Greater adaptivity or greater control? Adaptation of IOR portfolios in response to technological change

This paper addresses the question of how firms accomplish the strategic task of adapting their entire set of IORs (interorganizational relationships) to changing environmental conditions. To study this, we move beyond the focus on collaboration with individual partners (the dyadic perspective) that has been the dominant emphasis in the literature until now. Instead, we view the firms’ portfolios through the lens of the different modes of IOR engaged in (licensing agreements, non-equity alliances, venture capital investments, minority investments, joint ventures, and mergers & and acquisitions). We study the role of environmental change within the high-tech setting of the bio-pharmaceutical industry and distinguish between industry technological change and firm-specific technological change. In doing so, we rely on prospect theory to theorize how firms’ perceptions of environmental change in terms of a looming loss or a potential gain affect their risk-bearing, how this leads them to adjust their IOR portfolio diversity, and how these adjustments get implemented at the mode level. Whereas most of our hypotheses were confirmed by the study, a key unexpected finding was that firms respond to both types of technological change through stronger forms of adaptation than theoretically anticipated. Firms adapt to industry technological change through an increase in the diversity of their portfolio of IORs and by churning it up, which leads to a loosening of control at the individual mode level but greater adaptivity at the portfolio level. When facing firm-specific change instead, they adapt by reducing portfolio diversity, while cutting back on collaboration across five out of the six modes. Our findings both contribute to the literature on organizational adaptation, interfirm collaboration, and IOR portfolios and provide a greater behavioral understanding of network change.