Towards an Integrative Approach to Alliance Failure

Diplomarbeit von Jan-Philipp Büchler

Abstract:

The past decade has seen increased academic interest in strategic alliances because alliances have developed to a centerpiece of corporate strategy. The number of newly formed alliances has been growing at more than 25 percent annually throughout the last decade and most large companies have at least 30 alliances; many have more than 100 in their alliance portfolio. According to empirical studies about 90 percent of the questioned companies are embedded in one or more alliances, which seem to be proliferating with increasing competition and globalization.

Yet despite the ubiquity of strategic alliances, reality shows that many alliances fail. They do not meet the goals of the parent companies and fall short of expectation for different reasons i.e. alliances do not perform as intended. Empirical researchers find that between 30 percent and 70 percent of alliances fail. However, there is neither a comprehensiv understanding of alliance failure and success nor a managerial framework that would allow to improve alliance performance.

Although a number of theoretical approaches as well as empirical studies have developed possible answers for the understanding of alliance failure by examining single factors, the review of the existing literature and investigation into the different theories shows that the reasoning is of a narrow view. To date, researchers mostly pay attention to individual aspects, but do not hold a holistic perspective. Most studies attribute failure to a wide range of factors including cultural, technical, financial, structural, and strategic aspects. The identified factors are neither wrong nor right but based on different assumptions and views that still remain unclassified, unstructured and incomparable. Due to overlaps, imprecise terms and a missing conceptual framework, the outcome is very limited in terms of explanation of alliance failure and success. Thus, the literature on alliance failure does not provide an adequate view of the interdependence and system of the identified factors.

Furthermore, researchers have not developed a multidimensional and systematic framework for the analysis of alliance failure and success so far. The importance of the interdependence amongst different alliance failure factors is not reflected in the existing literature.

Due to the high rate of failure of strategic alliances and the lack of a systematic and coherent understanding of the influencing factors of failure, the theoretical development of an integrated approach to alliance failure is more than overdue for scientific research as well as for managerial practice.

The objective of this thesis is to enhance the understanding of alliance failure and success in order to give implications for management. To this end, three sub-goals are derived:

Development of a multidimensional and coherent framework for further analysis of alliance failure and success. This framework will contain all of the identified factors for the success and failure of alliances.

Description of the interdependence amongst the dimensions of this framework.

Depiction of an integrative model of alliance failure with a special focus on the interdependences of the different dimensions and implications how to manage them added by practical examples.

This thesis consists of five major parts. After the introduction to the topic of strategic alliances and their failure, the second chapter focuses on a classification of alliances within the context of interorganizational forms of cooperation, i.e. as a third form of coordination aside from market and hierarchy. The basic nature of alliances is shown and the different forms of alliances are explained as well as the goals and motives for their formation. The understanding of the life cycle of alliances gives an insight into the dynamic evolution and change of alliances. Throughout the life cycle an alliance has to manage different success and risk factors driving alliance success or failure which are shown in detail. The analysis of these factors along the life cycle of an alliance also lays the foundation for the definition of alliance failure and success due to a certain understanding of the outcome of alliances.

The development of a framework for the analysis of alliance failure is the purpose of the third chapter. The framework interprets strategic alliances as systems consisting of at least two individual companies. They have an individual structure and they strive for their goals and strategies, the relationship among them, and the environmental constraints. These dimensions allow the classification of the existing approaches to alliance failure and success to the separate dimensions, thus capturing all separately identified factors. Afterwards, setting each of the dimensions as the prevailing determinant, whilst describing the influence on the other dimensions, shows the interdependences of the four dimensions on two different levels: single-firm level and alliance level. A matrix of these dimensions evolves by laying over each other. The third chapter closes with a synthesis dealing with the question of fit of the four dimensions and their influence on alliance performance by examining to what extent the junctions of the four dimensions might contain risk and failure factors on the alliance level.

The fourth chapter offers a first sketch of an integrated approach to alliance failure according to the theoretically developed framework. It allows situation-based hypotheses of alliance failure and success by offering functional chains of cause and effect of each interdependent factor. The insight for management is the attribution of risk and success factors to each of the linkages between the allying firms as seen below. The interdependences between the networked junctions of the four dimensions will be closely examined on the alliance level in order to understand the dynamics of the failure and success factors. Finally, a synthesis of the fit of the different dimensions and the integration of these dimensions that provide failure drivers present a systemic and multidimensional approach to alliance failure analysis in the last part of the fourth chapter.

The fifth and final chapter concludes with a summary of the outcome of this approach, reflects it critically and describes the implications for further research into strategic alliances. It also questions if different forms and sizes of alliances could result in different constellations of failure and success drivers, thus providing more or less stability of the alliance.

The major insight is, that the networked junctions of the dimensions contain failure drivers that dynamically enforce each other and lower the alliance performance due to the interdependence amongst them, which is based on the network character of alliances. Therefore, it is not a single factor leading to alliance failure, but the overall arrangement of interdependent failure drivers. These interdependences have been analyzed and described as chains of cause and effect by theoretical reflection and thought as well as empirical illustrations. The result is a more detailed and comprehensive understanding of how alliance performance is forced down, how failure originates and how to locate and address them in order to manage an alliance appropriately. Finally, a visual illustration of this integrated framework has been sketched in order to point out the interdependent relations of failure drivers.

Table of Contents:

	Contents	i
	List of figures	iii
	List of tables	iii
	Abbreviations	iv
1.	Introduction	1
1.1	Research problem	2
1.2	Procedure of the analysis	3
2.	Alliances as a third form of coordination	5
2.1	The nature of alliances	6
2.2	Different forms	8
2.3	Goals and motives	10
2.4	Alliance life cycle	14
2.5	Success and risk factors	17
2.6	Alliance outcomes	21
2.6.1	Problems of performance measurement	21
2.6.2	Defining alliance failure	23
3.	Development of a framework for the analysis of alliance failure	25
3.1	Theoretical development of a framework	26
3.2	Review of the existing approaches to alliance failure	32
3.2.1	Environmental approaches	32
3.2.2	Strategic approaches	34
3.2.3	Structure determined approaches	36
3.2.4	Behaviorist approaches	40
3.3	Interdependence of determinants for alliance failure	45
3.4	Synthesis	50
4.	Integrated approach to alliance failure	53
4.1	Driving forces of alliance performance (environment)	54
4.2	Alliance strategy for competitive advantage (strategy)	57
4.3	Alliance governance, organization structure and resources (structure)	61
4.4	Alliance culture and process (behavior)	64
4.5	Synthesis	66
5.	Conclusion and future perspectives	68
	Bibliography	71