Kyootai Lee
MBA. in Business Administration, Aug, 2003, Inha University, Korea.
B.E. in Industrial Engineering, Feb, 2002, Inha University, Korea.

Why Small-Medium Sized Software Firms Stay In Strategic Partnerships: An Empirical Investigation Of Four Theoretical Perspectives Focusing On Software Technologies

Abstract

Strategic partnerships of small and medium sized software firms (SMSEs) are dominant in current business practices. However, extant research has focused mainly on the strategic alliance formation between large conglomerates, and only a few limited studies have delved into the strategic partnerships in the context of SMSEs. To overcome this limitation, we aimed to identify the motives that lead SMSEs to retain the current partnership with a large IT vendor, focusing on the issues related to software technologies. In addition, we also investigated the relationship between SMSEs’ partnership retention and their partnership performance.

We built a research model based on three theories: transaction cost economics, resource based view, and theory of network externalities. These three theoretical frameworks provided a broader understanding of the context for SMSEs’ strategic partnership with a large IT vendor. Based on the three theories, we included the following variables in the context of a relationship with a large vendor: the compatibility of an SMSE’s technology, an SMSE’s technological lock-in, network size of the partner’s technology, uncertainty of the partner’s technology, asset specificity of the partner’s technology, complementarity of the partner’s technology, an SMSE’s partnership performance, and an SMSE’s intention to retain the partnership.

We pursued methodology triangulation, which consists of both a qualitative and a quantitative study. Since there are a limited number of studies that investigated issues related to SMSEs’ strategic alliances, triangulation would be an appropriate research methodology. In study 1, we conducted a qualitative study, which included interviews with chief level officers in five SMSEs. Based on the results of the qualitative study, we identified most variables that were hypothesized to be relevant to SMSEs’ strategic partnership. Additionally, we found an emergent factor, “legitimacy motive” based on institutionalism.

In study 2, we conducted a quantitative study based on a survey of chief level officers in 80 SMSEs. The survey included the constructs based on three theories and an emergent construct derived from the qualitative study. With regard to theory of network externalities, the results revealed that 1) compatibility of an SMSE’s technology and an SMSE’s price advantage affect an SMSE’s partnership performance, and 2) network size of the partner’s technology, compatibility of an SMSE’s technology, and an SMSE’s partnership performance influence an SMSE’s intention. In addition, compatibility of an SMSE’s technology was found to influence an SMSE’s technological lock-in, which may be a dark side of strategic alliances.

With regard to transaction cost economics and resource based view, interestingly, while asset specificity of the partner’s technology was found to affect an SMSE’s partnership performance and intention to retain the partnership in a positive linear pattern, the effect of asset specificity turned out to be non-linear (a U-shaped curve) once complementarity of the partner’s technology was included in the analysis. Finally, with regard to institutionalism, the results revealed that an SMSE’s legitimacy motive was the strongest factor that influences an SMSE’s intention to retain the partnership.

We provide in-depth discussion of the results. In addition, we offer an executive summary for practitioners (mainly C-level officers), who participated in the interviews and the survey, where we discuss the implications of the findings. This research theoretically contributes to understanding SMSEs’ strategic partnerships by identifying the effect of network externalities and institutionalism, and the complementary role of transaction cost economics and resource based view. It also practically guides C-level executives of SMSEs in their consideration of strategic partnerships with large IT vendors.

Defense of Dissertation Committee