Spekman and Mohr (1994) argue that although the characteristics of strategic alliance formation have been well explored in the literature, little has been written about the characteristics associated with strategic alliance success. In an article on measuring strategic alliance success (Manir Zaman and Felix, of the Mavondo Monash University) concluded that the current literature is not providing any comprehensive answer to this question and that there is a need for more insights into factors underlying the success and failure of strategic alliances. The authors continue that, many of the research studies on strategic alliances (for example, Ahern,1991; Cobianchi, 1994; Kedia, 1992; and Sengupta 1991) are not specifically concerned with the specific factors, associated with strategic alliance success.
Alliance formation is expected to intensify in the future, as globalization continues – even in the face of difficult economic conditions (Charman, 2000; Cyr, 1995; Doz & Hamel, 1998; Hitt, Harrison & Ireland, 2001; Inkpen & Beamish, 1997; Lane, Salk & Lyles, 2001; The Economist, 2000). As an example of this development, networks of relationships between new biotechnology start-ups dedicated to research and established big-pharma companies that can commercialize these new products, worldwide, characterize the bio-pharmaceutical industry. In return for sharing technical information with the larger companies, the biotech start-ups get access to their partners’ resources for product testing, marketing, and distribution (Liebeskind, Oliver, Zucker & Brewer, 1996). Large pharmaceutical companies such as MSD, GSK, Sanofi or Eli Lily gain from such partnerships because the smaller companies typically develop new drugs in as little as five years, versus an eight-year average development cycle in the larger companies (Robertson & Jett, 1999; Schonfield, 1997; Sager, 1996).
However, success of alliances is by no means assured and alliances often fall short of their stated goals and objectives. Statistics show that fewer than 20 per cent of all alliances in the United States achieve their financial objectives. In Europe, success rates are very similar (Charman, 2000). In another study on 49 international strategic alliances by Bleeke & Ernst (1991) indicated that 2/3 of the alliances faced severe difficulties in management and finance within two years after they were made, and about 33% of those alliances were recognized as failure by the parties in the alliances. In another paper by Bleeke & Ernst (1995), found that in many cases, the strategic alliances resulted in the transfer of ownerships, the alliance relationship remained on average for 7 years and nearly 80% of the alliances were terminated.
Reasons for Failure
Collaborative alliances in the bio-pharmaceutical industry are characterized by inherently incomplete contracts with the increasing risk of opportunistic behavior, or ‘seeking self interest’ (Baum et al., 2000; Luo, 2002, Williamson, 1985). Such opportunistic behavior can cause that an organization experiences leakage of proprietary knowledge to partners or losing control of important assets (Hamel, 1991; Williamson, 1991). This kind of intra-collaboration rivalry retains the potential to severely harm participating companies.
Therefore, when partners experience a high risk of opportunistic behavior, they will be hesitant to fully collaborate with the other partner(s), avoiding that these latter partner(s) can abuse the collaboration for their own private benefit (Das & Teng, 2001; Gulati, Khanna & Nohria, 1994; Nooteboom, 1996).
In this way, the risk of opportunistic behavior severely limits the success of strategic alliances. Other authors found that collaborative alliances, involved in the development of new (high) technology products face not only substantial risks of opportunistic behavior but also coordination problems between the partners in the completion of technological complex tasks.(e.g. Dekker, 2003; Gulati & Singh, 1998)
While some failures can be explained due to financial or market conditions, the reasons for other failures can be traced back due to neglected human resource issues and activities associated with managing the cultural diversity present in these organizations.
According to (Bianco, 2000; Weber, 2000), clashing cultures is the most cited reason, and often this reason is intertwined with other reasons. In cross-border alliances, culture clashes occur due to differences in corporate cultures and differences in country cultures. Where the two types of culture are clearly related, and difficult to disentangle from each other. (Hofstede, Trompenaar, 1991). ( Ulijn & Weggeman, 2001), have found that in most alliances, partners tend to pay close attention to strategic and organizational fit, but have less attention for cultural aspects on national, corporate or professional levels ( Ulijn & Weggeman, 2001).
This is supported by (Barkema, & Vermeulen, 1997) that the influence of cultural fit on the outcome of strategic alliances, are affected negatively when there are big differences in national and corporate culture. They suggest " Not only “hard facts” such as market share or the annual turnover should therefore be considered in partner selection processes, but also “soft facts” such as cultural elements".
In a survey amongst 455 CEO’s, “misunderstood operating practices” and “lack of alliance experience” where mentioned as the most important reasons for alliance (lack of) performance ( Spekman & Robert, 2000). As both “operating principles” and “alliance experience” (or lack thereof) are, cultural attributes of any organization, the authors suggest that cultural mismatch can have a negative impact on alliance performance. According to Spekman & Robert, managing the relationship in the context of the partner’s cultural differences, is a two way street; 1 finding ways to create value from complimentary differences and 2 reduce the impact of those differences that impede alliance success.
Assessing cultural fit and understanding the implications of cultural differences is therefore important to reduce the risk of strategic alliance failure.
To conclude the percentage of strategic alliances in the bio-pharmaceutical that fail is estimated to be between 50%-60%, which is a rate between optimistic and pessimistic ( Duysters et al., 1999). Even though the reasons for these high failure rates have always been rather vague, most authors suggest that strategic alliances fail for a variety of reasons, and often several reasons operate simultaneously. Typical reasons for failure include:
* Unrealistic expectations
* Hastily constructed strategy, poor planning, unskilled execution
* Inability to unify behind a single macro message
* Talent is lost or mismanaged
* Culture clashes between the partners go unchecked
* Lack of trust between managers from the previously separate firms
* Unexpectedly high costs associated with the transition and co-ordination