Decision‐making biases in the alliance life cycle: Implications for alliance failure

Abstract

Purpose

The purpose of this conceptual paper is to examine how a focal firm's decision‐making biases at each stage of the alliance life cycle can cause alliance failures such as premature termination and less‐than‐expected productivity.

Design/methodology/approach

A dyadic decision‐making approach is used to examine the consequences of decision‐making biases in the evolution of alliances. Concrete cases are presented to substantiate the arguments.

Findings

Paying insufficient attention to an alliance partner's behavior causes different judgmental mistakes or decision‐making biases at different stages of the alliance life cycle. These biases can lead to alliance failure.

Research limitations/implications

Dyadic decision making provides a framework to explain persistent but poorly understood dysfunctional behavior in alliances. Although previous authors have acknowledged that safeguards and trust are effective ways to reduce dysfunctional behavior, their mechanisms are still unclear. The paper's arguments suggest that decision‐making biases may serve as crucial mediators of the relationship between governance designs (safeguards or trust) and alliance outcomes. Future work can provide evidence to verify this postulate.

Practical implications

Decision‐making biases emerge in the evolution of alliances and influence alliance performance. Understanding the influence of biases helps to prevent their negative effects and reduces the probability of alliance failure.

Originality/value

Dyadic decision making provides a behavioral framework that complements traditional economic and organizational perspectives in explaining interorganizational decision‐making outcomes in the real world. Three kinds of biases – overconfidence, single outcome calculation, and adjustment and anchoring – are discussed in the paper. The paper addresses how these biases can emerge in the alliance life cycle and lead to various types of dysfunctional behavior, which, in turn, may cause alliance failures such as premature termination and less‐than‐expected productivity.

Citation

Chao, Y. (2011), "Decision‐making biases in the alliance life cycle: Implications for alliance failure", Management Decision, Vol. 49 No. 3, pp. 350-364. https://doi.org/10.1108/00251741111120743