Atul Parvatiyar & Jagdish N. Sheth | The news of business alliance failure is as common as the news about its popularity. Much of this failure could be attributed to the inability of alliance partners to successfully govern and manage them. The governance of alliances requires an understanding of alliance characteristics, and the adoption of necessary Processes for its development, management and control. This paper proposes a set of hypothesis regarding alliance governance and management. It is an extension of a previous work of the authors, when a typology of alliances and propositions on its organizational characteristics were presented (Sheth and Parvatiyar 1992).
A business alliance was defined as an ongoing, formal, business relationship between two or more independent organizations to achieve common goals. Two underlying dimensions of this definition were identified purpose and parties. Each of these dimensions has two dichotomous levels: strategic and operative levels of purpose; competing and non-competing parties. The strategic purpose of an alliance is predominantly related to achieving organizational growth and corporate effectiveness whereas, the Operational purpose relates to improving efficiency and operational performance of the firm. Alliance partners may perceive each other as competitor or non-competitors depending on the perceived role definition of each other. Based on the two dimensions of alliances (purpose and parties) and their dichotomous levels (strategic versus operative, competitor versus non- competitors), four types business alliances were identified cartels, co-operatives, collaborative and competitive alliances. In this paper she organizational characteristics of these alliances are revisited so suggest a act of propositions for successful governance of alliances.
Alliances formed for strategic purpose are characterized by greater uncertainty due to its long tarn and futuristic outlook. In such alliances, partners would seek greater commitment from each other so that the risks could be shared by both. There would also be a tendency so designate specific assets to such alliances to delimit the risks to the transaction specific assets and not the whole corporation. Because strategic purpose alliances generally involve greater commitment of resources and are concerned with the future direction of the firm, one would observe a greater involvement of senior management in its governance.
In alliances formed for operational purposes, achieving efficiency is most critical. That could be thieved through proper coordination, asset sharing and ongoing interaction at multiple levels of the organization. This requires a proper set-up of operational interface among the alliance partners, including multi-channel communication and coordination. Thus, operational purpose alliances are likely to be governed by several people at multiple levels of the organizational.
In alliance formed among competitors, thus is fear of competitive opportunism among partners, thus management would endeavor to closely control information flows and the degree of interaction between partners. As such, alliances with competitors will be functionally specific in character.
When the partners in an alliances are non competitors, the degree of trust between them is high. They would tend in cooperate in multiple functions, seeking to learn from each other. Since the perceived threat of opportunistic behavior is low, more autonomy would be accorded in its governance and management. Free flow communication is likely lobe encouraged and broad based cooperation and collaboration will be adopted by the pertness.
The governance characteristic of each type of affiance would be as follows:
Cartel type alliances will be functionally specific, often in the area of price or distribution function. Coordination among cartel members in the specified functional aspect of alliance will be a key aspect of its success and governance. The information flow among partners will be controlled and limited to the aspect of alliance agreement. In other aspects cube business, cartel functions will be governed by the market forces. In other words cartels would most likely resemble quasi-market governance.
Competitive alliances will also be functionally specific, but given its strategic nature, will be closely controlled by senior managers of the allying organizations. Most often, these senior managers would come from the functional area in which the alliance has been formed. To protect each other from competitive opportunism information flow between pertness will be highly controlled in the competitive alliance. Thus, moat interactions between partners would be governed on a bilateral basis by the senior managers responsible for the alliance.
The purpose of cooperative alliance is to achieve broad based efficiency for which multi-level coordination and ongoing interaction between partners is extremely important- Since cooperatives are not functionally specific, aces functional coordination would be common and interactions will occur at all levels of the organization. Generally, a free flow of communication between partnering organizations will be encouraged because such free flow of communication is critical to achieve multi-level combination. Cooperatives will therefore have multilateral governance structure.
Finally collaborative or joint venture are formed for strategic purposes. Partners generally commit specific resources to such ventures. It needs involvement of senior management and cross-functional cooperation. In most cases, a management team will be assigned to the collaborative venture and given autonomy for managing its operations. The strategic aspects of the collaborative venture will be also managed by the two partners, besides the independent management team. Free flow of communication within the venture and the development of an independent culture or theme will be encouraged in collaborative alliances. Collaborative alliances will therefore have trilateral governance form managed by the two powers and a third party management seem specifically created for the purpose.
Sheth. Jagdish and Atul Parvatiyar (1992). Towards a Theory of Business Alliance Formation. Scandinavian International Business Review 13.pp. 71-87.