, the evident minor troubles may not break the relationship.  Trust is a necessary ingredient for cooperation and it can not be created without some understanding and appreciation of the other party's competencies and norms of conduct.

Because the business logic of collaboration between large firms and small firms (and even individuals) is so compelling and because the challenges to successful collaboration can be formidable, I believe that there is a role for innovation intermediaries in moderating the divisive forces of asymmetric strategic objectives and relative pacing:

• An innovation intermediary can take a portfolio approach, which helps to align its strategic intent more closely with that of large firms.  Closer alignment, in turn, enables the innovation intermediary to take a longer view of a relationship, which helps to mitigate relatively high search and transaction costs.  Strategic alignment is also consistent with the objective of developing personal relationships with senior management at large firms, who have the ability to make more durable commitments.
• At the same time, the innovation intermediary's relatively small size enables it to better match the speed and flexibility of the small firm.

Even so, collaboration is difficult–however necessary it may be.

¹Asymmetric Partnerships: Different Characteristics and Motivation of Small and Large Technology Firms, Telecom Business Research Center Lappeenranta Working Papers 3, 1999.