Strategic alliances are used by firms to access capabilities developed by other firms. In the academic literature, the traditional assumption has been that firms form alliances when they lack their own resources to pursue market or technological opportunities. However, new research by Shyam Kumar, an associate professor in the Lally School of Management and director of the MBA program at Rensselaer Polytechnic Institute, offers a different perspective.

In a paper recently published in the Journal of Management Studies, Kumar and his co-authors argue that alliances may be formed even if a firm has its own capabilities, but these capabilities are inaccessible to a division or a unit that requires them.

For instance, the pioneering British company EMI was unable to develop a new generation CT scanner in response to market needs due to internal constraints and frictions in sharing resources with its legacy CT scanner business. This situation is all too common in large conglomerate firms, where power and influence become dominant forces, and the corporate function has to tread a delicate line when allocating resources to satisfy multiple businesses.

The paper, titled “Internal Resource Allocation and External Alliance Activity of Diversified Firms,” argues that alliances are an attractive market-based solution for divisions, such as the newly emerging CT scanner business, to stay competitive.

Using a large sample of U.S. firms, the study provides evidence consistent with this motive of alliance formation among diversified firms. The study thus proposes a novel and understudied mechanism of alliance formation while highlighting how alliances can benefit the operations of large, conglomerate firms.

The paper was co-authored with Chaoqun Deng of Baruch College and Joseph J. Cabral of Louisiana State University.