Determination of Factors Contributing to Success Essay

These factors will be uncovered by nalyzing the internal and external factors influencing strategic alliances and the phases through which these alliances evolve. In order to provide this research study with a practical element two case studies within the airline industry have been incorporated, namely the Swissair Qualiflyer Alliance and Star Alliance. These case studies represent a successful and an unsuccessful alliance, which are analyzed on a basis of the provided literature study, in this case the phases through which these evaluation of the case studies numerous supportive results were identified, ontributing toward establishing determinant factors, which emphasize the importance of a successful implementation of the different phases, however limitations affect the reliability of this study, due to the lack of evidence found in various different phases. Keywords: strategic alliances, internal and external factors, strategic alliance phases Introduction In past years a visible increase in the amount of strategic alliances, concerning firms with varying economic objectives, was observed (Das, Teng 2000). Strategic alliances are the â€Å"relatively enduring inter-firm cooperative arrangements, involving flows and inkages that utilize resources and/or governance structures from autonomous organizations, for the Joint accomplishment of individual goals linked to the corporate mission of each sponsoring firm† (Parkhe 1991, p. ). The amount of strategic alliances has recently doubled, predicting additional raise in the future (Booz, Allen, Hamilton 1997). Especially alliances in the form of non-equity based, which are defined as two or more firms developing a contractual-relationship in order to establish competitive advantage by combining resources and capabilities (Globerman 007), 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 1) the ability of cost savings in executing operations 2) the ability to access particular markets 3) 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, he 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 he 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 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. Conceptual Model [pic] 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 election, 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 ill 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 studys 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 ntentions of a 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 eterminants 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 mplementation 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 hich 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 (Figure 2, Appendices) of strategic alliances comprises three airs 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 trategic alliances will be inversely related to the difference between the cooperation level and the competition level. Rigidity refers to the characteristics of mutual 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 emand 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 ollowing 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 e 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 omplicated collection of relations visible with firms, such as business associations, local governments and elite universities. On an industrial note alliances are influenced on an interflrm 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 he objectives of both parties, organizational structures, functional operations and cultures (Ring, van de Ven 1994). 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, confguration 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 election 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 hases 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 Waddocks (1989) work, which suggests that strategic alliances progress through hree 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 fguration 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 artner selection phase distinguished the above stated views is probably placed within the initiation phase identified by Wohlstetter et al. (2005). In order to provide this thesis with an in-depth view on the phases through which strategic alliances evolve a combination of the three above stated views is implemented. Phase 1: 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 s 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, lexibility, 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 xperience 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. Phase 2: Initiation Phase The initiation phase is characterized by informal structures and communication channels as the critical issue is the development and understanding of the purpose for strategic alliances (Waddock 1989). According to Hitt et al. 1997), the potential intentions to be realized behind entering into strategic alliances are categorized into three market types 1) namely markets characterized by slow cycle, which adopt trategic alliances for original intentions such as the gaining of access to restricted markets, establishing franchises in a new market and maintaining market stability 2) in markets characterized by a standard cycle amongst the intentions able to be achieved are the gaining of market power and access to complementary resources, over coming trade barriers, gaining knowledge and learning about new business techniques 3) in the final market, the fast cycle, the achievable goals are the speeding up of the entry of new products and services in addition to new markets, maintaining he market leadership position, sharing the risky Research and Development expenses and overcoming uncertainty. Furthermore, several internal conditions drive the initiation phase including, a champion taking responsibility, complementary needs and assets, compatible goals and trust. According to Waddock (1989), the main responsibility of the champion is the guidance of the organization through the initiation phase, especially visible in the process of partner selection. Stated in the initiation phase is essential for identifying needs in addition to the process of partner selection. Complementary needs and assets appear in various different forms, however is one of the main reasons for partnering (Oliver 1990; Robertson 1998). Additionally, the main goal of partnering is achieving compatible goals among the partners, which might not have been achieved otherwise (Austin 2000; Das, Teng 1998; Kanter 1994; Oliver 1990; Robertson 1998; Spillett 1999). Finally, the initiation phase stands no chance without trust, which is mainly established through existing networks (Austin, 2000; Waddock 1989; Waide 1999), within these networks similar interests are the main characteristic. Phase 3: Partner Selection The purpose behind strategic alliance partnering is to initiate and prolong a long- term partnership, which enables more effective competition with others firms which are positioned outside the partnership Carillo 1988; Walker, Poppo 1991). The crucial decision toward the correct partner selection is the primary focus after pursuing this alliance strategy (Hitt, Tyler, Hardee, Park 1995). According to Koot (1988) the selecting of a partner is a complex process however crucial to the success of an alliance. In the partner selection process perspectives of both resource-based and organizational earning provide an explanation as to why certain partners are selected (Barkema, Bell, Pennings 1996). In explanation, firms own certain resource endowments (Barney 1991) however, in order to obtain a competitive position in a specific market supplementary resources are necessary (Hitt, Nixon, Clifford, Coyne 1999), which is the main objective for engaging in strategic alliances. Hitt et al. (2000) argues that of importance to the partner selection process is the firms’ embeddedness in both emerging markets and developed markets. Furthermore, the access to necessary esources for leveraging as well as the obtaining of capabilities for learning are primary reasons for the selection of partners. Table 1 in the Appendices, state the concluding outcomes on the selection of partners by Hitt et al. (2000), which explains the fundamental elements of the process toward partner selection. Eisenhardt and Schoonhoven (1996) and Dacin and Olivers’ (1997) view state that legitimacy enhancements are an additional intention for establishing alliances, therefore the partner selection process is focused on those providing strong intangible assets, for example strong reputations. According to Bronder and Pritzl (1992) critical to the partner selection process is the establishment of fundamental, strategic and cultural fit. This fundamental fit is achieved if a win-win situation for both parties is established and potential value is increased. The strategic fit is realized when the alliance involves partners with harmony of the business plans. Finally, the cultural fit is an essential success factor for partner selection, which is accomplished after acceptance of cultural differences among the partners. Phase 4: Designing the Partnership Niederkofler (1991) argues that the negotiation process must essentially interpret learly understandable resources and interests of the partners involved, in order for the creation of strategic and organizational fit to be achieved, which will direct the accomplished through open and detailed communication, circumventing hidden agendas of any sort. The consequence of this open communication translates into a coherent attitude of sincerity toward the different partners, which demands trust. In addition to strategic fit, the negotiation process also initiates a solid basis for the enforcement of an operational fit within the partnership, which can be viewed in Figure 1 of the Appendices. An important aspect of the negotiation process is the creation of flexibility, which is increased through contract provisions in addition to developing and prolonging of trust. The process of conquering complexity in operations embarks with the communication of the discovered complexity, followed by a tracking and solving of this difficulty, which results in the avoidance of any operational unalignments. The flexibility within the partnering arrangement, in addition to trust, permits renegotiation processes within the partnership; however a coherent basis must be accomplished (Niederkofler 1991). The success of alliances is highly dependent on a competent and effective alignment, therefore of importance is the designing of the partnership, thus the structure implemented. This structure is in need of a fine constructed collection of strategy, procedures and management views, which can be viewed as the internal alignment (Miles, Snow 1994). In the process of obtaining internal alignment interests as well as environmental aspects must be balanced between the partners, enabling a profitable situation (Douma, Bilderbeek, Idenburg, Looise 2000). Additionally, their framework, Figure 3, Appendices, stress the act that the five features must sufficiently be aligned to prevent failure. One of the features, namely strategic fit, is established when expected advantages and possible risks are weighed against that of the individual interests in the alliance. Various driver of strategic fit can be identified, starting with a shared vision. Further conditions necessary for strategic fit are compatibility of strategies (Brouthers, Brouthers, Wilkinson 1993), strategic importance (Doz 1988), acceptance into the market and mutual dependency. In addition to strategic fit, organizational fit is a ecessity, however due to the differences in many aspects, such as market position, organizational structure and views, management style, this is a complex task. By clarifying these differences an understanding between partners is achieved. Numerous drivers toward organizational fit are identified, namely as stated above the addressing of organizational differences (Doz 1988) furthermore, essential drivers are facilitating strategic and organizational flexibility, minimal complexity to enhance manageability (Killing 1988), efficient management control, enhancing long-term tability by investigating possible strategic conflicts and finally, the achievement of the strategic objective. Of influence, however to lesser extent are the three remaining features in the framework, which are human, operational and cultural fit. Human fit is particularly of importance in alliances processes (Boersma 1999) and according to Lewis (1990) the cultural fit is specifically an issue among employers and employees, which translates to their functioning in for example boardrooms. Finally, operational fit, also relates to the functioning of the alliance and is often susceptible to various ontingencies, therefore must be aligned. Research and Development activities have gradually evolved since the 1980s (Peterson, 1991). Creamer (1976) and Pearce (1989) identified three primary types of Research and Development activities, namely basic purpose is an understanding of the inherent and fundamental scientific development, however disregarding commercial applications. Furthermore, applied research employs knowledge conceived from the basic research to certain dimensions such as technical problems or related commercial technology aspects. In conclusion, basic research generates new facts and theories which are thereafter roven through applied research. These proven facts are generated into products and processes in the development stadium. The intention of development activities is the configuration of applied research contributions into commercially feasible products, processes and technologies Oansen 1995; Jones, Davis 2000). Phase 5: Implementation and Management of the Partnership The role of the management of strategic alliances is valuable for the progression of the alliance toward a successful outcome, however it is complex to manage (Koza, Lewin 2000). An important aspect in serving this complexity is the acquiring of nowledge from past engaging in alliances, which provides meaningful know-how to be leveraged (Kale, Dyer, Singh 2001). The framework of the four C’s of learning and leveraging alliance know how provides a tool for obtaining valuable knowledge. The four components in the framework are, capture, codify, communicate and create, and coach (Kale, Dyer, Singh 2001), also visible in Figure 4, Appendices. Capture refers to managements’ role of accessing and obtaining of valuable alliance insights and past experiences. To codify past experiences and practices contributes to the accomplishing of alliance specific needs. In order to have a common thread through the organization on these past knowledge practices, communication is essential in sharing experiences. Additionally, the creation of networks within the alliance facilitates the distribution of these valuable experiences and knowledge. Intrinsically executed coaching and education programs increase the ability to obtain alliance skills. An additional benefit from coaching is the establishment of informal social networks, which provides assistance in key situations. Furthermore, networks are critical to the development of opportunities, the assessing of concepts and obtaining esources in order to construct the new partnership (Aldrich, Zimmer 1986). The incorporation of social networks within a firm improves communication between partners, which in turn results in improved decision making processes (Gulati 1993). Various intentions for the implementation of networks can be identified, one specific is the preserving of advantages (Lorenzoni, Baden- Fuller 1995). According to Madhaven, Koka and Prescott (1998) the initiation of inter-organizational networks is created by exogenous factors, which could include competition background and specific industrial activities. Building on this theory, Gulati et al. (1997) argues that the initiation of these inter-organizational networks is dependent on two aspects, namely exogenous resource dependencies, which achieve motivation of the cooperation and an â€Å"endogenous embeddedness† dynamic, which in turn familiarizes toward partner selection. According to Stinchcombe (1990), in flows of network information meaningful views are discovered,