Archive for March, 2010

The Disintegration of Companies: Why Alliances Fail

Salvador-Dali-The-disintegration-of-the-persistence-of-memory--1952-83836Previously, on The Disintegration of Companies, I wrote about the art of alliances.  The blog ended with the caution that alliances often fail.  In this installment I would like to discuss some of the reasons for failure.

In their work on Entrepreneurial Alliances, Jeffrey J. Reuer, Africa Ariño, and Paul M. Olk argue that alliances fail because of changes in the environment of the alliance, poorly aligned partner strategies, governance issues, deficiencies in managerial capabilities and commitments, and a failure to collaborate.  While all of these reasons are relevant I will focus on two.

Partners’ Strategies

Partners’ strategies, should be carefully evaluated during the selection process and before an alliance is created.  The more closely aligned the strategic interests of the prospective partners, the more likely the alliance will succeed.  Several years ago I was one of the founders of a Joint Venture between two fortune 100 companies.  The Joint Venture provided computer maintenance and network services to customers for all of the top tier brands.  As a private label company, we acted as representatives of the companies who sold the products to the end users.  Even though we delivered service to thousands of companies in the US, our direct customers were IBM, HP, Gateway, Dell and others.

The majority partner in this strategic alliance was IBM.  As such their strategic interest in the alliance was quality service at an affordable cost.  The other partner’s strategic interest was primarily one of financial return.  While these two strategic interests are not mutually exclusive, it proved challenging.  As expected, both partners cared deeply about financial returns, but one partner was unwilling to gain it at the cost of customer satisfaction.  Ultimately, the joint venture did exceedingly well, but not without its share of governance issues that may have been minimized if the partner selection process focused more on partner strategies.

Culture

As mentioned above, Africa, Ariño, and Olk discuss managerial capabilities and commitments and collaborative processes.  I tend to group both of these under culture.  The need for a cultural match among alliance partners compounds as the level of interdependence and commitment among the parties increases.  If the alliance is in the form of a preferred vendor, cultural fit matters, but not as much as it does with a merger or acquisition.

In an attempt to enter the telecommunications market in 1984, IBM partnered with (and later acquired) Rolm Communications of Santa Clara, California.  In the mid-1980s IBM was known as an innovative company with a no-nonsense, button-down culture.  While employees were encouraged to take judicious risk and think outside the box, they were also encouraged to act and dress in only the most professional manner, which meant dark suits for both men and women. Alcohol was forbidden during the workday. A salesperson was only allowed to have a drink at lunch if his or her customer wanted a drink.  If that occurred, the salesperson was not supposed to make another call that day. While not forbidden, beards were discouraged.

Contrast that with the culture of California based Rolm, which held on-premise beer bashes for its employees each Friday, and the majority of the men I met sported full beards, and came to work dressed in casual clothes.  As far as I know, the women did not have facial hair, but they did dress casual.  I think you get the picture.  The two cultures were distinctly different, and I think it contributed heavily to the ultimate collapse of the alliance.

Cultural differences can lead to difficulties in collaboration, which can ultimately lead to the inability to adapt, a lack of communication and trust, and inadequate coordination and conflict resolution.

Before entering into an alliance it is important to look for fit—both in strategic interests and in culture.  All of these things can, and should be, evaluated during the selection process.  The selection process is much like the courting process in a romantic relationship, where each party is trying to put their best foot forward.  A dear friend once offered advice to her daughter regarding finding a mate.  “Take the one thing that bothers you about that person just a little bit now, multiply it by 100, and ask yourself if you could live with it for the rest of you life.”

©Mark P. Loschiavo

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