The Alignment of Contract Terms for Knowledge-Creating and Knowledge-Appropriating Relationship Portfolios

Abstract

Interfirm collaborative relationships for developing new products involve the two fundamental tasks of creating new knowledge and appropriating the newly created or current stocks of knowledge. This study examines the alignment of two contract terms—form of resource integration (how partners integrate their resources) and form of equity sharing (whether partners are engaged in equity investment)—for knowledge-creating and knowledge-appropriating relationship portfolios. By analyzing interfirm relationship agreements initiated in the pharmaceutical industry between 1990 and 2006, the author shows that knowledge-creating and knowledge-appropriating relationship portfolios benefit from different alignments of contract terms to address their unique concerns. The author also shows that the appropriate alignments of contract terms are more critical for small firms than for large firms. The results provide specific insights into the management of knowledge-creating and knowledge-appropriating relationship portfolios for developing a greater number of radical and incremental new products.

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