Strategic management is believed by many scholars to be the basis of business success in the modern highly competitive markets (Rugman, 2005, p. 111). The notions of strategy, innovation, and change are basic in the process of strategic management, although the ideas of structure, leadership, marketing, and control are also of huge importance for it (Pahl, 2009, p. 87). Drawing from this, the analysis of various examples of companies forming alliances and trying to work according to strategic management principles are of great value for those willing to master this aspect of business in its both theoretical and practical aspects.
Thus, to be better informed about the details of the case of Avebe and Noveon strategic alliance (Wahyuni, 2007), it is necessary to recollect its basic details briefly. Two chemicals’ producers decided to work jointly to provide a unique product to the global market; their alliance was rather promising but did not work out, and now “both companies do not know why the alliance failed” (Wahyuni, 2007, p. 2).
Accordingly, it is necessary to inquire about the mistakes that the management of both companies committed during the join work in order to explain the alliance’s decay. In attempts to understand the causes of this failure, it is possible to address the ideas of the design school of strategic management, according to which the process of alliance strategy development and implementation can be illustrated as follows (Thompson, 2003, pp. 712 – 713; Dyer, 2001, pp. 40 – 41):
The above diagram represents the ideal strategic management according to the design school model. Drawing from the Avebe and Noveon experience, one might assume that their alliance’s failure was conditioned by mistakes in one or several of the presented elements. Therefore, succinct but detailed analysis of each of those elements is needed.
Case Study Analysis
The initial element of a strategic alliance management is the internal appraisal, i. e. mobilization of alliance participants’ internal resources: “One reason that alliances fail is the inability of one partner or another to mobilize internal resources to support the initiative” (Dyer, 2001, p. 40). The case study reveals that at the initial stage of alliance development, Avebe and Noveon mobilized their internal resources, both human and material ones, properly, which allowed their joint initiative to develop quite quickly. However, when the re-composition of internal resources took place, i. e. people responsible for the alliance strategic management, were dismissed and new ones were appointed, the mobility of both companies in this respect became rather limited (Wahyuni, 2007, p. 8). Thus, inefficient internal appraisal might have been the cause for the alliance failure.
Quite similarly, the external appraisal, i. e. the mix of global expansion, creation of external value, and gaining of competitive advantages also condition the success of strategic alliances, which “can help firms extend and renew their sources of competitive advantage when expanding globally” (Pitts and Lei, 1996, p. 216). The case study reveals that the alliance failed to create that external value, the jointly developed product was sold rather slowly, and both Avebe and Noveon lost interest in its further development (Wahyuni, 2007, p. 10). Accordingly, it can be assumed that the alliance failure was conditioned by the improper conduct of both companies at the initial stage of its launching. In simpler terms, neither Avebe nor Noveon managed to facilitate internal and external appraisal of the alliance, and so it failed.
Based on the above consideration, it is possible to support the idea one might get after reading the Avebe and Noveon case study that neither of the companies had carried out the SWOT analysis either before or during the alliance functioning. At the same time, Rugman (2005) stresses the importance of SWOT as “a tool for the analysis of both external and internal environment of firms” (p. 211). Accordingly, one more mistake Avebe and Noveon committed was their failure to use SWOT analysis. This resulted in the inefficient internal and external appraisal processes, which in their turn led to the whole alliance failure. If Avebe and Noveon managed to conduct a SWOT analysis, it would present approximately the following results:
Fig. 2 Avebe and Noveon Alliance SWOT Analysis
|Jointly produced unique products;||Separate product marketing;|
|Access to the desired markets globally;||Inefficient information sharing;|
|Global expansion and income increase;||Excessively high prices for the new product;|
|Development of alliance participants’ market shares;||Lack of risk management and problem solving strategies.|
Creation of Strategy
Key Success Factors
The second stage of strategic management of an alliance is the creation of the very strategy. The first point in this process is the identification of key success factors that the planned alliance will rely upon in realizing its opportunities: “The success of alliances is therefore dependent on how they [opportunities] are managed and the way in which the partners foster the evolving nature of the partnership” (Johnson and Scholes, 2002, p. 364). Briefly, the alliance success depends upon (Johnson and Scholes, 2002, pp. 364 – 365):
- Strategic purpose;
- Alliance expectations and benefits;
- Managing alliance relationships.
As the case study reveals, Avebe and Noveon defined only the first success factor (Wahyuni, 2007, p. 3), but failed to consider the remaining two points, which might also be viewed as a strategic management mistake conditioning the final alliance failure.
Distinctive Competencies and Resources
Another relevant point of the strategy creation is the disposal of distinctive competencies. The latter determines the alliance success, although, as De Wit, B. and Meyer (2004) argue, one cannot ignore “dangers in allowing the other partners in an alliance to exploit the skills of the host organization” (p. 309). However, the joint use of distinctive competencies facilitates the unity of the alliance partners and their commitment for goal accomplishment. As the case study reveals, Avebe and Noveon cooperated only in raw materials’ supply and market expansion, while their distinctive were used by each firm separately (Wahyuni, 2007, p. 5). This fact can also be viewed as one more mistake in the alliance’s strategic management.
Research and Synthesis
Further on, research and synthesis prove to be essential for strategic management and alliance functioning. Cole (2005) and White (2004) define three major areas of research that “precedes strategic choice” (Cole, 2005, p. 136). In more detail, companies forming alliances should research the backgrounds of their future partners, research the potential for the alliance, and research the market trends in respect of products and/or services they plan to promote jointly (White, 2004, p. 160). The only research Avebe and Noveon took up was the research of market shares for pigment printing, printing thickeners, and reactive dye printing segments of the market. The companies researched their shares in those segments and decided to form an alliance, without studying how products they plan to launch will be perceived, how competition and demand in the market might change over time (Wahyuni, 2007, p. 4). Therefore, ignorance of research and synthesis necessity prior to alliance formation was another cause of the Avebe and Noveon alliance formation.
Evaluation and Choice of Strategy
The next step in strategic management is the process of evaluating and choosing a strategy for an alliance. Rugman (2005, p. 93) and Pahl (2009, p. 74) define three major areas of social responsibility for strategic alliances:
- Strategic alliances, their products, and activities should not be discriminatory in any respect;
- Strategic alliances should support environmentally-friendly initiatives;
- Strategic alliances should adjust prices for their goods and/or services to income levels and capabilities of their target customers.
As can be seen from the case study, Avebe and Noveon ignored the first two points completely, while the mismatch of their prices and customers’ expectations and capabilities resulted in low sales of their products and alliance failure.
Further on, the evaluation of a strategy is a matter of managerial values. Very often, alliances fail because of mismatch of those values, when managers of partner companies have different perceptions of alliance goals and benefit distribution: “The scale of commitment and risk taking is an issue here, as is the perception that one partner may be getting more that its fair deal of valuable knowledge” (Haberberg and Rieple, 2001, p. 610). Accordingly, for alliance success such managerial perceptions and values need to be changed, while the case study reveals that Avebe and Noveon management teams had quite negative perceptions of each other (Wahyuni, 2007, p. 16), which also contributed to the alliance failure.
An important detail of strategic management is the fact that a structure is derived from the strategy and not vice versa. Thompson and Martin (2005) explain this sequence by the fact that a structure of an alliance depends on its goals, and it is the strategy that determines them (p. 590). Further on, Dussauge and Garrette (1999, pp. 51, 53) single out four major alliance structures, i. e. international expansion joint ventures, vertical partnerships, cross-industry agreements, and alliances between competitors, and the case study shows that Avebe and Noveon belongs to the first type defined. However, the major issue of this alliance was the formation of this structure before the very strategy was developed. Accordingly, the goals and benefits did not match with the alliance structure, which became one of failure factors for it.
Strategic leadership is one more vital element of a proper strategic alliance functioning, which was, however, ignored by Avebe and Noveon. It is claimed that a good leader must possess “charisma, absorptive capacity, capacity to change, and managerial wisdom” to ensure the success of an alliance (Boal and Hooijberg, 2001, p. 539). The leadership of Avebe and Noveon alliance was far from these qualities according to the case. More specifically, the initial leadership of the alliance was based on good human relations among alliance managers of both companies, but when they were dismissed new officials failed to communicate with the same degree of efficiency. This, complicated by the absence of a single, charismatic leader, led the alliance to failure as a result.
Planning is also an essential element of strategy evaluation and selection, and the fact that Avebe and Noveon obviously ignored this point in alliance forming served as one of the basic factors of their failure: “A company must undertake a systematic approach to alliance planning that addresses several key questions” (Reuer, 1999, p. 352). These questions focus mainly on expected outcomes of the alliance, best partners for the outlined goals, its organization and management, as well as corporate secrets preservation within the alliance (Reuer, 1999, p. 352). Although Avebe and Noveon knew what they expected from the alliance with each other, as well as kept secret information during the alliance, they ignored alliance management points, and this turned out to be a fatal mistake.
Culture is also an integral part of strategic management and alliance operation. In the business sense, culture is understood in two main aspects for it can be organizational and national. The national culture is the set of customs and traditions that an alliance partner should respect and take into account while making an alliance with a foreign company (Pahl, 2009, p. 52). The organizational culture is “a source of sustainable competitive advantage is that culture is valuable, rare, and imperfectly imitable” (Barney, 1996, p. 663), but when it is easily imitable, it loses its value. The case study details reveal that lack of understanding of Dutch and American national cultures expressed in possible language issues was one of the causes of the alliance failure (Wahyuni, 2007, p. 16). In respect of organizational culture, the one of Avebe turned out to be easily imitable, and after Diamalt acquisition Noveon found the company that fulfilled all Avebe functions but did not require additional funding for it (Wahyuni, 2007, p. 21). So, the sum of these cultural issues contributed to the alliance failure.
Finally, one more mistake that Avebe and Noveon committed during the functioning as an alliance was the ignorance of the need to control each other’s activities: “Control in strategic alliances is the process by which one partner influences the behavior of the other and of the alliance itself” (Reuer, 1999, p. 386). Accordingly, when a partner knows what, why, and how another partner does, the alliance can function properly and avoid misunderstandings, benefit conflicts, and other disputes. As far as the case provides no details on control measures implemented by Avebe and Noveon, and even describes the separate marketing and sale operations taken up by both partners (Wahyuni, 2007, p. 5), the failure of their alliance can be explained in part by this lack of control.
Implementation of Strategy
The implementation of the strategy developed the alliance of Avebe and Noveon can also be viewed as one of the reasons for the failure. On the whole, strategic alliances “are generally seen as a risky strategy whose success is often unrelated to an individual partner firm’s effort” (Das and Tend, 1999, p. 50). So, to manage those risks companies usually use such practices as alliance control measures, preliminary market and alliance partner research, and permanent alliance efficiency monitoring. As the case study reveals, Avebe and Noveon did not manage to use any of these risk management tools; vice versa, both companies lost the momentum of their cooperation, allowed communication between them to decrease, and ended up not knowing the actual reasons for their alliance failure. Accordingly, apart from all the above discussed mistakes, the erroneous strategy implementation conditioned the decay of Avebe and Noveon alliance as the relevant theory allows arguing.
Based on the case study and the above considerations, one cannot argue about the evaluation stage ever carried out by Avebe and Noveon regarding the performance of their analysis. At the same time, scholars like Contractor and Lorange (2004, p. 41), Doz and Hamel (1998, p. 73), and Lasserre (2008) stress the importance of post-alliance evaluation as the tool that allows seeing the actual success, or failure, of efforts taken by two or more companies for achievement of joint goals. Thus, the improper activities of Avebe and Noveon in all prior stages of strategic alliance development did not allow the companies to evaluate the results of their performance. As a result, both companies are unsure about the causes of their failure, actual results of their work, and opportunities for further cooperation (Wahyuni, 2007, p. 20).
So, the whole above discussion allows concluding that strategy as a process requires considerable attention and professional approach to its every single element. The example of the alliance between Avebe and Noveon illustrates the basic mistakes that companies often make while forming alliances and trying to achieve the goals of global expansion, market share increase, profit growth, and overall performance improvement. Accordingly, the case of Avebe and Noveon reveals that a strategy is a highly complicated process, while the improper behavior of alliance members in the course of strategy implementation might result in the complete failure of the alliance and leave the partners wondering why this happened.
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