In the realm of strategic alliances, understanding the 7 common reasons for failure is crucial to maintaining successful partnerships and business growth 70% of alliances are not successful. A strategic alliance is an agreement between firms to collaborate in ways that extend beyond typical company-to-company interactions, yet stop short of a merger or complete partnership (Wheelen and Hungar, 2000). These agreements can be classified as informal handshake agreements or formal agreements with detailed contracts (Elmuti and Kathawala, 2001). The significant potential of strategic alliances enhances an organization’s operations and competitiveness (Brucellaria, 1997). These partnerships hold a particular appeal for small businesses, as they furnish the essential tools necessary for maintaining competitiveness (Page, 1998)
In this article, we’re going to go through seven reasons why such alliances often do not work. As many as 70% of alliances are not successful (Kalmbach and Roussel, 1999).
1. Cultural differences
Elmuti and Kathawala(2001) mentioned they find themselves destined for failure prior embarking on their endeavor. It is important for companies to work together to be able to communicate and understand each other well. The first thing that can cause problems is the language barrier that they might face.
2. Lack of trust
Attributing blame does not offer a solution to the issue and in many alliance cases, one company will point the failure finger at the partnering company. It amplifies the tension between partnering companies, frequently resulting in the downfall of the alliance (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. In such instances, the diverse attitudes and cultures present within the alliance can lead to varying responses from leadership toward their counterparts within the alliance and they often evoke frustration within the other company (Elmuti and Kathawala, 2001).
4. Risk in market development
Even in alliances where collaboration is robust, instances arise where alliances fail to achieve success (Elmuti and Kathawala, 2001). Even in alliances where the parties collaborate effectively, it is not uncommon for alliances to fall short of success (Elmuti and Kathawala, 2001). As outlined by Das and Teng (1999), this outcome can stem from various factors within the encompassing business environment. These factors encompass political or economic shifts in the market, substantial alterations within the market landscape, or internal elements like a deficiency in competence or the occurrence of unfortunate events.
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
The parent firms harbor divergent, and at times fundamentally conflicting strategic intents cause the nature of the partnership, merging of distinct corporate cultures becomes an intricate undertaking. This process often proves challenging and far from seamless, demanding careful navigation and strategic orchestration. 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 are maintained.
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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.
