i-cube logo

Why do so many strategic alliances fail?

A strategic alliance is an agreement between firms to do business together in ways that go beyond normal company-to-company dealings, but fall short of a merger or a full partnership (Wheelen and Hungar, 2000). These agreements can be classified as informal handshakes agreements or formal agreements with detailed contracts (Elmuti and Kathawala, 2001).

Strategic alliances can dramatically improve an organization’s operations and competitiveness (Brucellaria, 1997) and Alliances are particularly alluring to small business because they provide the tools business needs to be competitive (Page, 1998).

But as many as 70% of alliances are not successful (Kalmbach and Roussel, 1999) and in this article I’m going to go through seven reasons why such alliances often do not work.

1. Cultural differences

The first thing that can cause problems is the language barrier that they might face. It is important for the companies that are working together to be able to communicate and understand each other well or they are doomed before they even start (Elmuti og Kathawala, 2001).

2. Lack of trust

In many alliance cases one company will point the failure finger at the partnering company. Shifting the blame does not solve the problem, but increases the tension between the partnering companies and often leads to alliance ruin (Lewis, 1992).

3. Differing procedures and opinions between the parties

The parties in the alliance may experience different levels of what is tolerated by production errors. One company may deliver its goods or service behind schedule, or do a bad job producing their goods or service which may lead to distrust among the two companies. When problems like this occur it usually makes the other company angry (Elmuti og Kathawala, 2001). When such situations occur, the different attitudes and cultures in the alliance can cause the leadership to react differently to others in the alliance.

4. Risk in market development

Even in alliances where the parties work well together, it happens that the alliances do not become successful (Elmuti and Kathawala, 2001). According to Das and Teng (1999), this may be due to factors in the environment around the companies such as political changes and economic changes in the market; major changes in the market; internal factors such as lack of competence or bad luck.

5. The commitment of the management

Peter Lorange from the University of Pennsylvania notes that very often firms view strategic alliances as a second-best option that they would prefer to do without. Strategic alliances receive attention only after one’s wholly owned business has been dealt with.

6. Continuous feedback

For a strategic alliance to be successful, one must have continuous evaluation of developments and adjust long-term and short-term goals for the alliance. (Elmuti and Kathawala, 2001).

7. Clearly defined and shared goals

Whatever the relationship between the two partners, the merging of separate corporate cultures in which the parent firms may have different, even ultimately conflicting, strategic intents can be difficult and anything but smooth. It is extremely important that alliances are aligned with the company strategy (Elmuti and Kathawala, 2001). Such goals can be captured if good communication and continuous feedback is maintained.

References

Wheelen,T.L.andHungar,D.J.(2000),Strategic Management and Business Policy, 7th ed., Addison-Wesley Publishing Co., New York, NY pp. 125-134, 314.
Dean Elmuti and Yunus Kathawala (2001) An overview of strategic alliances Management Decision 39/3 [2001] 205-217
Brucellaria, M. (1997), “Strategic alliances spell success”, Management Accounting, Vol. 77 No. 7, August, p. 16.
Kalmbach, C. Jr and Roussel, R. (1999), “Dispelling the myths of alliances” [Online], http://www.2c.com.html, 16 November, pp. 1-8.
Page, H. (1998), “United we stand”, Entrepreneur, Vol. 6 No. 4, April, pp. 122-8.
Lewis, J.D. (1992), “The new power of strategic alliances”, Planning Review [Online], http:// firstsearch.ocle.org/fatchnext.html, Vol. 2 No. 5, September/October, p. 46.

Get in touch with us and we'll send you our official Rate Card for Services within two (2) business days!
Contact Us
Need help?