The alignment of partnering strategy, governance and management in R & D projects : the role of contract choice

Firms increasingly look outside their organizational boundaries to identify partners that can improve the effectiveness of R&D projects. The strategy for using partners, however, varies significantly across projects. In some, partners are used primarily to lower development costs and/or supplement development capacity; whereas in others they are used to improve the performance or quality of the final product. How should these variations in partnering strategy impact the governance and management choices made within projects? We examine this question using data on 172 R&D projects from six different industries. We test hypotheses that examine first, how the choice of contract — whether fixed price, time & materials, or performance-based — for a project is shaped by its partnering strategy; and second, how this choice subsequently affects the relationship between partner integration and partnering performance in the project. The performance measures studied here focus specifically on partnering contributions to project costs and product quality. Our results indicate that the choice of contract is a function of the partnering strategy for a project, more flexible contracts being preferred in projects that seek long-run capability-based benefits and have broader scope of partnering relationships. These choices, in turn, impact the benefits associated with partner integration; while higher levels of partner integration are always associated with higher costs, they enable partners to contribute toward higher product quality only in projects that use more flexible contracts. We further show that in projects where partnering strategy and contract choice are misaligned, partner integration has no impact on product quality despite increasing project costs. We conclude by discussing the implications of our findings and suggest new directions for future research