Network strategy, innovation and performance: A taxonomy of firm networks based on competencies, network economics and market structure, and its application to the pharmaceutical and biotechnology industries

This research presents a Taxonomy of firm networks, based on the motivations of participants. Motivational distinctions provide insights into the conditions under which firms create hybrid governance forms, important for researchers and practitioners. The Motivations Taxonomy integrates strategy and economics literatures into a more holistic perspective on network strategy.; The Taxonomy categorizes firm network types into Network Economics, Competencies and Market Structure, representing integration between participants and change as additional dimensions. “Change” introduces a dynamic, evolutionary aspect. The conclusion reviews the Taxonomy as a mechanism for investigating the evolution and life cycles of firm networks.; An analysis of alliances within the pharmaceutical and biotechnology industries develops the Framework, including a historical discussion from 1945–2001, and an empirical examination of the relationship between Collaboration Rate (CR) and market performance of US pharmaceutical firms. Case examples, supported quantitatively and qualitatively, provide evidence for the efficacy and implications of the Taxonomy.; The industry history identifies critical events in terms of the Taxonomy that have transformed industry relationships. The empirical analysis evidences that from 1990–2001 the equities of large U.S. pharmaceutical firms that allied more also performed better in terms of market valuation and total return. A strong, statistically significant linear relationship exists between CR and both total return and P/E ratios. The strength of the correlation increased dramatically between 1996–2001.; The research also introduces network specificity, following from asset and firm specificity of the economics and strategy literatures. Network specificity applies where resources or capabilities have greater value as part of a particular network of firms, than in the general marketplace. Investments in network specific resources should provide some explanation for differential firm performance.; The resource-based, competencies, governance and relational view strategy literatures, as well as the industrial organization and network economics literatures, provide theoretical grounding.