Why Business Alliances Fail

 

Takeaway

  • Differences in daily internal routines can cause alliances to become dysfunctional
  • Contrasting marketing priorities do not have much of a negative impact on alliances — management style and employee autonomy matter more

Two heads may be better than one. Two companies often aren’t. That’s the experience of business strategic alliances, which the record shows usually fail to meet objectives, often with serious consequences. Witness, for example, oil giant BP’s attempt to ally with Russian energy firm Rosneft, which has collapsed into a snarl of billion-dollar lawsuits.

The tendency toward disappointing performance of arrangements to share resources presents a longstanding puzzle for scholars and executives alike. Why don’t alliances work better?

Recent research by a group including Pamela Haunschild, McCombs management professor emerita, takes a new tack toward exploring that question. In an article to be published in Strategic Management Journal, the group seeks to combine two analytical approaches. One of these has focused on differences between alliance partners’ strategic objectives, resources and other traits. Another examines relational mechanisms such as mutual trust and commitment.

The new research described in Organizational Differences, Relational Mechanisms, and Alliance Performance looked at 420 information technology alliances and found that differences in each partner’s internal routines can undermine the functionality of the relationship, increasing the chances of an alliance failure. The results are significant because internal routines aren’t what most alliance-seekers worry about, says Haunschild, who worked on the project with Dovev Lavie of the Technion-Israel Institute of Technology and Poonam Khanna from Arizona State University.

“Partners tend not to think about that,” she says. “They pick for strategic fit. They acknowledge that things like cultural differences can get in the way. But they don’t get down to these day-to-day organizational differences.”

Haunschild and her colleagues found that day-to-day issues can be important, however. Two that seemed to matter a lot were whether management style was more or less authoritative and how much autonomy employees were granted. “Things like those made a big difference,” she says.

Day-to-day practices can clash, if for example, an employee of one partner expects a contact at the other to be able to quickly make a decision about something. Haunschild explains one case in which a partner in one alliance proposed jointly organizing a customer seminar. Because this company employed a top-down management style, a rapid approval was expected. However, the other partner’s contact person said the idea would have to be presented to others within the organization before a decision could be made.

“The first partner was getting really frustrated, saying, ‘You can just make that decision,’” Haunschild said. “And the other partner said, ‘No, I can’t.’”

Haunschild and her fellow researchers found some results were not what they expected. For instance, they expected marketing routines would make more of a difference. One company might usually market bottom-up, getting lower-level users to request its products while the other works top-down, trying to get higher-ups to specify its offerings.

“That sounded like it ought to create a lot of conflict,” Haunschild says. “But it didn’t. It really boiled town to management style and employee autonomy that mattered.”

For businesspeople trying to build real-world alliances, Haunschild suggests looking beyond issues such as strategic fit, and simply recognizing that more mundane matters also influence success. Alliances that performed better didn’t necessarily make huge changes to accommodate day-to-day task differences, she said. Significant improvements could be achieved by simply being aware that the differences existed and were worthy of consideration.

“When partners recognized that there were differences, it helped,” she says. “It wasn’t that differences went away, but it helped.”

Haunschild theorizes that greater awareness of potential disconnects led organizations to assign alliance-related work to employees whose styles complimented those of their partners.

 

Faculty in this Article

Pamela Haunschild

Professor Emerita McCombs School of Business

Pamela R. Haunschild holds the Jack R. Crosby Regents Chair in Business Emeritus at the McCombs School of Business and is also one of IC2’s...

About The Author

Mark Henricks

Freelance Writer, Mark Henricks' Website

Mark has reported on business, technology, investing, science, travel and other topics for more than 20 years. He earned a bachelor's of...

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