establishing trust during the formation of technology alliances

Establishing Trust during the Formation

of Technology AlliancesUrs S. Daellenbach1

Sally J. Davenport2

ABSTRACT. Technological innovation occurs as much

between organizations as within. In such knowledge-sharing

alliances, interorganizational issues influence the alliance in

combination with interpersonal interactions. Calls for

establishing trust and trustworthiness often feature in alliance

research, but they can be elusive for managers. Using a case

study of the formation of a technological alliance in the

robotics industry, we illustrate a model and propositions

focused on partner search and alliance negotiation, linking

previously proposed trustworthiness categories with the

concepts of organizational justice. In particular, we suggest

that procedural justice in alliance formation may be more

important to alliance progression than perceptions of

distributive justice.

JEL Classification: O32—Management of technological

innovation and R&D; M10—Business administration: General

1. Introduction

In many technology alliances the requirement forsharing of proprietary knowledge is widely recog-nized. This sharing is central to technologytransfer and commercialization as it creates boththe potential for significant benefits but also thepossibility of self-interested behavior by alliancepartners. At the point of alliance formation,knowing when to ally will only partly be basedon the specific content or value of the technolo-gical knowledge that is to be transferred, shared orcreated. Similarly, perceptions about their ownorganization’s ability to absorb and utilize theknowledge generated will be important (Kumarand Nti, 1998) but will serve primarily to bring the

potential partners to the negotiating table. As Dasand Teng (1998, p. 491) argue, ‘‘given that is itoften impossible to identify who is likely to actopportunistically, the interesting question is whatenables alliance partners to garner enough con-fidence in partner cooperation so that they are notoverwhelmed by the potential hazards in alli-ances’’.

A major factor cited for overcoming concernsabout partner cooperation is interorganizationaltrust—but often with limited elaboration—‘‘themagic ingredient necessary for alliances to suc-ceed’’ (Koza and Lewin, 1998, p. 259). While Dasand Teng (1998) discuss in detail the supplemen-tary character of trust and control in generatingconfidence in partner cooperation, they focus onfour factors (risk taking, equity preservation,communication and interfirm adaptation) thatrelate to information that will primarily beknowable once the alliance has been formed andactive for some period of time. Knowledge-basedtrust formed from these sources is unlikely to havedeveloped prior to the alliance and so will notdirectly influence the decision to enter into thealliance, unless the potential partners have under-taken alliances together previously (McKnight etal., 1998 note the need for time and an interactionhistory if such trust is to develop). As a result, weargue that a firm will make a decision to enter intoan alliance based on its assessment of thetrustworthiness of the potential partners, that is,based on an attribute of other organizations andtheir representatives rather than an attribute of thefuture alliance relationship (trust).

So how do firms initially assess the trustworthi-ness of new potential partners? We propose thatkey factors influencing these assessments emergeduring the alliance negotiations, with the indivi-duals involved having a significant impact. Byexamining the process through which trustworthi-

1Victoria Management School

Victoria University of Wellington

PO Box 600, Wellington, New Zealand

E-mail: [email protected] Management School

Victoria University of Wellington

PO Box 600, Wellington, New Zealand

Journal of Technology Transfer, 29, 187–202, 2004

# 2004 Kluwer Academic Publishers. Manufactured in The Netherlands.

ness perceptions develop early in the allianceformation process, we seek to augment the plat-form provided by prior evolutionary research onalliances (Ring and Van de Ven, 1994; Doz, 1996;Kumar and Nti, 1998) and other treatments oftrust in alliances (e.g. Das and Teng, 1998). Wealso address the agenda for further inquiryindicated by Spekman et al. (1998, p. 760) where‘‘in general, past research has ignored questions ofprocess’’.

The issue to be examined here is restricted toassessments of trustworthiness during allianceinitiation, that is, the period of indecision, andprocesses of decision, prior to the formation of atechnology alliance. We choose this focus because,while trust is regarded as the ‘‘ubiquitous variable’’in alliance research (Koza and Lewin, 1998), mostresearch to date has only considered directexperience-based trust following alliance forma-tion. We illustrate the decision process by drawingon examples from a case study of a knowledge-sharing technology alliance, as such a venturepresents many of the challenges to allianceformation that trust is predicted to overcome.The paper is organized as follows. First, knowl-edge-sharing technology alliances and a caseexample are briefly discussed. Next, the conceptsof interorganizational and interpersonal trust/trustworthiness are reviewed and the developmentof trustworthiness is linked to expectations andperceptions of fairness. Propositions relating to theantecedents of trustworthiness are then developed.We conclude with a discussion of the implicationsand limitations of this research.

2. Knowledge-sharing technology alliances

Interorganizational alliances and joint ventures arenot a new phenomenon, with the growth innumbers of international alliances fuelled bytechnological collaboration (e.g. Howells, 1990;Hagedoorn, 1996) and especially where nationalcompetitiveness might be at stake (see Casson,1991; Mytelka, 1991). Much of the growth inalliances, particularly in rapidly developing indus-tries, has been in ‘‘supply-side’’ relationships, inwhich access to technology, human capital anddistinctive organizational capabilities are theprimary motives (Powell et al., 1996; Shan et al.,

1994), in comparison to the more traditional (butstill dominant) ‘‘demand-side’’ alliances aimedprimarily at market control (Howells, 1990).Such supply-side alliances have been described asa ‘‘race to learn’’ (Hamel, 1990) and sincetechnology alliances, defined as modes of coop-erative activity ‘‘for which a combined innovativeactivity or an interchange of technology is at leastpart of the agreement’’ (Hagedoorn, 1996, p. 601)often involve knowledge sharing between (poten-tial) competitors, this can create additional con-cerns about forming an alliance.

Reflecting the growth in alliances in general,research on this interorganizational form has alsoincreased in a range of branches of organizationalstudies, including economics, management, publicadministration and science and technology policy(Hagedoorn et al., 2000). With respect to technol-ogy alliances, ‘‘[t]here is a vast literature thatattempts to explain, from a theoretical perspective,why firms enter into formal research partnershipsand what are the results of such relationships tothe partners, industry and society at large’’(Hagedoorn et al., 2000, p. 570). Generally,‘‘transactions involving the sharing, exchange orco-development of knowledge can be somewhatproblematic [ . . . and] in sum, alliances with anR&D component are likely to have highertransaction costs than those that don’t involvejoint R&D’’ (Gulati, 1995, pp. 90–91). As a result,some assessment of the trustworthiness of poten-tial partners is likely to occur prior to allianceformation. We seek to address the factors thataffect this assessment of trustworthiness, particu-larly in the case where the partners have no priorrelationship (either directly or through their net-work of trusted others).

We use the case of a technology alliance toillustrate the propositions that we develop. Theshiny robot venture (SRV) was formed between sixorganizations (% shareholding given in parenth-eses); a public sector research institute (16%), anindustry funding body (51%, because they ownedthe robot prototype), and four smaller partners(8% each). While the research institute haddeveloped some valuable intellectual property, itrequired other partners with different skills tosuccessfully commercialize the robot and, thus, itplayed the lead role in organizing and brokeringthe alliance. Its mandate was to operate ‘‘to the

188 Daellenbach and Davenport

benefit of New Zealand’’ which included havingthe technology commercialized successfully, allow-ing the institute to further justify its relevance toindustry and government. Determining the share-holding in SRV proved to be the first and a criticalchallenge in forming the alliance. Interviews withfour of the partners were undertaken shortly afterthe formation of the alliance, giving four organi-zational and 15 individual perspectives on the keyaspects of the formation process.

A full case study of the joint venture wasprepared from the interview material (Hubbard etal., 1999). A synopsis focusing specifically on theformation of SRV, from the perspectives of one ofthe partners to the negotiation, is given below:

In 1996, a proposal was circulating in the New

Zealand meat industry looking for potential partners

to further develop a new robotics product. A public

sector research institute had initially developed the

technology and it was now seeking partners to bring

the product to market. The technology looked

promising to John Brown [name disguised], the

CEO of a small firm that could definitely contribute

componentry to the production of the robot. Brown

also knew one of the potential partners, an industry

funding body that his firm had worked with before.

Being associated with the industry funding body, and

the research institute for that matter, in such a

venture would create positive benefits for the reputa-

tion of the smaller firms involved.

Through his network of contacts in other compa-

nies, Brown was able to find out some information

about the other firms that would potentially be

involved. Most had good reputations for high quality

work in their industry both locally and, for some,

internationally. One was a recent entrepreneurial

start-up but was rapidly becoming known for some

very innovative engineering development. The poten-

tial to work more closely with one or more of these

firms on other projects also existed and had also

attracted all of the potential partners to consider SRV.

While the technology and the business opportunity

looked attractive based on the business case presented

and the information available about the other

partners suggested they were trustworthy, Brown

had a lingering concern about the relative size of the

partners.Would the larger research institute dominate

the smaller partners?Would his firm be able to have its

say in the management of the venture, its future

development as well as reap rewards fairly?

Over the next six months, Brown’s fears were

largely allayed by the efforts of the joint venture

manager at the institute. This manager went to

considerable lengths to facilitate interactions between

the firms, and to consult and work with each of the

potential partners on the share value that any previous

and, in Brown’s case, potential future contributions

would represent. Brown was impressed with the

process that the manager employed to make sure

that each potential partner was satisfied with the

proposed governance structure. As a result, Brown

now felt that he was ready to trust these people and to

sign over his share of the investment capital.

This synopsis captures many of the factors thatwe believe affect trustworthiness assessments dur-ing alliance formation and, from which, ourresearch propositions will flow.

3. Trust and trustworthiness

Trust is recognized as essential for cooperativebehavior (Chan, 1997; Kim and Mauborgne, 1998)and the operation of network forms of organiza-tion (Creed and Miles, 1996). It is also perceived tohave a complementary and supplementary rolerelative to the use of controls (Das and Teng,1998). Numerous definitions of trust have beenproposed, with most referring to a combination ofexpectation and vulnerability. The lack of con-sensus on a definition is reflected in the range ofinterpretations of the concept, from the morespecific approaches, such as that taken in econom-ics (Das and Teng, 1998), in which trust is definedas ‘‘an expectation, and it pertains to circum-stances in which agents take risky actions inenvironments characterized by uncertainty orinformational incompleteness’’ (James, 2002,p. 291), to very broad definitions such as ‘‘con-fidence in the goodwill of others’’ (Ring and Vande Ven, 1994, p. 93). We draw on an intermediateapproach to trust as it pertains to alliances suchthat it reflects the expectation that partners will actcompetently and recognize and protect the inter-ests of other alliance members.

Trust is an attribute of a relationship (Barneyand Hansen, 1994) between partners. Partners aredefined as independent organizations that partici-pate in cooperative alliance agreements ‘‘which arenot connected through (majority) ownership’’(Hagedoorn, 1996, p. 615). Whilst much of the

Establishing Trust during the Formation of Technology Alliances 189

alliance literature, and the ownership criteriongiven above, imply that partner organizationscome from the private sector, partners in technol-ogy alliances will frequently span several sectorsincluding public or not-for profit organizations asillustrated by the case study used in this paper.

Trust, however, may or may not be present atthe beginning of the relationship (Flores andSolomon, 1998). With prior experience of relation-ships with a potential partner, trust may alreadyexist between organizations as interorganizationaltrust is incrementally built as firms repeatedlyinteract (Gulati, 1995; Gulati and Gargiulo, 1999)and mutually adjust to the prior alliance’sexpectations, evolution and demands (Doz,1996). However, without prior experience of anunknown or untried partner, how does trustdevelop? The initiation of trust begins by assessingthe trustworthiness of the potential partner (Shep-pard and Sherman, 1998) during the initiationstage of interorganizational alliances, here, refer-ring to partner search and negotiations (Ring andvan de Ven, 1994; Spekman et al., 1998). Incontrast to trust, trustworthiness is an attribute ofindividual exchange partners (Barney and Hansen,1994) and defined as the ‘‘compound virtue ofbeing dependable, capable, responsive and respon-sible’’ (Flores and Solomon, 1998, p. 209).Trustworthiness inspires trust and trust(ing) pre-supposes trustworthiness.

As a result, part of the process of partneridentification at the inception of an alliance willinvolve an assessment of whether the potentialpartner intends to, and will be able to, act fairlywith respect to developing and managing thetechnology, sharing costs, and distributing returns.Through such an assessment, expectations will becreated not only of the technology outcomes to betransferred/shared but also how transfer, sharingand management are likely to be handled andevolve. The creation of these expectations prior toalliance formation is likely to be critical to whetherthat alliance will proceed and which potentialpartners will choose to join.

Typically, the collaborative behavior that is thesubject of trust research is that which occursbetween individuals. Our interest in trust, though,is also in the trust that forms between organiza-tions. Whilst this usually still involves trustbetween individuals—the relationships between

firms are rarely faceless and monolithic, sincethey are actively handled and managed byindividual boundary spanners (Zaheer et al.,1998)—there is the added dimension of theorganization as an entity and its behavior in theformation of such trust. Zaheer et al. (1998)provide evidence that interpersonal and interorga-nizational trust are distinct but positively related.Their study, however, examined the evolution of,rather than the initial formation of, interpersonaland interorganizational trust. Furthermore, infinding that interorganizational trust was asso-ciated with higher perceptions of supplier perfor-mance and helped to reduce conflict andnegotiation costs between buyers and suppliers,whereas interpersonal trust was not associatedwith such benefits (Zaheer et al., 1998), thereappear to be advantages in developing interorga-nizational trust early in an alliance. We proposethat such trust in new alliance partners willinitially be based on each partner’s assessmentsof trustworthiness of the other partners.

Previous research suggests that assessments oftrust and trustworthiness are likely to be basedinitially on the personal interactions of boundaryspanning individuals (Katz and Kahn, 1978).Boundary spanners play a crucial role because ofthe frequency and depth of their social interactionswith potential partners (Friedman and Podolny,1992). The behavior and actions of these indivi-duals provide key signals about the organizationthat they represent and, in particular, the extent towhich a trustor perceives an organization astrustworthy. Williams (2001) proposes that assess-ments of trustworthiness of individuals and groupswill be formed from category-based beliefs (aboutability, integrity and benevolence) and affect foroutgroups (partners). Ability refers to the set ofskills or competencies that the partner has in aparticular area; integrity to the belief that apartner will adhere to a set of principles that areperceived to be acceptable; benevolence to another-oriented desire to do good for the partner;and affect to feelings, affective attachments andaffective states (Williams, 2001). In the context ofalliance formation, we argue that ability will formthe primary criterion for assessing trustworthinessduring partner search, whereas it is not untilalliance negotiation that other category-basedbeliefs and feelings can be assessed. These beliefs


and feelings will depend heavily on how thenegotiation and management processes used bythe boundary spanners are perceived, as theseprocesses represent the first forum in which thepotential partners interact.

4. Antecedents of trustworthiness

The gathering of information about trustworthi-ness during partner search and negotiations iseffectively based on a concern for fair dealing(Ring and van de Ven, 1994). For example, Jonesand George (1998, p. 535) note that ‘‘joint creationof a social situation involves each party trying tounderstand the other party’s expectations, needs,and goals.’’ Perceptions of fairness are created andevolve as a result of these social experiences and,initially, are likely to be synonymous with percep-tions of justice in an interaction, relationship orinstitution (Lind and Tyler, 1988). Individualshave historically been viewed as evaluating suchsocial experiences by the outcomes/rewards theyreceived, forming perceptions of distributive jus-tice. However, more recent research in socialpsychology has focused on procedural justice,which envisages a person, in some situations,being more interested in issues of process ratherthan outcome (e.g. Welbourne, 1998). Thus, theform of the social interaction may be equally, andin some cases more, important than the outcome(Lind and Tyler, 1988).

To date, the roles of distributive and proceduraljustice in interorganizational relationships haveonly been inherent in most of the alliance literature(e.g. Das and Teng, 1998), particularly observed inexplaining the demise of alliances (Doz, 1996).Kumar and Nti (1998) raise the role of organiza-tional justice concepts as explanatory factors fordifferential learning in alliances. They argue thatperceptions of procedural justice are particularlyimportant in stimulating the higher order attitudesof commitment, trust and social harmony betweenpartners and thus managerial psychologicalattachment to the alliance. Similarly, Johnson(1997) reports that procedural justice perceptionsimpact upon partners’ evolving commitment tojoint ventures.

Procedural justice has also been found to beparticularly salient when new organizations are

being created. Lind and Tyler (1988) argue for theubiquity of the concept in that ‘‘procedural justicephenomena appear in much the same form in awide variety of social settings’’ and that ‘‘many ofthe same factors determine whether a procedure isseen as fair, regardless of the context’’ (1988, p.129). As procedural justice has been found to be asignificant predictor of trust (Kim and Mau-borgne, 1998, p. 136), it is likely that perceptionsof organizational justice will be a major determi-nant in any assessment of trustworthiness. Thus inthe following discussion, we focus primarily onhow expectations and perceptions of proceduraland distributive justice may result during partnersearch and negotiation. Our model of the ante-cedent factors is given in Figure 1. In discussingthese different factors, we introduce examplesfrom the case study at the beginning of eachsubsection as an illustration of alliance partnerconcerns during alliance formation.

Antecedents of trustworthiness during partnersearch

Previous studies have identified three factorsaffecting assessments of trustworthiness that willbe relevant during the search for potential partners(prior experience with the partner, the potentialpartner’s reputation in networks of trusted others,and conditional trust). The first two of these havebeen studied extensively and so are only includedhere to provide a complete discussion of howtrustworthiness assessments are likely to beformed. Our focus, though, is on how theseassessments are made when the partners have no,or at most very limited, knowledge and experiencewith each other and so we discuss the nature ofconditional trust in more detail.

Prior experience. We’d worked a bit with [one of the

smaller partners], just a bit. [ . . . ] We’re faithful to the

people who have supported us as well. (Owner, one

of the smaller shareholders)

When a firm has prior experience of collaboratingwith a potential partner, procedural norms wouldhave already been established (Gulati, 1995) andany trust that exists will be knowledge-based(Shapiro et al., 1992), creating perceptions oftrustworthiness as indicated in the statement


above. Even if the previous alliance(s) did notresult in all of the expected outcomes, if proce-dural justice was perceived as being high due toeffective procedural norms, the firm may still havebeen satisfied enough with the strategic alliance asa whole and trust that similar norms wouldoperate in future relationships.

Reputation. I knew most of the other partners. I was

aware of, although I didn’t know [one potential

partner]. I had met him on one occasion and I was

aware of his history and what he’d done. (Owner, one

of the smaller shareholders)

When there is no direct prior experience with apartner, perceptions about the norms and standardsof procedural and distributive justice are likely to befirstly derived from, and endorsed by, the networkof organizations from which the organizationgathers information about the prospective partner.In this case, a firm’s reputation for trustworthinessacts as a proxy for shared collaborative history(Parkhe, 1993).Under their ‘‘group value’’model ofprocedural justice, Lind and Tyler (1988) suggestthat the group will construct norms of treatmentand decision making that regulate the group’sstructure and process so that when procedures arein accord with the fundamental values of the group,a sense of procedural justice results. If it is assumedthat such a process also happens within a group ornetwork of organizations, then a prospective

partner’s history of having previously conformedto the norms and beliefs of procedural justice maybe relayed via the network interrogation process(e.g. Hill, 1990). Thus, within the network,an organization’s reputation for fair (or unfair)process will provide a key indicator of theirtrustworthiness.

A secondary aspect to this is the credibility ofthe source of the information on a firm’s reputa-tion for trustworthiness. The tendency to use priorpartners as first choice options for future alliances(Gulati, 1999; Gulati and Gargiulo, 1999) suggeststhat individuals within these firms will representthe preferred source for information on others.Information from trusted previous relationships,particularly those with direct linkages to the newpotential partner, will be actively sought out andpotentially be treated in a manner similar to thefirm having had a direct linkage itself. This is lesslikely when the information on reputations isreceived from a source that is trusted, but not yetunconditionally.

Conditional trust. To a large degree, we went and

approached people that we felt could contribute.

[ . . . ] What we wanted to do was to get a group of

companies together where between them you had all

the expertise and experience you were going to need

to make this thing a success. (Manager, technology

research institute)

Figure 1. Factors affecting trustworthiness assessments during alliance formation.


It was presented that it was a reasonably good sort of

business opportunity. (Owner, one of the smaller

shareholders)

[The] actual association with complementary compa-

nies was a significant factor in my decision making

and it’s proven to be so. (Owner, one of the smaller

shareholders)

How does an initial assessment arise when neitherprior experience nor reputation provide suitableknowledge? In such cases, Jones and George(1998) suggest that the potential partners mayinitially suspend belief about the others’ actualtrustworthiness and assume that the other firm canbe conditionally trusted. This does not imply blindfaith in the other firm to be trustworthy. Rather,‘‘as Luhmann (1980) suggests, trusting and assum-ing the other shares one’s own values is oftenpreferred to initial distrust, since trust is the easieroption’’ (Jones and George, 1998, p. 535) due tothe costs of assuming or proving otherwise. Someresearch suggests that an initial intention to trust isnot so much based on evidence, but on a lack ofcontrary evidence (e.g. Gambetta, 1988; McKnightet al., 1998).

Based on the categories of trustworthinessassessments discussed by Williams (2001), wesuggest that during partner search assessmentsare likely to primarily focus on the potentialpartner’s ability. At this point of alliance forma-tion, few details of the alliance will have beendiscussed or finalized and information will beavailable primarily on each partner’s capabilitiesand past market or financial performance. Someinformation on the potential costs, risks andbenefits of the proposed alliance and activities tobe undertaken will also have been presented. Inthese circumstances, more capable partners arelikely to be perceived as more trustworthy, relyingon these firms’ professionalism and potentiallythreats to reputation to initially facilitate trust-worthy behavior. For example, while the researchinstitute initially focused on potential partner’sskills and capabilities, the smaller partners reliedon the business case presented and the prestige ofworking with the larger organizations as anindication of whether to pursue the alliancenegotiations further. Conversely, information onintegrity and benevolence would require a firm’snetwork to have knowledge about the potential

partner, which, if available, would eliminate theneed to start from a position of conditional trust.Thus,

Proposition 1: During partner search, a firm willassume a position of conditional trust with respect toa completely unknown but capable potential partner,that is, a favorable enough assessment fornegotiation of the potential alliance to take place.Assumptions of conditional trust will hinge on thepartner’s ability.

Antecedents of trustworthiness during negotiations

The expanded interactions associated with nego-tiating the alliance contract present a key differ-ence relative to partner search stage, allowinginitial assessments of trustworthiness based onprior experience, reputation, and conditional trustin particular to be updated. These interactions willalso facilitate the development of perceptionsrelating to other categories of trustworthiness,such as integrity, benevolence and affect.

Perceptions of procedural justice. There was an issue

of control of the company if you like. [ . . . ] But it

wasn’t as if it was an acrimonious negotiation. I think

the general intent of the negotiations was one of

cooperation and building a team of people. (Owner,

one of the smaller shareholders)

[ . . . ] how they handled it from the start—I think they

did it very successfully, bringing a group of people

together and sitting back and seeing how they

interacted. (Owner, one of the smaller shareholders)

I think personalities make a hell of a difference. I

mean, the dynamics of the group and their person-

alities has been very, very important. That was

obvious right from setup and the first meeting.

(Owner, one of the smaller shareholders)

While it is acknowledged as a complex relation-ship, several studies have shown that judgments ofprocedural justice play a key role in enhancingperformance-related attitudes and behavior (Lindand Tyler, 1988; Welbourne, 1998). Korine (1998),for example, found that procedural justice inbusiness unit management and team decision-making were shown to relate, respectively, tocustomer and product measures of team perfor-mance. This result mirrors the research that has, ingeneral, borne out the positive relationship


between perceived distributive justice and perfor-mance (Alexander and Ruderman, 1987; McFarlinand Sweeney, 1992). Therefore, it is expected thatperceived procedural justice within technologyalliances would correlate with improved allianceperformance and outcomes. In turn, perceptionsprior to the alliance, that procedural justice will beadhered to during the alliance, should also providekey signals of the trustworthiness of a partner.

During alliance negotiations, such perceptionswill shift from primarily considering a partner’sability, to also address integrity, benevolence andaffective states. From our case study, perceptionsof procedural justice in the negotiation stage wereprominent. These included satisfaction with theadoption of a cooperative, team-building focusacross the partnership and allowing time forinteraction and the development of shared norms.The six months it took to negotiate the agreementprovided the possibility for extensive consultationand meetings and also presented an opportunityfor personal ties to form. While information oneach partner’s abilities was undoubtedly beingassessed, there was a clear shift to more directlyassessing trustworthiness through considering howthe negotiation process was being handled andhow it was responding to concerns raised by thedifferent partners. Thus, we propose that:

Proposition 2a: Assessment of the trustworthinessof the potential partner will be positively related toperceptions of procedural justice during thenegotiation of the alliance. Integrity, benevolenceand affect will be the primary categories on whichprocedural justice is assessed.

Perceptions of distributive justice. There’s an accep-

tance that, okay, [the research institute] has done that

[the R&D on the prototype] and they’ve got a bigger

chunk of the company than the rest of us. Fair

enough—but I didn’t feel comfortable with the fact

that, for example, they and perhaps one other of the

smaller partners could have outvoted the other three

smaller partners. Because, I think in terms of

commercial success, the smaller partners have prob-

ably actually got a bigger part to play in the company

than [the research institute] has. (Owner, one of the

smaller shareholders)

We would have taken whatever percentage came our

way at some level because there was an opportunity

there. (Owner, one of the smaller shareholders)

Although we have emphasized the role of proce-dural justice, this is not to suggest that distributivejustice expectations do not play a role in assessingtrustworthiness. A key difference, though, is thatassessments of distributive justice typically remainas expectations until well after the formation of thealliance, since the knowledge outcomes will requiretime to develop. In contrast, the determination ofprocedural norms begins during the negotiationsand there is an opportunity to assess if processdiscrepancies (are likely to) arise. The initialconditions framing an alliance play a key role inwhether it becomes successful or unsuccessful(Doz, 1996) and so initial levels of (dis-)satisfac-tion with procedures may shape future interactionsbetween the alliance partners.

Historically, it was thought that fairness judg-ments resulted from expectations that particularoutcomes usually accompany particular proce-dures (Lind and Tyler, 1988). It was assumedthat attitudes and behavior regarding socialexperiences could be explained either through thelevel of outcomes relative to expectations orrelative to norms of fair distribution. This wasapparent in the SRV case with concerns surfacingover percentage ownership, centering around theskills and abilities that were needed to progress theventure—that is, seeking both recognition andrewards for the contribution that the smallerpartners would make and ensuring that they hadenough ownership to influence future decisionsand direction of the alliance. These concerns wereunlikely to have halted the formation of thealliance completely, although, if they had notbeen addressed, perceptions of procedural anddistributive injustice may have derailed the allianceat a later stage.

As this suggests, the process used to addressthese shareholder concerns was important. Moregenerally, higher distributive fairness judgmentsare associated with perceptions of proceduraljustice, that is an ‘‘enhancement of perceivedfairness of outcomes and concomitant satisfac-tion’’ is observed when procedures engenderperceptions of procedural justice (Lind and Tyler,1988, p. 186). However, the distinct nature ofprocedural justice has been hypothesized fromobservations that process dissatisfaction couldoccur even when favorable outcomes wereobtained and, in the converse situation, percep-


tions of fair process can enhance satisfaction withan interaction even when outcomes are notfavorable. In fact, it has been noted that ‘‘the useof a fair procedure can increase the satisfaction ofall concerned without any increase in the realoutcomes available for distribution’’ (Lind andTyler, 1988, p. 29). Overall, process judgments arelikely to have an important influence on percep-tions of distributive justice (Robbins et al., 2000).

Kumar and Nti (1998) also make the distinctionbetween procedural and distributive justice whendescribing four scenarios in which favorable orunfavorable process and outcome discrepanciesare matched with the stability of the alliance. Theyproceed to argue that as an unfavorable processdiscrepancy is harder to assess and may require thepartners to change behavior or to modify theimplicit contracts and norms governing the alli-ance relationship, then this will create moreinstability in the partnership. Similarly, we arguethat the consequences of perceived proceduralinjustice during the initiation stages on allianceformation are likely to be greater than distributiveinjustice in the decision to enter an alliance. Insummary,

Proposition 2b: During the negotiation of thealliance, assessment of the trustworthiness of thepotential partner will be positively related to anexpectation of distributive justice following allianceformation and completion. Ability will be theprimary category on which distributive justice isassessed.

and

Proposition 2c: Perceptions of distributive justicewill also be positively related to perceptions ofprocedural justice. During the negotiation of thealliance, assessment of the trustworthiness of apotential partner will depend more heavily onperceived procedural justice than on an expectationof distributive justice.

Power and organizational justice. [We], the other

smaller shareholders and myself, saw it as being

essential that three smaller shareholders couldn’t be

outvoted by [the research institute]. [ . . . ] not an

equal say because of the structure, but at least that

[the research institute] itself couldn’t have the

controlling vote above all the smaller shareholders

together or even with one of them. (Owner, one of the

smaller shareholders)

That process took about four months, okay. I mean

it started off as a whole lot of stuff about how it was

going to structured [ . . . ]. Essentially, from our point

of view, we only had one requirement and that was

that we had 51% of the shareholding—a controlling

interest and everybody seemed pretty relaxed about

that and it was really just a matter of working out on

what basis the company was going to operate and

that sort of stuff. And really the question was what

sort of shareholding [the research institute] was going

to have. Because it seemed that while most of the

other partners could accept [that we] should have the

majority shareholding because [we] owned the

technology, what they didn’t want to have was

another big brother—two big brothers in the same

company. So there was a lot of discussion about ‘how

many little people does it take to outvote one big

person sort of thing’? (Manager, industry funding

body)

One of the major consequences of perceptions ofprocedural justice is on compliance, that is, fairprocedures lead to greater compliance with thedecision with which they are associated. Onceagain, the converse situation reinforces this effect.Unfair procedures lead to higher levels of disobe-dience and to more efficient and clever disobe-dience, than do fair procedures (Lind and Tyler,1988). Perceptions of procedural justice are,though, further complicated by the power relation-ship between the partners, as the use of powertends to be a non-cooperative activity. As a result,the non-compliance effect of unfair procedures islikely to be magnified when those in power userules exploitatively.

The abuse of power with respect to proceduraljustice sometimes results in a rare ‘‘frustrationeffect’’ (Lind and Tyler, 1988). Lower distributivefairness or satisfaction is observed under osten-sibly fair procedures when participants perceivethat the procedure is corrupt—for example, if itappears that the procedure is being manipulated tomask personal gain behind a facade of proceduraljustice (Lind and Tyler, 1988). Other instances ofthis effect have been seen when the participantsbelieve that consultation (or ‘‘voice’’) proceduresare an insincere attempt to give the process theillusion of fairness rather than a genuine effort tosolicit views. Thus, the power balance between


partners may affect the perceptions and expecta-tions of whether procedural and distributive justiceare likely to be forthcoming in the future relation-ship.

Interestingly, the use of power may be morelegitimate during the negotiation of an alliance. AsDas and Teng (1998, p. 504) note ‘‘equity meansthat the firm contributing the most resources (bothtangible and intangible) to the alliance should getthe most from it [ . . . ] Should partners becomeconcerned about potential inequities in profitdistribution, for instance, their confidence in andcommitment to the alliance will most likely recede,even if the alliances are about to bring aboutpositive results’’. This suggests that while negotiat-ing the alliance, it will be necessary to push hardfor a good deal for one’s own organization.Otherwise, settling for a smaller share of theoutcomes would cause expectations of distributivejustice to be lowered for that partner. Using one’srelative power to get the right deal will probably,at worst, have a limited effect on expectations ofdistributive justice. It may even enhance it if itleads to heightened communication, which in turnmay facilitate the generation of understanding andshared values in the alliance.

Conversely, the use of power with respect todetermining procedures will not be seen aslegitimate. As Yan and Gray (1994) found, thecontrols adopted in the joint ventures they studiedwere dictated by the partner with the highestbargaining power, and in one case (of four) wherethe balance was particularly skewed, this imbal-ance in management controls appears to haveaffected the low performance perceived by the lesspowerful partner. Reardon and Spekman (1994)also note that power needs to be used carefully inthe negotiations stage, advocating mechanismsthat facilitate communication and empower allparties. In the robotics alliance, the processthrough which the research institute conductedthe negotiations gave the smaller partners voice inthe alliance contract, providing them with somedegree of control over future decisions, andindicating that their viewpoints would be consid-ered. Overall, the arguments presented suggestthat:

Proposition 3a: During the negotiation of thealliance, the use of power by a firm to determine

the alliance management and control procedures willlead to lower perceptions and expectations ofprocedural justice for the potential partners.

Proposition 3b: During the negotiation of thealliance, the use of power by a firm to determinethe future distribution of outcomes from the alliancewill have no direct effect on expectations ofdistributive justice by the potential partners.

5. Discussion

We implicitly and totally trust [the research institute]

that we deal with today. We wouldn’t even worry

about a contract with them in an important thing, we

just act on their word. I think it goes the other way. I

hope it does. (Owner, one of the smaller partners)

We have proposed that the assessment of thetrustworthiness of a potential partner evolvesduring the initiation of an alliance. During thesearch for partners, knowledge developed fromprior experience with that partner and its reputa-tion for fair dealing in the firm’s network oftrusted others will be the preferred bases forassessing the trustworthiness of a partner. Whereneither of these is available, Jones and George(1998) suggest that firms are likely to assume aninitial conditional trust stance, which will berevised during subsequent stages of the alliance.Furthermore, we suggest that during partnersearch, assessments of trustworthiness relating tonew or unknown partners will be based on theknown abilities of that partner, relying on thenegotiations of the alliance contract to provideboth additional signals of trustworthiness andsome security against opportunistic behavior.

For potential partners where no direct priorrelationship exists, knowledge-based trusting(Shapiro et al., 1992) only begins to developduring negotiations because this stage providesthe first substantive opportunity for the firms tointeract with one another. Negotiation of thealliance is thus a key stage, setting the platform forboth understanding and/or misunderstanding. Theinteractions of negotiations also make it possibleto include assessments on additional categories oftrustworthiness—giving signals about the integrityand benevolence of partners, and creating a forumfor social ties to develop. The negotiation stage is


the first time when process discrepancies may arise.As a result, perceptions of procedural justice willbe the major determinant of assessments oftrustworthiness at this point.

Given the key role that procedural justice islikely to play in shaping trustworthiness duringnegotiations with new partners, it would seemprudent to choose those individuals involved in thenegotiations carefully. If trust is based on expecta-tions held in common about the terms of anexchange relationship, as proposed by Zucker(1986), then perceived integrity will becomeincreasingly important to assessments of trust-worthiness. As was epitomized in the efforts of themanager from the public sector research institutein our case study, the negotiator has to act as an‘‘honest broker’’, a role that has been suggested asappropriate for governmental actors in partner-ship formations (Leyden and Link, 1999). How-ever, in our case the negotiator represented one ofthe potential partners that just happened to be agovernmental organization. Whether the presenceof an external negotiator, for example, oneappointed by government to act in this capacity,would impact on the organizational justice percep-tions would be an interesting question. It could besurmised that the presence of an external nego-tiator, who is present solely for the formationphase, may not encourage the development ofprocedural justice bases for trust and trustworthi-ness assessments that would be needed to underpinthe ongoing alliance relationship.

It is likely that trust and trustworthinessassessments during alliance formation will beinterpersonal (vs. interorganizational) in nature,with the interactions between the respectivenegotiators determining whether trusting formspart of the initial conditions for the alliance.Reardon and Spekman (1994) echo the call forcareful selection of negotiators. They also advo-cate distributing power to the advantage of allalliance partners. Proactively taking such stepsduring the early interactions of the negotiationprocess could well help to set the stage for thedevelopment of a trusting relationship that hasbeen cited as the key to successful knowledge-sharing alliances. Conversely, without the activedevelopment of perceptions of procedural anddistributive justice, conditional trust may well slipinto distrust.

In developing our propositions above, we haveassumed that a common perception of whatconstitutes fair process will exist or can be createdacross the potential partners, but this will notnecessarily be the case at the outset. Efforts atcreating procedural justice evoke a sense ofobligation as a precursor to trust (Sheppard andSherman, 1998). However, when one or more ofthe partners approaches the alliance with adifferent view of what constitutes appropriateprocess, the likelihood of fairness being perceived,and hence the assessment of trustworthiness, willinevitably be affected. For example, a moretraditional transaction cost perspective on justice,based on extensive contractual negotiation withstrong punitive sanctions, will influence the assess-ment of trustworthiness (Sitkin and Roth, 1993).The transaction cost approach to justice, which isbased on the assumption of self-interested oppor-tunism and coercive control, can be viewed as apessimistic approach to a relationship—for exam-ple, by shifting voluntary compliance based ontrust to compulsory compliance (Ghoshal andMoran, 1996). In the extreme, a potential partnercould perceive such an approach as the antithesisof trustworthy behavior based on fairness and,therefore, it may influence their intention to enterinto or contribute to the alliance.

Similarly, as was true for the alliance in our casestudy, the presence of inexperienced alliancepartners (that is, firms that have not been in any(or many) alliances) may leave them particularlywary of procedures that experienced firms take forgranted when establishing a new alliance. Indivi-duals within organizations can approach alliancesituations with the view that accepted procedureswithin their organizations are valid and legitimatein the alliance as well. While these procedures maybe fair, the process of adopting them will requirecare. Thus, the research institute in our case wentto extra effort and provided additional training forsome new alliance partners in order to familiarizethem with the governance procedures to be usedand their role in strategic decision-making in thealliance. Another source of differences in percep-tions of the appropriateness of procedures andtheir fairness arises from substantial size differ-ences across the partners. Overall, the potential forperceiving processes to be unfair suggests thatorganizations must pay particular attention to


creating the right conditions for cooperation(Gambetta, 1988).

The dispositional tendencies of the potentialpartners (Brockner and Siegel, 1996), that is,whether they are predisposed to more or lesstrusting behavior and how this predisposition isrealized, which may be a function of priorexperiences of fair treatment or otherwise, willalso influence the assessment of trustworthinessand the intention to trust (McKnight et al., 1998).Disposition is argued to be particularly importantwhen the interaction is between unfamiliar actors(Bigley and Pearce, 1998), such as a new alliancewith unknown partners. In such cases, institu-tional frameworks provide situational factors andsocial mechanisms (such as procedural norms) thatfoster trust and trustworthiness (Bigley andPearce, 1998). However, can we translate thedisposition to trust, as an inherently individualconcept, to an organizational disposition to trust?(Hagen and Choe, 1998).

While we have indicated the importance ofprior experience in the assessment of trustworthi-ness, even a tried partner may not remaintrustworthy. This situation could arise when theprior experience with the potential partner is basedon an interaction that took place some time in thepast. As a result, the influence of prior experienceon the assessment of trustworthiness may betemporal in nature. For example, the partnerorganization may ostensibly be the same, but haveevolved such that different individuals areinvolved in the actual inter-organizational nego-tiations and interactions. There is no doubt thatthe characteristics and personalities of the bound-ary spanners involved will influence the perceptionof trustworthiness (Zaheer et al., 1998) but thismay be at odds with any lingering organization-level perception of organizational trustworthinessfrom previous interactions. Such an imbalancemay moderate the trustworthiness assessment,which will depend on the level of surveillance oftrustworthiness behavior between previous andpotential interactions.

When the surveillance in the interim has beenlow, the organization may place more weight onthe knowledge embedded in the network of trustedothers. However, the network may not espouse asingular view of the reputation of the potentialpartner, particularly if that organization is not

central in the network, that is, when weak tiesexist. Individual network members may also havememories of differing experiences of the trust-worthiness of the potential partner. Thus, theknowledge gained from the network will dependon the number of trusted others that have knowl-edge through prior experience, and these may notlead to a clear assessment of trustworthiness.Surveillance of the potential partner within anetwork will also depend on the status orcentrality of that organization, as well as networkdensity (Brass et al., 1998).

All of these examples focus attention on howthe organization weights the relative influenceswhen creating its assessment, and how suchimplicit weightings change in different circum-stances or over time. Other issues associated withrelative weightings arise when the potential alli-ance is not a simple dyad, that is, when there aremultiple potential partners. As in the roboticsalliance, each organization has to make anassessment of the trustworthiness of every otherpartner, and balance the influence of the differenttrustworthiness assessment categories for eachpartner. Does, for example, the organization focusprimarily on assessing the trustworthiness of thepowerful partners, assuming that the more power-ful partners will have a greater influence onprocedural justice? Or does the fact that severalless powerful, but trusted, partners could form abloc to balance the perceived power of the largerplayers overcome concerns about the use ofpower? While we have included many of theseaspects in our model, at some point the assessmentof trustworthiness must reach some threshold, atwhich time the decision is made to enter or forgothe alliance.

We have also not delved extensively into thenature of appropriate measures for procedural anddistributive justice. We have argued that integrity,the adherence to a set of principles that areperceived to be acceptable, will be a centralconcern for procedural justice while abilities willbe important to the assessment of distributivejustice. Thus, previously proposed individual andintra-organizational measures for procedural jus-tice such as engagement (involvement in pre-decision consultation), explanation (of why deci-sions were made) and expectation clarity (under-standing of ‘‘new rules of the game’’) (Kim and


Mauborgne, 1997, 1998) will be perceived to befair to the extent that they fit well with thenegotiation norms accepted by the differentpartner organizations. Similarly, distributive jus-tice is likely to be perceived if the distribution ofoutcomes matches the skills and competencies thatthe different partners bring to the alliance and theextent to which these reflect those needed for thealliance to be deemed a success by each partner.

6. Conclusion

Trust is often accepted as a simple bipolarattribute or fact in alliance strategy research;either it exists or it doesn’t! Trust is certainlyacknowledged in many models of alliances and alack of trust is often cited as contributing toalliance failure (Duysters et al., 1999). However,we propose that processes surrounding the estab-lishment of trust, the related concept of trust-worthiness, and the perceptions and expectationscreated in concert, warrant more detailed con-sideration in investigations of alliance formation.

As a first step in this direction, we propose thatthe initiation of an alliance be viewed as twophases in which the antecedents of trustworthinessand trust are developed and evolve. The firstphase, that of searching for a partner, sees theorganization gathering information that will con-tribute to an initial assessment of the trustworthi-ness of that potential partner. The antecedents oftrustworthiness in this phase will be derived from acombination of prior experience with that partnerand the reputation of the partner in a network oftrusted other organizations, when available. Whena new unknown partner is being considered, astance of conditional trust will initially be taken,shaped by the available information on theabilities and performance of the partner as wellas the likely costs, risks and benefits of the alliance.We argue that, armed with this initial assessment,the organization will then decide to enter (or not)the negotiation phase.

In this second phase, we propose that the initialassessment of trustworthiness, and the likelydevelopment of the alliance trust discussed byother authors, will be moderated by the negotia-tion experience. In particular, we suggest that theinterpersonal concepts of procedural and distribu-

tive justice have much to offer the interorganiza-tional domain of alliance trust formation. Ourtranslation of the justice literature to allianceformation indicates that the experience of proce-dural justice during the negotiation phase willcreate expectations that procedural and distribu-tive justice will occur during the alliance, andhence influence the assessment of whether or notthe potential partner is trustworthy. We alsoindicate that procedural justice, and thereforetrustworthiness, perceptions will be heavily influ-enced by the use (or abuse) of a powerful positionduring the negotiations.

While we have concentrated on the establish-ment of trust during the initiation of an alliance,it is likely that consideration of interpersonaland interorganizational distributive and proce-dural justice concepts would also be useful inexplaining behavior and attitudes during andafter an alliance. The partners are likely to altertheir expectations and moderate their percep-tions of trustworthy behavior as the allianceprogresses. Alliance demise, for example, mayrepresent another decision threshold, at whichpoint the organization deems that an acceptablelevel of justice is no longer occurring and apoint of untrustworthiness has been reachedsuch that the costs of exit are less than theperceived costs of continuing to contribute tothe unfair alliance. While it was beyond thescope of this paper, research into the role oforganizational justice concepts in alliance failurewould therefore also be worthy of furtherresearch.

Furthermore, organizational justice conceptsare also likely to affect variables associated withalliance performance and evolution. For example,Alexander and Ruderman (1987) observed thatprocedural fairness was a more important influ-ence on socially mediated attitudes and behaviors(trust in management, job satisfaction etc.)whereas distributive fairness influenced attitudesand behaviors that were more individual in nature(intention to turnover). It could, therefore, behypothesized that procedural justice will influenceconflict, commitment and satisfaction measures ofan alliance, whereas distributive justice may have agreater influence on a partner’s decision to stay orleave an alliance. Kumar and Nti (1998) propose asimilar division in their process and outcome


discrepancy model, when they argue that outcomediscrepancies, which we equate to distributivejustice, influence the ability of the partners toachieve their (individual) economic and learningobjectives, whereas process discrepancies, whichwe equate to procedural justice, relate to thepartner’s (socially mediated) satisfaction with thepattern of interaction and feelings of psychologicalattachment to the relationship.

Many of the documented studies on theattributes of successful alliances propose similardependent variables. Mohr and Spekman (1994),for example, propose a partnership success frame-work of three factors; attributes of the partnership(commitment, coordination, interdependence,trust), communication behavior (quality, informa-tion sharing, participation) and conflict resolutiontechniques (joint problem solving, persuasion,smoothing, domination, harsh words and arbitra-tion). Similarly, Doz (1996) proposes learningconditions for alliance evolution of task definition,partners’ routines, interface structure and expecta-tions of performance, behavior and motives. Ringand van de Ven (1994) propose a process frame-work for the development of cooperative inter-organizational relationships consisting ofnegotiation, commitment, assessment and execu-tion stages.

The variables of these, and other frameworks(e.g. Larson, 1992; Larsson et al., 1998; Saxton,1997), are all slightly different either in title ordefinition, but the greater majority share certainsimilarities with the variables associated withorganizational justice concepts. It would, there-fore, be useful to have an overarching frameworkfor studying and categorizing these behavioralattributes of knowledge sharing alliances. It is ourproposal that an interorganizational version ofdistributive and procedural justice may well servethat purpose.

Overall, we see this proposal as a contributiontowards research into the processes through whichalliances form, with useful managerial implicationsfor forming alliances, and one that also holdspotential for considering the evolving relationshipsbetween founding characteristics and subsequentperformance.

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