Recent work in the Strategic Management Journal coauthored by Pankaj Kumar, Xiaojin (Jim) Liu, and Akbar (Aks) Zaheer, helps add fresh insights into the sources of variation in firm profitability. A firm’s alliances and networks offer a unique source of value, including access to external resources and novel information.

After analyzing 16,381 business segments during the 1979-1996 period, the authors found that firm’s alliance network contributes to 11% of the variance in firm profitability. When the period is extended to 2018 the results broadly hold.

Instead of viewing firms as being part of a network of relationships, much empirical work tracing the key sources of firm performance treats firms as atomistic, stand-alone entities. This assumption is at odds with most views of the role of alliances and networks in firm strategy, which consider alliance networks as critical to firm value creation. While it is important to pay attention to the industry of which the firm is a part, or to focus on its internal resource and capabilities, scholars and practitioners alike have also pointed to the commonplace use of alliances to help firms achieve their strategic goals.

The study addresses the question: does the firm’s alliance network matter for firm performance? Consistent with prior studies, the authors employ a variance decomposition method in which the variation in business-segment profitability is broken down into the variance attributable to different sources. The key idea is to explore whether a firm’s network membership explains variance in firm profitability over and above generally accepted sources of variance: its industry membership, its year of operation, corporate parent affiliation, and its business segment.

The authors use the Shapley Value method to tease out the sources of variance in firm profitability. The main advantage of this technique is that it is agnostic to the non-independence of variance sources, the order in which different sources are entered, and assumptions pertaining to the fixed versus random nature of effects. Despite numerous variance decomposition studies, this study is one of the first to empirically demonstrate the role of alliance network membership as a sizeable source of the firm’s profitability variance.

In addition to reinforcing existing findings that business segment effects explain the most performance variance (32%), followed by corporate parent (11%), and industry (3%) effects, the study finds that the firm’s network membership accounts for a substantial 11% of the total variance in its profitability.


Kumar, P., Liu, X., & Zaheer, A. (2022). How much does the firm’s alliance network matter? Strategic Management Journal.


Pankaj Kumar is Assistant Professor in Management at the Pamplin College of Business, Virginia Tech.

Xiaojin Liu is Assistant Professor in Supply Chain Management and Analytics at the Virginia Commonwealth University.

Akbar (Aks) Zaheer is Professor and Curtis L. Carlson Chair in Strategic Management at the Carlson School of Management, University of Minnesota.

Published Date
03 February 2022

Article Type
Article Press Release, Article Summary/Abstract


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