Success Factors of Strategic Alliances in Small and Medium-sized Enterprises—An Empirical Survey

long range planning

Long Range Planning 34 (2001) 357-381

www.lrpjournal.com

Success Factors of Strategic Alliances in Small and Medium-sized Enterprises—An Empirical Survey Werner H. Hoffmann and Roman Schlosser

Strategic alliances are increasingly gaining favour over go-it-alone strategies for organisations to achieve fast and economical growth. This study aims to identify critical success factors in alliance-making with special consideration given to the specific situation of small and medium-sized enterprises (SMEs). A comprehensive questionnaire was used to interview a random sample of key executives in 164 Austrian SMEs. This paper reports on the results of that empirical survey, and seeks to identify the weights of various success factors in alliance-making in SMEs. The results show that “soft” facts such as trust are important for alliance success, but not on their own sufficient. Also “hard” facts such as strategic compatibility and appropriate governance mechanisms have an important influence on alliance success. Careful strategic planning and good partnership preparation are essential for alliance success, but the full value of an alliance has to be developed as it evolves. 쎻 c 2001 Elsevier Science Ltd. All rights reserved.

Introduction Interfirm collaborations, such as strategic alliances and joint ventures,1 have become important business management instruments to improve the competitiveness of companies, especially in complex and turbulent environments.2 Alliances help to bridge the gap between the firm’s present resources and its expected future requirements.3 In this time of globalisation and radical technological change, alliances have become important strategic manoeuvres in industries such as telecoms, electronics, biotech and automobiles.4 Alliances reportedly improve the competi0024-6301/01/$ - see front matter 쎻 c 2001 Elsevier Science Ltd. All rights reserved. PII: S 0 0 2 4 - 6 3 0 1 ( 0 1 ) 0 0 0 4 1 - 3

Werner H. Hoffmann is a Senior Lecturer for Strategic Management and Management Control at the Management Department at the Vienna University of Economics and Business Administration and Director of the Austrian Controller Institute, Doeblinger Hauptstrasse 7, A-1190 Vienna,

tiveness of firms by providing access to external resources, by providing synergies and by fostering rapid learning and change. Large and fast-growing enterprises such as Glaxo-Wellcome, Sun, Intel, Microsoft, Oracle and SAP rely heavily on alliances to support their growth strategy. SMEs are characterised by tight resources, which puts them in particular jeopardy from increasing globalisation and rapid technological change. One might expect that SMEs would draw extensively on alliances to overcome their resource shortages and increase their viability in difficult times. However, recent studies show that SMEs’ propensity to co-operate is significantly less than that of large companies.5 These empirical findings show that SMEs do not fully utilise alliances to improve their competitive position. This situation presents a particular problem for the Austrian economy because of its structure. More than 99 per cent of Austrian companies are SMEs. These companies represent almost 60 per cent of the total turnover of all Austrian companies and employ more than 65 per cent of all workers.6 For the Austrian economy to be competitive in the future, SMEs must adjust successfully to new market conditions and competitive situations (deregulation as a result of joining the European Union, globalisation of markets, rapid technological change). Because most SMEs want to keep their business autonomy, co-operations offer a particularly promising strategic option—but one that Austrian companies have not used enough to overcome their size disadvantages in international competition. We assume that the reported reluctance of SMEs to collaborate is due not only to emotional and cultural barriers but to a lack of knowledge about the specific success factors of alliances. This paper, based on an empirical survey using a questionnaire, aims to identify critical success factors of SME alliances as well as the perception of success factors by SME owners and managers. While doing this, we build on several established theories of interorganisational relationships.

Success factors of strategic alliances

Austria. Corresponding address: Austrian Controller-Institute, Doeblinger Hauptstrasse 7, A1190 Vienna, Austria. E-mail: [email protected] Roman Schlosser is a Research Assistant at the Austrian Controller Institute (ACI), Vienna.

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State of the field Although there is an extensive amount of literature dealing with alliances, a comprehensive theory of interfirm co-operation has not yet emerged. The research on alliances is characterised by considerable diversity in conceptual frameworks, applied methods, empirical data and findings. Current theories provide at least two main explanations for firm existence, firm boundaries and interfirm collaboration: the transaction-cost theory7 and the resource-based theory.8 The transaction-cost theory recommends choosing the organisational mode that minimises the sum of fixed and continual transaction costs. In the case of medium-asset specificity, alliances are considered the most transaction-cost-efficient organisational form.9 The resource-based

Success Factors of Strategic Alliances

view of the firm explains firms as bundles of resources, i.e. of all assets and capabilities a company possesses. From this perspective alliances arise when a firm needs additional resources that cannot be purchased via market transaction and cannot be built internally with acceptable cost (risk) or within an acceptable amount of time.10 According to the emerging knowledge-based theory of interfirm collaboration,11 alliances provide the best context for creating value by exchanging or combining dispersed knowledge. Firms that face high environmental uncertainty especially can utilise alliances to enhance and speed organisational learning, reshape their environment and reduce strategic uncertainty. Along with the above economics-based and strategybased views of alliance formation, sociological approaches describe and explain interfirm collaboration. Institutionalisation Theory, for example, views alliances as instruments to enhance legitimacy,12 while other authors emphasise the importance of interpersonal and interorganisational trust,13 along with the influence of the social position of key executives on alliance formation and success.14 Studies abound with attempts to explain the determinants of alliance success and failure, with most focusing on a specific cause–effect relationship analysed from a particular theoretical point of view.15 Only few studies provide a broad empirical investigation into critical success factors of forging and managing alliances, drawing from different theoretical concepts and viewpoints.16 All studies face the difficulty of evaluating the success of alliances. Some studies consider an alliance’s longevity a benchmark for success. Others measure its contribution to improving the strategic position or competitiveness of the allied firms.17 To our knowledge, there is no survey that uses a comprehensive questionnaire and explicitly deals with specific success factors of alliances in SMEs. Because of the fragmented state of the field, our inquiry into the causes of alliance success in SMEs needs to draw from different theories and utilise the results of different kinds of empirical surveys.

Some studies consider an alliance’s longevity a benchmark for success

Conceptual framework For the development of the framework we build on the transaction-cost theory, the resource-based and knowledge-based strategic theory as well as on interorganisation theories (sociological approaches). Each of the three theoretical perspectives contributes to the framework and provides independent variables that influence the success of alliances. We categorised the independent variables in five phases of alliance evolution: 앫

Strategic analysis and decision to co-operate.

앫

Search for a partner.

앫

Designing the partnership.

앫

Implementation and management of the partnership.

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앫

A company seeking an alliance must contribute strengths

Termination of the partnership.

The independent variables are subdivided into content-orientated measures and process-orientated measures. Content-orientated variables refer to the content of the alliance (“what”) and deal with measures that have to be implemented in strategy, structure or systems, concerning matters such as strategic orientation and structural configuration. Process-orientated variables refer to the process of developing an interorganisational relationship (“how”) and deal with such matters as building trust and mutual understanding. The content-orientated variables are influenced mainly by transaction-cost economics and resource- and knowledge-based strategy concepts, while the process-orientated variables are influenced mainly by interorganisation theories and general leadership and management theories. Together these theories established the following 24 variables as important factors influencing alliance success in the five stages of alliance evolution. Phase 1: Strategic analysis and decision to co-operate Collaborating in situations with high need for strategic flexibility and limited need for control Transaction-cost economics recommends using strategic alliances for co-ordinating economic activities in cases of medium-asset specificity, i.e. limited need for control.18 Companies facing high environmental uncertainty have a large need for strategic flexibility and may prefer alliances even in situations with high-asset specificity.19 Following this reasoning, we propose that alliances be applied in situations with a high need for strategic flexibility and limited need for control. Contributing specific strengths and looking for complementary (or similar) resources The resource-based view of strategy sees interorganisational relationships as resource linkages that provide synergies by sharing or transferring resources. This requires the resources to be linked be complementary or similar. A company looking for alliance partners must have something to offer (“excess resources”) and seek complementary or similar resources for transferring or pooling.20 Accordingly, we propose that a company seeking a successful alliance must contribute individual strengths and look for complementary (or similar) resources. Deriving alliance objectives from business strategy Since a company views alliances as instruments to implement strategies and achieve strategic goals, the planning of the decision to co-operate should ensure that objectives for the alliance are derived from the company’s business strategy. This strategic analysis must evaluate if and how an alliance can improve the company’s strategic position in this particular business.21

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Success Factors of Strategic Alliances

Awareness of time requirements for alliance development Experience shows that the process of forging and developing alliances takes time. Forming an alliance requires myriad negotiations to get the potential partners to agree on all major points.22 Additionally, most alliances are developed step by step. Consequently, several years may elapse before an alliance can fulfil its strategic potential. Accordingly, we underscore the importance of realistic expectations about the time required to establish a successful alliance. Phase 2: Search for a partner and partner selection Building on established trust-based relationships Sociological theories and the transaction-cost theory demonstrate the importance of established trust relationships between cooperation partners. Interorganisational trust reduces the need for control, resulting in lower transaction costs. Further, trust influences positively any expansion of the area of co-operation, thus increasing the benefits of the relationship.23 For these reasons, we assume that the chances of a new joint venture succeeding will increase if the companies can build on an established trustbased relationship.24 Partner is excellent in field of co-operation From the perspective of resource-based strategic theory, alliances provide access to the partner’s resources, thus improving a company’s own resource endowment. For this reason, it is crucial that a chosen partner have definite strengths in the field of cooperation. Complementary contributions Resource-based strategic theory assumes that co-operation partners have complementary (or similar) resources which, when combined, create synergies. Complementary contributions mean also that partners’ business strategies should be compatible, though not necessarily identical: different business strategies, if they do not conflict, can also provide a solid basis for successful co-operation. Agreement of fundamental values and convictions In selecting the best possible partner, a firm has to consider the cultural fit between the companies. Important prerequisites for the future success of the co-operation are joint business expertise and agreement on fundamental values. Therefore, co-operation should be geared to creating a common understanding—a joint philosophy and “view of the world”—between the partners. Phase 3: Designing the partnership Precise definition of rights and duties According to transaction-cost theory, the success of an alliance essentially depends on whether it can be configured to minimise behavioural uncertainty and the resulting need for control.25 If, on the other hand, behavioural uncertainty is high, this increases

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control costs, reducing the efficiency of the alliance. Frequent disputes about input in the co-operation (duties) and sharing the output (rights) cause high costs for conflict resolution. This hinders possible benefits from the co-operation. Accordingly, potential conflicts should be avoided from the outset by establishing precise targets and task definitions. Equal contributions from all partners Reciprocity between partners is an important dimension in evaluating the success of an alliance. Strategic dependence on the alliance determines the power structure, and an unequal power structure leads to instability. It should be noted that any mutual dependency relationship between partners can change with time. Emphasising the potential for joint value creation Recently, criticism has grown over the one-sided fixation of transaction-cost theory on the cost aspects of interfirm co-operation.26 Critics increasingly argue for more concentration on the benefits, than on the costs, of transactions. From a resourcebased perspective, the potential for joint creation of added value should be given priority in the design phase of alliances. Experience shows that alliances are particularly successful when partners spend less time arguing over the distribution of the joint “pie” and more time trying to make the joint “pie” as big as possible.27 Keeping and protecting core competencies Strategic alliances increasingly are being viewed as organisational forms that facilitate quick and flexible learning of new organisational capabilities.28 But what from one company’s perspective is a successful effort to acquire new technologies or capabilities can be seen by the other company as an undesirable drain of proprietary expertise to the partner, endangering its own competitiveness. Thus, ways to minimise disputes over “outlearning” should be considered in the design phase of the alliance.29 It should be noted, however, that the more restrictive the exchange of information between partners, the more limited the possibilities for interorganisational learning. Building trust by unilateral commitments and avoiding opportunistic behaviour The success of a promising alliance can be endangered during the design phase by opportunistic behaviour of partners. Lack of trust in the future behaviour between partners leads to the failure of the entire co-operation project or, at least, to the set-up of costly safeguards against opportunistic behaviour, resulting in increased transaction costs. On the other hand, trust between partners can be built during negotiations by unilateral commitments that underscore the importance of the intended partnership and the company’s trustworthiness. 362

Success Factors of Strategic Alliances

Agreement on clear and realistic objectives The conception phase should also be used for creating the basis for professional project management. Particularly important is agreement on clear and realistic objectives for the initial phase of co-operation. These assure concrete steps for implementation and early success, advancing development of the alliance. Implementing plan with fixed milestones How successfully an alliance will be implemented is significantly determined in the design phase. In addition to building trust and defining clear and realistic objectives for the co-operation, the partners must create a plan of action with fixed milestones. This plan forms the basis for implementing the alliance in a goalorientated and controlled manner. Phase 4: Implementation and management of the partnership Establishing an information and co-ordination system Following transaction-cost economics, it is important to establish an information and co-ordination system linking the parent companies to one another and to the co-operation unit (e.g. the joint venture). The use of modern information and communication technology for this purpose can greatly reduce ongoing transaction costs, significantly contributing to the efficiency of the co-operation. Establishing required resources Once the decision to co-operate is made and basic objectives agreed upon, each partner must provide the resources required for the alliance. Primarily, this means determining the tangible and intangible assets, employees and financial funds required. The partners have to agree on whether the these input factors remain the property of each partner or become mutually owned. Top management support In the implementation phase of an alliance, an important success factor is senior executive commitment and support. One of top management’s most important tasks is maintaining an even relationship to the partner and visibly supporting the co-operation in one’s own company. That commitment to the co-operation is an important requirement in the continual battle to make sufficient resources (in particular financial resources and management attention) available for the alliance. Because of this, many companies have senior executives take on the role of sponsor for strategically important alliances. Avoiding unwanted transfer of knowledge To prevent an unwanted drain in expertise, a partner should continuously monitor the exchange of information and deliberately increase mobility barriers to protect its core resources. How vulnerable a company is to outlearning by the partner depends

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particularly on the transparency of the critical knowledge and the appropriability regime.30 Capacity to learn from partners If alliances are considered “learning races”, then the participant that appropriates the partner’s complementary knowledge most quickly will have the greatest success in the co-operation. In alliances, the success in learning is determined by the desire (intent) to learn and the absorptive capacity of the company.31 The intent to learn plus the current learning capability (absorptive capacity) together can be called learning capacity. The greater the firm’s learning capacity and the more transparent the partner’s complementary knowledge, the better will be its success in learning. Speedy implementation of measures and fast results Once agreement has been reached on the basic rules and framework for the partnership, an initial common project or task must be undertaken so the partners get used to working with each other and see the alliance become a reality. Quick and measurable results form the groundwork for a successful co-operation. Early success provides a dynamic to strengthen alliance management and convince sceptics. Continual review of alliance performance An ongoing evaluation of performance forms the basis for controlling progress in the alliance. Empirical studies show that, in addition to efficiency, reciprocity and adaptability are important criteria with which to assess the success of co-operations.32 With no continual review, a firm in an alliance may not take full advantage of the alliance’s development potential or may not realise that the co-operation is heading in the wrong direction until it is too late. Phase 5: Termination of the partnership Termination only upon approval by all partners Termination of the partnership is difficult and requires delicacy and skill. Partners must be informed completely and treated respectfully so that future relations are not hampered. Loss of reputation as a fair and trustworthy partner will jeopardise future business opportunities. Preparing for termination already in the design phase Sooner or later, almost all alliances end. Either the co-operation unit is dissolved and the resources are returned to the parent organisations, a partner acquires the co-operation unit, or the co-operation continues under a new owner (e.g. by going public). Regardless of the type of termination, the prerequisites and conditions for it should be defined in the conception phase to prevent later disagreement. Figure 1 summarises influencing factors for the success of 364

Success Factors of Strategic Alliances

Figure 1. Success factors in the stages of alliance evolution

alliances (the theoretical background of the factor is shown in brackets):

Methods and data We analysed the influence of the identified variables on alliance success in SMEs in two ways: 1 We asked owners or general managers of SMEs how important they perceived the influence of the stated variables to be for alliance success—perceived success factors (subjective measures). 2 We measured the value of all independent variables and the alliance success (dependent variable) for every alliance, then statistically analysed the influence of the independent variables on the dependent variable—objective success factors (objective measures). When variables significantly influence the success of alliances we refer to them as critical success factors. A comparison of critical success factors with the perceived importance of variables by the SMEs shows if the value of some of these factors was underestimated. The empirical basis of the project was generated using information from the Hopensted Database, which contains the largest 8,000 Austrian companies. From that, 1,000 randomly chosen small- and mid-sized companies (SMEs) in Austria were contacted, and the companies’ CEOs, managing directors or owners were asked to answer a questionnaire. The response rate was 16.4 per cent (164 usable questionnaires). Some 70 companies (43 per cent) used at least one alliance, and this sample was used in

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Figure 2. Empirical basis, initial and final sample

the search for success factors of alliance management. Figure 2 illustrates the composition of the survey sample. The surveyed companies that do have collaboration experience and the alliances analysed can be characterised by the following attributes (see Tables 1 and 2): Table 1 shows that the companies investigated were typical Austrian small and medium-sized businesses. For a detailed description of the methods and data see the appendix.

Empirical findings Influence of companies and alliance characteristics on alliance success In a first step we analysed the influence of companies and alliance characteristics on alliance success: Success of alliance The survey showed that 78.6 per cent of all analysed alliances were deemed successful. This rate is considerably higher than that shown in other surveys.33 The high success rate can be explained by companies with several alliances chosing the most important alliance for answering the questionnaire. To evaluate

Table 1. Attributes of the analysed companies (n=70) Industry Sector Commerce Trade Manufacturing Services

366

Number of Employees 35.7% 31.4% 20.0% 12.9%

1–9 10–99 100–500

Management 2.85% 54.3% 42.9%

Run by owners Run by professionals

72% 28%

Success Factors of Strategic Alliances

Table 2. Attributes of the analysed alliances (n=70) Field of Co-operation (more than one field of co-operation could be stated)

Objectives (more than one objective Configuration Type could be stated)

Sales and logistics Production Procurement

74.3% 42.9% 35.7%

Administration Research and development

28.6% 21.4%

Market entry Cost reduction Access to new technologies Risk diversification

76.8% 72.5% 46.4% 21.7%

Contractual alliances Joint ventures Minority shareholdings Other

44.3% 32.9% 12.9% 9.9%

success factors, companies probably chose primarily successful alliances. Number of partners In SMEs, the rate of success diminished by 23 percentage points (from 87 per cent to 64 per cent) when more than one partner was involved. Such findings, however, were not statistically significant when the chi2-test was applied (p>0.05). The findings, however, can be understood as an indication that multi-partner alliances are more difficult to manage and that SMEs—which as a rule have less experience in alliance management than large companies—are particularly prone to encountering problems. Area of co-operation For SMEs, the rate of success decreased from 85.7 per cent to 72 per cent when foreign partners came into play. It can be assumed that SMEs usually have less experience in intercultural management than larger companies, which may be the reason why the success rate of these alliances with foreign partners diminishes. But again, a statistically significant relation between the success of alliances and the involvement of foreign partners could not be shown (chi2-test, p>0.05). Companies’ generic strategy The absence of a clear strategic position (differentiation or costleadership) has a significant influence (p⬍0.05) on the failure of an alliance. Companies with no clearly formulated strategy were more likely to fail in their collaborative efforts than companies that had implemented one. The decision for any particular strategic position made no difference to the success of an alliance. Differentiation and cost-leadership are both suitable strategies for co-operation. The following parameters did not significantly influence the success of alliances of SMEs: 앫

Partners’ level within the chain of distribution

앫

Form of co-operation

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앫

Field of co-operation

앫

Objectives of the alliance

앫

Configuration

앫

Companies’ market strategy.

Critical success factors By definition, “critical” factors of success are those that determine the success or failure of an alliance. This study identified the critical success factors by comparing the value of the 24 independent variables (noticed or unnoticed) in successful and unsuccessful alliances. A chi2-test for each cross-table showed whether there was a significant difference in how specific independent variables affect successful and unsuccessful alliances. This method identified eight variables that significantly differ between successful and unsuccessful alliances (Table 3). The most significant were “Precise definition of rights and duties”, “Contributing specific strengths and looking for complementary resources”, “Establishing required resources”, “Awareness of time requirements” and “Equal contributions from all partners”. Those of lesser significance were “Deriving alliance objectives from business strategy”, “Building trust by unilateral

Table 3. Identified critical success factors by chi2-test No.

Variable

1

Precise definition of rights and duties Contributing specific strengths Establishing required resources Awareness of time requirements Equal contributions from all partners Deriving alliance objectives from business strategy Building trust Speedy implementation and fast results

2 3 4 5

6

7 8

368

Not Noticed by Successful Companies

Not Noticed by Not Successful Companies

Significance Phase (chi2-Pearson)

Type

10.9%

46.7%

0.002

Designing

Content

5.5%

33.3%

0.003

Analysis

Content

18.2%

53.3%

0.006

Implementation

Content

34.5%

73.3%

0.007

Analysis

Process

27.3%

53.3%

0.057

Designing

Content

9.1%

26.7%

0.071

Analysis

Process

29.1% 23.6%

53.3% 46.7%

0.080 0.080

Designing Implementation

Process Process

Success Factors of Strategic Alliances

commitments and avoiding opportunistic behaviour” and “Speedy implementation and fast results”. To examine what effect the eight critical factors of success demonstrate as a whole, a discriminant analysis was made using SPSS statistical software. The discriminant analysis determines how many of the cases analysed, using the eight identified variables, can be properly grouped with successful or unsuccessful alliances and what discriminating information the individual variables contributed (Table 4). The results of the discriminant analysis show that using these eight critical success factors, 78.6 per cent of all cases could be correctly grouped in “successful alliances” or “unsuccessful alliances”. The high correlation (p⬍0.01) also affirms the significance of the eight variables for success or failure of the alliances investigated. Doing the discriminant analysis in steps allows investigation of each variable’s discriminating power. In performing the discriminant analysis in successive steps, the first step encompasses that variable in the model which produces the largest absolute discriminating factor. This, for us, is the variable “Precise definition of rights and duties”. Then, step by step, variables are added that produce the successively largest additional discriminating factors (Table 5). The step-by-step discriminant analysis shows that the first five variables in the model classify 81.4 per cent of the cases correctly. The findings of the reclassification are even slightly better than when including all eight variables. Consequently, the following five variables can be considered the most important critical success factors: “Precise definition of rights and duties”, “Contributing specific strengths and looking for complementary resources”, “Establishing required resources”, “Deriving alliance objectives from business strategy” and “Speedy implementation and fast results” (ranked according to decreasing discriminant power). Including the remaining three variables does not improve the discrimination function. Table 4. Results of the discriminant analysis Success of the Alliance

Predicted Group Success

Number

Success Failure % Success Failure 78.6% of the originally grouped cases were

46 6 83.6% 40.0% classified correctly

Test of the function(s)

Wilks-Lambda

Chi2

1

0.715

21.504

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Total Failure 9 9 16.4% 60.0%

55 15 100.0% 100.0%

df

Significance

8

0.006

369

370

Success Factors of Strategic Alliances

Included Variables

Statistics

Min. D square Between the Groups Statistics

Exact F

Precise definition of 0.958 Success and failure 11.287 rights and duties 2 Contributing specific 1.539 Success and failure 8.938 strengths 3 Establishing required 1.897 Success and failure 7.234 resources 4 Deriving alliance 2.091 Success and failure 5.888 objectives from business strategy 5 Speedy implementation 2.217 Success and failure 4.919 and fast results At each step variables are entered that maximise the Mahalanobis distance between the two closest groups. a. Maximum number of the steps is 16 b. Minimum partial F value for acceptance is 1 c. Maximum partial F value for discrimination is 0.5 d. F level, tolerance or VIN are not enough for another calculation.

1

Step

Table 5. Ranking of identified critical success factors by step-by-step discriminant analysis

64

5

66

3

65

67

2

4

68

df2

1

df1

7.16E-04

4.17E-04

2.87E-04

3.62E-04

1.28E-03

Significance

Although the values of the other 16 variables did not fundamentally help differentiate between successful and unsuccessful cases, that does not mean that such variables were not important for the success of alliances. On the contrary, seven of the 16 variables were observed by more than 80 per cent of all the companies investigated (e.g. “Keeping and protecting core competencies”, “Capacity to learn from partners”) and all 16 variables were noticed by 50 per cent or more of the companies surveyed. This means that most of the 16 variables are success factors in the sense that they are also necessary for alliances to succeed. But considering these factors alone is not enough to guarantee the alliance will be successful: according to our sample these variables are important, but not critical, prerequisites for success. Perceived success factors On the questionnaire, the companies assessed all 24 variables according to their perceived importance for the success of an alliance. The owners or managers surveyed based their evaluation on their previous co-operation experience. Table 6 shows, in order of importance, the variables perceived as very important by SMEs. The variables assessed as very important by most of the companies are “Emphasising the potential for joint value creation”,

Table 6. Importance of success factors as assessed by SMEs No.

Variable

1

Emphasising the potential for joint value creation Agreement on clear and realistic objectives Top management support Contributing specific strengths Precise definition of rights and duties Complementary contributions of all partners Building on established trustbased relationships Deriving alliance objectives from business strategy Termination only upon approval by all partners Continual review of alliance performance Agreement of fundamental values and convictions Keeping and protecting core competencies

2 3 4 5 6 7 8 9 10 11 12

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Very Important Total Phase Important Importance

2001

Type

73.9

20.3

94.2

Designing

Content

71.4

22.9

94.3

Designing

Process

61.8 61.2 49.3

30.9 25.4 35.8

92.7 86.6 85.1

Implementation Analysis Designing

Content Content Content

45.6

38.2

83.8

Selection

Content

44.1

41.2

85.3

Selection

Content

41.4

42.9

84.3

Analysis

Process

41.2

33.8

75.0

Termination

Process

40.3

41.8

82.1

Implementation

Process

39.7

42.6

82.3

Selection

Process

39.1

49.3

88.4

Designing

Content

371

“Agreement on clear and realistic objectives”, “Top management support” and “Contributing specific strengths”. None of these variables showed any significant difference between the evaluations by successful companies and those by unsuccessful companies. It is interesting to note, however, that perceived success factors are quite different from the critical success factors investigated.

Analysis Critical success factors Most of the identified critical success factors have to be considered early in an alliance evolution. Six of eight critical success factors relate to the phases “Strategic analysis and decision to co-operate” and “Designing the partnership”. The rationale for collaborating must be determined in the analysis phase; then clear rules for the partnership must be defined during its conception. Obviously, intensive preparation for co-operation is essential to the success of alliances. This does not mean, however, that the relationship must be planned to the last detail. It means particularly that prerequisites and conditions for an efficient and effective co-operation must be created from the outset. The analysis shows that, for SMEs during alliance evolution, content-orientated and process-orientated variables must be considered as equally important. Four of eight critical success factors relate to “hard” facts. Regardless of the importance of processorientated variables, the discriminant analysis shows that content-orientated variables also have a high impact on the success of an alliance. “Definition of rights and duties” details the basic distribution of roles and tasks in the alliance. The collaboration agreement should include specific markets, geographic areas and target groups, and should define the participants’ respective duties as well as the distribution of profits and losses, and the rights to utilise the output of joint efforts (e.g. patents). “Contributing specific strengths and looking for complementary resources” illustrates how successful alliances work: each partner contributes “excess resources” (strengths) to the co-operation, helping to overcome the corresponding resource deficits (weaknesses) of the partner. “Establishing required resources” illustrates that the benefits (output) of alliances essentially depends on the quantity and quality of the input by all participants. Although they are important, good personal relations and trust between the partners are really only a prerequisite for co-operation. Building on good personal relations, alliances need to be professionally planned and organised for the full potential of the co-operation to be realised. Professional alliance management is particularly characterised by systematic analysis and configuration, quick and consistent implementation of joint plans, and a continuous review of alliance performance that allows for timely adjustments in alliance strategy and configuration. 372

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It is interesting to note that the eight identified critical success factors involve all four theoretical perspectives: transaction-cost economics, resource-based strategy theory, inter-organisation theory and general management and leadership theory. This means that all important theories that describe and explain interorganisational relationships provide empirically significant factors influencing alliance success. These findings also show that nothing is gained by arguing which theory is superior. Instead, one should strive to find a productive synthesis of the most important proven theories. Perceived success factors Analysed SMEs place particular importance on the variables in the early phases of alliance evolution, especially in analysing and designing the partnership and partner selection. The two most important variables relate to the phase “Designing the partnership”. Of the eight most important variables, six can be considered content-orientated. But on the other hand, almost half of the measures assessed as very important (five of twelve) relate to process-orientated variables (for example, “Agreement on clear and realistic objectives”, and “Deriving alliance objectives from business strategy”). Interestingly, half of the variables perceived as important are based on interorganisation (sociological) theories. In general, SMEs emphasise variables that apply to agreement on objectives and to the changes involved during alliance evolution. Empirical evidence indicates that SMEs with failed alliances rate the importance of five variables considerably higher (by adding “very important” and “important”) than do successful SMEs. Big differences appear in these variables (importance assessed by unsuccessful SMEs first): “Partner is excellent in field of co-operation” (92.3 per cent to 72.7 per cent), “Establishing required resources” (90.9 per cent to 72.7 per cent), “Avoiding unwanted transfer of knowledge” (66.7 per cent to 38.2 per cent), “Implementing plan with fixed milestones” (91.7 per cent to 65.5 per cent) and “Awareness of time requirements for alliance development” (72.7 per cent to 56.3 per cent). These evaluations were probably influenced by the experience from an alliance failure, i.e. these companies believe that not paying enough attention to these five factors was an important reason for the failure of their particular alliance. For some of the unsuccessful companies, it can be deduced, a mismatched partner probably contributed to alliance failure. Additionally, as the alliance evolved, rules for the co-operation were not clearly defined. To reach goals and create joint value, companies in an alliance must commit sufficient resources. The unsuccessful companies, it appears, did not provide the alliance with a solid resource endowment and a well thought-out governance structure, probably aiding its breakdown. Unsuccessful companies, compared with successful ones, saw the variables “Termination only upon approval by all partners” (61.6 per cent to 78.2 per cent) and “Preparing for termination

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already in the design phase” (45.5 per cent to 65.5 per cent) as particularly unimportant. This is not surprising since unsuccessful companies had to terminate the alliances because of failure. The other variables were evaluated at nearly the same level of importance by successful and unsuccessful companies.

Differences between critical success factors and perceived success factors The identified critical success factors are compared with the evaluated perceived success factors twice. First, we analyse if the five critical success factors identified by step-by-step discriminant analysis (see Table 5) were also perceived as very important or important by the owners/managers (1). Second, we compare the objective and subjective rankings of success-factor evaluation (2). 1 Critical success factors, identified by univariate and multivariate statistical analysis, correspond only partially with the perceived results of the SMEs’ subjective evaluation (see Table 6). Of the 12 success factors perceived as considerably important by owners/managers of SMEs, only three are critical: “Contributing individual strengths and looking for complementary resources” (61.2 per cent), “Precise definition of rights and duties” (49.3 per cent) and “Deriving alliance objectives from business strategy” (41.4 per cent). On the other hand, the two critical success factors: “Establishing required resources” and “Speedy implementation and fast results” are not found among the 12 factors subjectively evaluated to be important. The fact that subjective evaluation does not match the statistically determined success factors shows clearly that owners and/or managers of SMEs underestimate how important certain success factors actually are. 2 The ranking of critical success factors is based on significance, i.e. discriminating power (see Table 5). The higher the discriminating power, the more relevant the variable. Perceived success factors are presented in order of assessed importance (see Table 6). The higher the assessed importance, the higher the perceived relevance of the variable. A variable’s under- or overestimation is evaluated by comparing the ranking of critical and perceived success factors. This comparison shows, in general, that analysed SMEs underestimated the importance of all critical success factors. In other words, of the five success factors of particular statistical importance, none was considered to be as important as it was shown to be in the stepby-step discriminant analysis (for example, both factors with the highest discriminating power, “Precise definition of rights and duties” and “Contributing specific strengths,” ranked only fourth and fifth in the subjective evaluation). This indicates again that the importance of these recognised critical success factors is underestimated in practice. A comparison made in a second step as to how successful and 374

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unsuccessful companies perceive the importance of the variables shows clearly that the critical success factors were underestimated mainly by unsuccessful SMEs (see Table 7). The most important critical success factor—“Precise definition of rights and duties”—appears to have been greatly underestimated by unsuccessful SMEs (54.5 per cent “very important” for successful companies compared with 25.0 per cent for unsuccessful ones). Also “Contributing specific strengths and looking for complementary resources” was underestimated by unsuccessful SMEs (63.6 per cent “very important” for successful companies compared with 50.0 per cent for unsuccessful ones). This means that it is precisely the two most important critical factors for cooperation success that are significantly underestimated by unsuccessful companies. This finding indicates that such underestimation may be an important reason that these companies’ collaboration efforts failed.

Conclusion Summary Our empirical results show that both content-orientated variables, such as “Precise definition of rights and duties” and “Contributing specific strengths,” and process-orientated variables, such as “Deriving alliance objectives from business strategy” and “Speedy implementation and fast results,” prove decisive for alliance success. The differences between critical and perceived success factors are considerable. From the identified critical success factors, the analysed SMEs perceived only three variables as very important. The importance of two additional critical success factors (“Establishing required resource” and “Deriving alliance objectives from business strategy”) was clearly underestimated. The critical success factors were underestimated mostly by the unsuccessful SMEs. Significantly, the unsuccessful SMEs tremendously underestimated the two most important critical success Table 7. Differences between critical and perceived success factors No.

Critical Success Factors

1

Precise definition of rights and duties Contributing specific strengths Establishing required resources Deriving alliance objectives from business strategy Speedy implementation and fast results

2 3 4 5

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Not Successful Companies Perceived Very Important

54.5%

25.0%

63.6% 34.5% 40.0%

50.0% 36.4% 46.7%

30.9%

23.1%

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If the founding conditions are not favourable, the success of the effort is endangered

factors—the “Precise definition of rights and duties” and “Contributing specific strengths”. Unsuccessful companies perceive the factors “Partner is excellent in field of co-operation”, “Establishing required resources”, “Avoiding unwanted transfer of knowledge”, “Implementing plan with fixed milestones” and “Awareness of time requirements for alliance development” as more important than successful companies do. This evaluation probably is influenced by the experience learned from alliance failure. Critical success factors for SMEs are concentrated in the early stages of alliance evolution, making it evident that systematic preparation and careful planning are very important for alliance success. This result fuels the on-going debate: whether initial conditions or learning processes during alliance evolution determine alliance success.34 Our empirical evidence suggests that the strategic rationale of the collaboration, the fit of the partners and the chosen configuration of the alliance together form the foundation for the development of the alliance. If the founding conditions and configuration are not favourable, the success of the whole collaboration effort is endangered from the outset. But the identified success factors also underscore the fact that the full value of an alliance can only be developed during its evolution. The results of our study show that all important theoretical perspectives essentially contribute to explaining why alliances are successful. The identified success factors utilise concepts developed in the resource-based view of firms as well as those from the transaction-cost and interorganisation theories. Implications for alliance management in SMEs Managers/owners of SMEs can reduce the risk of alliance failure and can generate more value from their alliances by studying the detailed critical success factors. “Soft” facts, such as building a trust relationship with the partner, are important but not sufficient; “hard” facts, such as strategic compatibility and an appropriate organisational design, have to be developed. Process and content issues are equally important for alliance success. Careful strategic planning and good partnership preparation are essential for alliance success, but the full value of the partnership has to be developed as it evolves. Building on previous collaboration success, SMEs should cultivate their partnerships to fulfil their potential for value creation. This requires professional management and partnership governance—tasks for which many SMEs still lack knowledge and experience. The results of our survey show that SMEs greatly underestimate a number of the critical success factors. A more realistic perception of which factors determine the success or failure of an alliance are a prerequisite for improving the alliance management capability of SMEs. Alliance competence, i.e. knowledge of how to forge and manage alliances, could provide SMEs with the capability to protect their independence while surviving in a tide of globalisation and rapid technological change. Empirical evidence about critical success factors of alliance management, which stresses the specific

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status of SMEs, contributes to SMEs’ collaboration knowledge and will hopefully increase their propensity and ability to cooperate. But surveys can only produce and transfer explicit knowledge; an organisation can develop the necessary knowledge of how to form and manage alliances only by doing. Implications for future research Our study’s main objective is to contribute to management practice, not to provide new theoretical insight. Still, despite this practical focus, our results hold implications for future research. First, the study shows the merits and limitations of empirical collaboration research. We believe that although there are numerous publications in the field of co-operation management, there remains a considerable lack of empirical surveys testing theoretical concepts against reality. More empirical insight into alliance management could stimulate future theory-building, illustrating which routes hold the most promise. Second, the results of the study make it clear that the current status of co-operation research requires more empirical investigations building on several proven theories to assure a comprehensive and well-balanced description and explanation of the field of investigation. If only one theory is used, there is great danger that important aspects will not be considered. Third, there is a strong need for collaboration research tailored to the specifics of SMEs, which represent more than 90 per cent of all European companies. These firms face problems and challenges that are different, in many respects, from those of large enterprises. Consequently, they need theoretically sound and empirically proven recommendations, considering their specific characteristics, on how to forge and manage alliances. More empirical investigations in this field would improve the capabilities of SMEs to co-operate, thereby contributing to the viability of SMEs in today’s turbulent business environment.

Appendix A. Methods and data of the survey The first part of the questionnaire asked for attributes that characterised the surveyed companies. To analyse the relationship between the success of the alliances and alliance-specific composition, the second part of the questionnaire asked interviewees questions on several characteristics of the alliance. Companies engaged in several alliances were asked to choose the most important one for evaluating success factors. The line between success and failure of alliances was determined by the companies themselves, taking into account the degree of success in achieving the alliance’s objectives. In the third part, the 24 identified potential success factors of alliance management were rated by the surveyed companies twice—first on their perceived importance, and second if they were noticed (value “1”) or not noticed (value “0”) in the specific alliance. The variables were grouped according to the five phases of alliance evolution and subdivided into content-orientated (“hard facts”) and process-orientated (“soft facts”) measures.

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For each of the 24 variables, the owner/general manager was asked whether or not he or she had noticed the variable during alliance evolution (noticed—“1”, not noticed—“0”). These results delivered the empirical basis for identifying critical success factors. For a success factor to rank as critical, there must be a significant difference in the expression (noticed, not noticed) of a certain independent variable between successful and unsuccessful companies (dependent variable). We first used univariate chi2tests to identify independent variables that differ significantly between successful and unsuccessful alliances. In the second step we applied discriminant analysis (SPSS-Version 8.0) to these variables to analyse whether the identified independent variables significantly separate successful and unsuccessful alliances. The owners/general managers of the SMEs also ranked, on a 4-point Likert scale (very important, important, less important, not important), the 24 independent variables according to their perceived importance for alliance success. This assessment followed on account of their general subjective evaluation of the importance of the variables for the success of an alliance. These subjective measures represent the “collective wisdom” of the examined owners/general managers of SMEs and their reflections on their experiences with interfirm collaboration to date.

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