Determination of Factors Contributing to Success in Strategic Alliances Essay Example

combining resources and capabilities (Globerman 2007), have increased in importance which is visible in non equity alliances accounting for 80 per cent (Hagedoorn 1996). Strategic alliances provide firms with the opportunity to recognize synergies through combining operations, such as in research and development, manufacturing etc (Aaker 1995; Addler 1966).

The growth of strategic alliances is related to growing competition and globalization (Das, Teng 2000). This is in alignment with Doz and Hamels (1998) view which states that globalization as well as changes in economic activities is a consequence for the growth in strategic alliances, which is visible in various different industries (Hagedoorn 1993). The primary reasons for the growth of the number of alliances is  the ability of cost savings in executing operations, the ability to access particular markets, the reducing of financial and political risk in addition to cheapest labor and production costs (Wheelen, Hungar 2000).

A strategic alliance by definition is a hybrid organizational form which Jensen and Meckling (1991) refer to as a network organization. Harbison and Pekar (1998) highlight numerous common characteristics visible within strategic alliances, namely a required commitment of at least ten years, the connection of the partners is based on equity or on shared capabilities, a complementary relationship based on a shared strategy, increasing companies’ value in the market place, the pressuring of competitors and the willingness of sharing and leveraging core capabilities.

Nevertheless, strategic alliances have noticeable high instability rates (Das, Teng 2000); furthermore, according to Kalmbach and Roussel (1999) the failure rates are approximately as high as 70 per cent. Studies conducted by Das and Teng (2000) reportedly state that encountered problems are witnessed in the first two years

of two thirds of all alliances. This study is going to provide a more in-depth analysis on the factors that are necessary for determining success in all strategic alliances. Starting with an analysis of strategic alliances based on the different phases in which the alliance evolves.

Thereafter a conclusion will be drawn as to which extent these factors play a crucial role in the determination of success rate of strategic alliances. In order to incorporate a practical view on the strategic alliances, this study will additionally implement two case studies to the analysis. This conceptual model starts the literature study on strategic alliances as a central concept. From this central concept, emphasis is drawn on internal and external factors influencing strategic alliances, as well as on the different phases through which alliance evolve.

Additionally, strategic alliances lead to either successful or unsuccessful alliances. Based on the research from Bronder and Pritzl (1992), Hoffmann and Schlosser (2001), Waddock (1989) and Wolhstetter, Smith and Malloy (2005), a framework of seven phases is established. Within these seven phases the most important activities and processes are analyzed, including reasoning behind strategic alliances, potential intensions for forming strategic alliances, partner selection, external factors influencing the design of the strategic alliance, negotiation methods, followed by the structuring of the alliance.

Furthermore, implementation and management of the strategic alliance is examined. Finally, the last two phases concerning the evaluation of the formation of strategic alliances and the termination of the partnership are discussed. Resulting from this literature study are two outcomes, namely a successful implementation of the phases and an unsuccessful implementation. In order to apply a practical element to this thesis, two case studies

will be analyzed, those of Qualiflyer, which turned out to be an unsuccessful alliance and Star Alliance, which was able to incorporate a success strategic alliance in the airline industry.

After analyzing the cases the findings compared to the literature analysis, will hopefully correlate to each other and the determinants that influence more success in alliances can be established. Problem Statement Based on past literature research study’s the outcomes of implementing strategic alliances as a change strategy in organizations is unfavorable, especially when looking at the failure rates. Nevertheless, the adoption of strategic alliances is a customary implemented firm strategy (Gulati 1998), as a means of securing their competitive position.

Much research is conducted in order to provide more guidance in determining factors that achieve sustainable strategic alliances, therefore in this thesis the main research question is: What factors determine the success of strategic alliances? This research question will be addressed by the help of analyzing and answering these various sub-questions; Why do firms choose strategic alliances as a change process? What are the potential intentions of a strategic alliance? What are the phases through which strategic alliances evolve?

What strategic alliance activities and processes occur in which phase? Preview of the organization of the thesis This report begins by indicating the problem that strategic alliances are a favorable organizational change strategy in the business world today, however the failure rate is extremely high. Secondly, by applying literature analysis the main determinants influencing more success in strategic alliances will be uncovered, which will be coupled to the case study part of the thesis where the determinants will be compared to the specific cases.

Finally, the thesis will conclude on

the part if the determinants uncovered in the literature study correlate to the findings in the case study. Methodology and Research Design In this thesis the methodology contained two specific approaches, including a literature study as well as evaluating two case studies. Firstly, the literature analysis was conducted; with as primary focus an in-depth analysis of academic articles. The findings of the literature study are compared to two case studies, those of the Qualiflyer alliance and Star Alliance.

These two cases were chosen because they represent the different outcomes an alliance can hold, namely the successful implementation the alliance strategy at Star Alliance and the unsuccessful outcome of an alliance strategy of the Qualiflyer alliance. In addition, even though these two examples vary substantially in size, which provides difficulty when comparing the two alliances, they both started off at reasonably the same size, therefore this thesis incorporated these two examples anyway. This evaluation will be conducted by means of desk research, exploring the different implementations of this strategy.

The time frame of the case studies is from the first phase up until the last phase, through which they evolved, in order to identify dependent unsuccessful and successful aspects. The significance of implementing case studies in this thesis is relating the findings from the literature analysis to real life cases of both a successful alliances as well as a non-successful alliance. Furthermore, comparing if the determinants of success found in the literature analysis correlate with the factors observed in the cases.

Internal versus External factors Influencing Strategic Alliances Our internal tensions perspective framework of strategic alliances comprises three pairs of competing forces-namely, cooperation versus competition, rigidity versus flexibility, and

short-term versus long-term orientations (Das, Teng 2000). Competition is defined as pursuing one's own interest at the expense of others, while cooperation is the pursuit of mutual interests and common benefits in alliances.

This tension of cooperation versus competition is most salient in selecting alliance partners, the first of three major stages in the alliance making process, along with structuring and managing an alliance (Das, Teng 1997). In conclusion, the stability and success of strategic alliances will be inversely related to the difference between the cooperation level and the competition level. Rigidity refers to the characteristics of mutual dependence and connectedness, whereas flexibility enhances the ability of partners to adapt, unencumbered by rigid arrangements.

The dominance of either flexibility or rigidity may change the status quo and trigger the evolution of a new structure, which leads to unsuccessful alliances. Therefore, the stability of strategic alliances will be inversely related to the difference between the rigidity level and the flexibility level. Short-term orientation views strategic alliances as transitional in nature, with a demand for quick and tangible results, whereas long-term orientation regards alliances as at least semi permanent entities, so that more patience and commitment are exercised.

A strategy that reflects only one temporal orientation is not compatible with the foundation for a sustainable strategic alliance, in other words the stability of strategic alliances will be inversely related to the difference between the short-term orientation and the long-term orientation. Furthermore, the three internal pairs of contradictory forces are interrelated within an evolving system, resulting in the following propositions, namely that the levels of rigidity and cooperation will be positively related when the partners have a short-term orientation in strategic

alliances.

However, a negative relatedness at a high level of rigidity, cooperation and rigidity (Das, Teng 2000). will be negatively related when the partners have a long-term orientation in strategic alliances (Das, Teng 2000). According to Das and Teng (2000) the contradictions and tensions in these force-pairs may lead to an overthrow of the status quo namely, the strategic alliance. Strategic alliances can nevertheless be sustained and successful if a careful balance between these competing forces can be maintained.

According to Todeva and Knoke (2005) external factors influence alliance formation, due to differing economic condition and organizational frameworks in partnering countries; these can include legal requirements, price controls, distribution channels and contract enforcement. Furthermore, these regulative state activities comprehend the freedom when firms are forming alliances. Moreover, the formation of an alliance necessitates the authorization of national governments.

Additionally, of influence to the formation of alliances is the complicated collection of relations visible with firms, such as business associations, local governments and elite universities. On an industrial note alliances are influenced on an interfirm basis by direct impacts, where the decision on which activities to internalize is based on severity of competition within the industry and the organization of ad hoc product markets, in the challenge for increased market share, the cooperation for specific advantages and the process of internationalization (Todeva, Knoke 2005) .

The partner under consideration for the formation of an alliance is in a certain sense an external factor. Firms are susceptible in the case of partnering with a dominant firm (Pennings 1994), due to technical and economic rationales. Thus, technology is a specific part of the process to establishing organizational boundaries as well as intrinsic

structures. Of importance to alliances is obtaining research and development advantages, which to certain extent differs across industries on terms of expenses and the sources provided by the government (Todeva, Knoke 2005).

Every alliance design commences with negotiations, thereafter the phase of structuring the alliance in which various aspects are aligned, such as the objectives of both parties, organizational structures, functional operations and cultures (Ring, van de Ven 1994). Strategic Alliances Phases The distinguishing of phases through which strategic alliances evolve plays an essential role in the development toward successful alliances, which according to Bronder and Pritzl (1992) evolves through the three stages, which are categorized as strategic decision, configuration of strategic alliance and partner selection.

Where Bronder and Pritzl terminate their research on the establishment of phases other researchers continue in identifying essential phases, for the reason that partner selection as final phase represents an incomplete evolution of strategic alliances. With regard to the research conducted by Hoffmann and Schlosser (2001), the identification of strategic alliance phases resulted in a five phase path through which strategic alliances evolve, namely strategic analysis and decision to cooperate, search for a partner, designing the partnership, implementation and management of the partnership and finally termination.

When comparing both Bronder and Pritzls (1992) and Hoffman and Schlossers (2001) phases, a comparison is visible in the primary phases of strategic alliances, namely the strategic analysis and decision to cooperate (Hoffmann, Schlosser 2001) which corresponds with the strategic decision phase from Bronder and Pritzl (1992). Furthermore, the partner selection phase is visible in both frameworks on strategic alliance phase.

The main difference between the two studies is the more detailed approach from Hoffmann and Schlosser

(2001) also distinguishing phases after the partner selection process. Finally, a study building on Waddock’s (1989) work, which suggests that strategic alliances progress through three phases, which are identified as initiation, establishment and maturity, Wohlstetter, Smith and Malloy (2005) consistently debated that the strategic alliances process is organized into three similar phases namely initiation, operations and evaluation.

When comparing these views with the earlier stated reasoning on strategic alliance phases merely a figuration is enabled as to which phases from Bronder and Pritzl (1992) and Hoffmann and Schlosser (2001) are in comparison with Wohlstetters et al (2005) view and could be placed within their views, for example the partner selection phase distinguished the above stated views is probably placed within the initiation phase identified by Wohlstetter et al. (2005).

Strategic Decision According to Bronder and Pritzl (1992) a clarification of the firms’ position is to be analyzed, refer ably because this is identified as the first direction toward alliance formation. Pumpin (1987), states that the evaluation of the actual situation of the firm is identified by exploring its mission, possible values and core competencies. Additionally, the firm identifies the reasoning behind incorporating an alliance strategy.

According to Eisenhardt and Schoonhoven (1996), Harrigan (1985), Link and Bauer (1989), Pisano (1991) and Teece (1992) technological change faced by firms is related to the favorability toward flexible organizational forms like alliances. Additionally, Ciborra (1991) and Oster (1992) state that high-tech industries, in which learning and flexibility are key characteristics, will preferably choose alliances, whereas in the low-tech industries, with visibly less emphasis on learning and flexibility, firms favorably adopt a merger and acquisition strategy.

The flexibility of strategic alliances is suitable as

organizational structure due to the fast expiring of new knowledge and the lengthy learning time from partners (Eisenhardt, Schoonhoven, 1996; Hagedoorn 1993). Furthermore, these flexible organizational structures appear more effectively in uncertain environmental situations when adjusting to changes (Lawrence, Lorsch 1967; Pffeffer, Salancik 1978). In continuation of Powells (1996) view, Hagedoorn and Duysters (2002) predict that strategic alliance experience positively contribute to choosing alliances as instrument for obtaining external innovative capabilities.

This view is aligned with that of Kogut et al. (1992) and Gulati (1993) who accentuate the relationship between actual alliance formation and past alliances, however emphasize on a more social basis. Therefore, the formation of strategic alliances is dependent on both strategic as well as social factors. According to Eisenhardt and Schoonhoven (1996), an extension of the resource-based view provides a basis for examining the relationship through which alliances form by means of strategic and social resources.

This research study contributed numerous outcomes on strategic alliances to existing literature, namely that increasingly challenging market conditions and jeopardous organizational strategies result into an increase of alliance formations as an organizational change process. Additionally, of importance to the rate of formation of alliances are managerial characteristics, visible when large, experienced teams were implemented through previous employers, the rates of alliances increased (Eisenhardt, Schoonhoven 1996).

In conclusion of their research Eisenhardt and Schoonhoven (1996) state that in cases of either a vulnerable strategic situations or a strong social situation the likelihood of the formation of strategic alliances increase.