Formalization, Communication Quality, and Opportunistic Behavior in R&D Alliances between Competitors

For technology ventures (and also other firms), R&D alliances provide great learning opportunities and access to scarce resources. However, R&D alliances, in particular between competitors, also involve the concomitant threat of opportunistic behavior, which many firms attempt to manage by formalizing the partnership. Yet, prior research provided mixed findings suggesting that formalization alleviates opportunism, fails to do so, or, ironically, even promotes it. The questions of whether and, if so, when formalization can deter opportunism remains topical. This study differentiates two forms of opportunistic behavior, strategic manipulation and knowledge appropriation, and examines how they are affected by formalization per se and in combination with communication quality. Findings from 82 R&D alliances between competitors indicate that extensive formalization promotes opportunistic behavior. In contrast, communication quality mitigates the dysfunctional effect on strategic manipulation and also alleviates both forms of opportunism directly. Most effects vary with the type of opportunistic behavior. Our findings add to the literature by demonstrating a positive formalization–opportunism relationship in the context of R&D alliances and by suggesting that relational governance (communication quality) compensates for the dysfunctional effects of formal governance (formalization), rather than both having complementary relationships. The results also support the call for more research into nuances of opportunism: they show that differentiating forms of opportunism matters for understanding the efficacy of safeguards against opportunism. Managers are warned against over‐formalizing alliances, which spurs opportunism. Instead, they should cultivate an atmosphere of open communication while they can still maintain some “healthy distrust.” This attenuates the adverse effects of formalization, which is important since a certain level of formalization is often inevitable in R&D alliances.