The power of partnership - Why do some strategic alliances succeed, while others fail?
Understanding the ways in which companies in a supply chain improve performance by forging strategic links with other firms requires a close look at the nature of the relationships and how the partners behave.
Strategic alliances have become a common feature of supply chains, with managers of companies along the chain integrating their processes to enhance competitiveness.
Yet research shows that alliances do not guarantee success – and little is known about why some strengthen the market position of the partners while others do not.
Evelyne Vanpoucke and Ann Vereecke set out to understand which aspects of an alliance are more likely to deliver success. Their paper – “The Predictive Value of Behavioural Characteristics on the Success of Strategic Alliances” – explores how behavioural features of an alliance – such as trust and commitment, and how partners communicate and manage the relationship – impact performance.
Their research provides valuable insights into ways supply chain managers can structure their partnerships to increase margins in complex markets.
Strategic Alliances: Collaboration as a Resource
Companies in a supply chain develop long-term co-operative relationships to achieve economies of scale and share logistical capacities and thus cut costs while maximising services.
Integrating processes that allow for better communication, co-operation and the co-ordination of production creates value for customers. Integration of this kind also helps firms become more flexible, strengthening their position in markets where there are frequent changes in volume, product mix and schedules.
However, past research has shown that merely integrating certain practices does not ensure that an alliance will succeed. While scholars have examined the individual impact of various behavioural characteristics within alliances – such as trust, interdependence, co-ordination and commitment – they have not considered these in combination or alongside other aspects of the relationship.
Suspecting that more fundamental factors may be at work in successful alliances, Vanpoucke and Vereecke explored how a range of factors affect the success of alliances that are highly integrated and in which the partners focus their efforts on co-ordinating logistics, purchasing and other operations.
While past research has understood the performance of alliances in terms of the resources deployed by the partners, this study stressed the value of collaboration between firms as a resource in itself and how a proactive long-term view of a relationship can lead to closer co-operative links.
The Study: Behavioural Characteristics and Results
Vanpoucke and Vereecke examined how three important behavioural characteristics affect an alliance’s performance: its underlying attributes, how the partners communicate, and how they manage the relationship:
Attributes: The researchers predicted that success is influenced by:
- Interdependence: Firms seek to manage uncertainty through interdependence, and even though a company may not be in a position of power vis-à-vis its partner, it can still influence performance.
- Trust: A company needs to be able to rely on an alliance partner, and partners demonstrate goodwill by being genuinely interested in each other’s welfare.
- Commitment: A company’s commitment to an alliance can be measured by its willingness to commit time, money and facilities to the relationship.
- Co-ordination: Each party to an alliance will expect the other to perform in certain ways if mutual objectives are to be achieved consistently.
Communication: The success of an alliance will also depend on how the partners handle information, and, in particular, the degree of:
- Sharing: Sharing knowledge about production and planning – but also about market changes and company goals – is crucial if companies are to gain logistical(strategic? long-term?) advantages from an alliance.
- Processing and quality: Information shared between partners needs to be clear, accurate, up-to-date, appropriate, precise, reliable, complete and exchanged frequently.
- Participation: Companies need to plan and set goals jointly and should be willing to discuss their practices and processes openly. In joint R&D projects, for example, partners need to understand each other’s competencies and share information on technology.
Management: The ability of managers to move supply chain alliances forward is crucial to success, and studies have demonstrated that leadership and performance measurement can improve results.
The research team surveyed logistics and purchasing managers from a random sample of Belgian companies with more than 50 employees in the primary goods, chemical, pharmaceutical, consumer goods, media and informatics industries.
The team asked the managers: ”What are the characteristics of the least successful and the most successful strategic alliances?”
The results indicate that:
- The principal attributes of an alliance – interdependence, trust, commitment and co-ordination – are the key to its success, because they determine how the partnership can best generate cost and service benefits;
- Good communication in an alliance will help improve services;
- While managing the alliance well helps reduce costs.
Practical implications: Clues to Success
The research results offer a way of predicting whether or not an alliance will succeed.
Because interdependence, trust, commitment and co-ordination (the main attributes of an alliance) emerge from the study as the key factors in determining success, they are better predictors of performance than other behavioural characteristics.
This suggests that building trust and co-ordinating activities are the cornerstones of a successful supply chain alliance. Managers of the companies in an alliance need to ensure that their employees understand that the arrangement offers their company significant benefits.
Although efforts to improve communication and apply management tools are of great value to an alliance, they are less crucial. Good communication will benefit services because information-sharing and high-quality data help companies detect supply problems or changes in demand, allowing them to react or adapt faster and improve customer service. Applying management tools such as leadership and performance measurement can help alliance partners reduce costs.
By offering insights into the role behavioural characteristics play in strategic alliances, this study has practical implications for purchasing, logistics and customer-service managers within a supply chain. The research indicates that:
- Behavioural characteristics are important, so managers should not underestimate the time and energy required to create and sustain a strategic alliance;
- Both formal mechanisms (such as leadership and performance measurement) and informal ones (such as trust and co-ordination) are needed for success;
- Purchasers will gain the most from strategic partnerships by focusing on all three behavioural characteristics: alliance attributes, communication between partners, and managerial skills;
- Companies with limited resources can choose their focus according to whether they want to reduce costs or improve services.
Depending on their priorities, managers can use these results to identify which elements of an alliance need most attention and which practices are most likely to improve performance.
Vanpoucke E. Vereecke A. The Predictive Value of Behavioural Characteristics on the Success of Strategic Alliances, (International Journal of Production Research)