How to dissolve a strategic alliance

In order to seize the opportunity in the online market, Whirlpool, Hearst, and Boston Consulting Group formed an investment alliance, and the product is Brandwise.com. The idea of establishing this website began in 1998, and it began to operate formally in 1999, but it ended in 2000.

What was the reason for the premature death? Brandwise.com was founded to provide equipment buyers with more product information and use this comprehensive product, price and other data to influence customer buying behavior. However, none of the planning around the site seems to address and emphasize matters such as supply chain execution, real-time product promises and order status. The site's fatal flaw is that it doesn't make it clear who is the "owner" of the customer relationship in the marketplace. When it comes to equipment sales, it's the big equipment retailers that really dominate the customer relationship. But Brandwise.com's design didn't include the key element of the retailer.

Over the past 10 years, Northern Telecom and Motorola have formed a joint venture to sell wireless communications infrastructure equipment around the world. The joint venture fell apart as the two companies stopped working together around the world. As far as individual companies are concerned, although both are prosperous, this joint venture is not satisfactory for two reasons: First, the joint venture underestimated the challenges of operating a joint venture in a multicultural area, Second, the behaviors adopted by the joint venture cannot achieve win-win results.

At about the same time, Ford Motor Co. and Volkswagen AG also formed a joint venture called AutoLatina to sell vehicles made by the two companies in some Latin American countries. After a few years, however, the two companies parted ways because Volkswagen believed that its own offering was more extensive and that independent marketing was the best policy. The two companies originally had a joint venture in Portugal, mainly producing luxury vans. The joint venture failed because Ford thought it would be cheaper to build the vans alone.

The above three cases not only fully demonstrate that managers should approach alliances with extreme caution and prudence, but also illustrate that both forming and managing alliances are far from easy. In fact, the following five forces work together in the alliance, and these five forces are both independent and complementary to each other. The first two forces are the organizational dynamics of company A and the dynamics of company A's main target market, and the third and fourth forces are the organizational dynamics of company B and the dynamics of company B's main target market. The fifth force is the dynamism of the overlapping parts of the markets of partners A and B. Since these five forces are in constant change, it is inevitable for alliance members to "join in a hurry and divide in a hurry"! When there are signs of alliance fission, we must consider whether the entire alliance should be dissolved.

When did you disband?

The decision framework for disbanding an alliance is based on the framework decision for whether or not to form an alliance (see sidebar). Applying the following framework can effectively make decisions on the problem of alliance decline:

Step 1: Re-examine corporate strategy, market strategy and market scanning. Alliance partners must review Steps 1 and 2 of the sub-column "Building a Framework for Alliance Decision-Making". This review is necessary if the corporate strategy, market strategy or market has changed. If the enterprise strategy, market strategy or market shows that there is a need to provide similar products and services through the alliance, then go to step 2; otherwise, the alliance is dissolved.

Step 2: Conduct a comparative analysis of the product portfolio and market scan. If, indeed, there is a need to provide products and services through an alliance, as indicated in step 1, then the alliance partners must revisit step 3 of "Building the Alliance Framework". In this step, alliance partners must conduct a comparative analysis of their own product portfolio and market scan. This is a more in-depth review and should focus on testing the needs perceived in step 1.

If the product or product line successfully passes the review of step 2, the alliance partner should proceed to step 3; otherwise, the alliance partner should choose to dissolve the alliance.

Step 3: Revisit the "internal development" vs. "outside acquisition" decision, then examine the organization's readiness and speed to respond to market demands. After products and services have successfully passed steps 1 and 2, alliance partners should review steps 4 and 5 of the establishment of the alliance decision-making framework. Sometimes, during the validity period of the alliance, the alliance partners will gradually enhance their inherent capabilities in a certain field. This creates a decision problem of "internal development" or "external acquisition". If this ability can only be acquired from outside the alliance through acquisition, then the alliance partner should choose to dissolve the alliance; if this ability can be obtained through the form of alliance, then the alliance partner should cautiously enter the final step of this framework - Step 4. If this capability does not exist within the alliance and "outside acquisition" is still the best option, then the alliance partner should proceed to Step 4.

Step 4: Check, then choose the best route. If alliance partners feel that existing products and services do not fit with corporate strategy, market strategy or market conditions, they should choose to dissolve the alliance. The same idea applies to the comparative analysis of product portfolios and market scans. When demand for products and services offered by an alliance declines, yet they align with corporate strategy, market strategy, market scanning, and pass the product portfolio and market scanning cross-checks, then the alliance partners must take some action to bring the alliance out predicament. Here are 3 options for alliance partners to choose from:

The first option is to take no action. This choice will cause the alliance to go with the flow, automatically disintegrating after the alliance agreement and other statutory agreements expire. In essence, this choice brings the alliance partners into the alliance dissolution process.

The second option is large-scale innovation among coalition partners. High-performing teams may find other areas or ways to leapfrog and re-engineer the alliance. If so, the alliance will become stronger.

A third option is to admit that the alliance has come to an end and go into disbanding. The process of disbanding the alliance is critical. Sadly, this mess is often left to lawyers.

How to dissolve?

If the analysis shows that the dissolution of the alliance must be selected, then please see the following 7 steps:

Step 1: Identify the reasons for the dissolution of the alliance. There is cause and effect, and the reason for disbanding the alliance will drive the operation of the dissolution process. It is critical to find out the real reason for disbanding the alliance, honesty is the best course of action! The opinion of a third party is also important in identifying whether a coalition really needs to be dissolved.

Step 2: Establish the process of disbanding the alliance. Top management from the alliance partners must agree on the reasons for disbanding the alliance. Then, they had to work out a process for disbanding the alliance. Dissolving an alliance is far more than simply informing each other of the decision to dissolve the alliance. The first task of this step is to develop an effective strategy for explaining the reasons for disbanding the alliance to clients, employees on both sides of the alliance, securities market analysts, the press, and the companies themselves. Step 3: Communicate with employees. The credibility of top management is at stake, so it is imperative to treat employees with sincerity. The employees who work in the league are the ones who know the most about the failure of the league. The fact that management communicates with employees about the fact that failure is not failure is not worth the loss. The biggest concern for league employees is the question of "where am I going now". Management must know how to answer this question. These employees may be the strongest and most well-trained employees in their respective companies and must be retained by offering alternative career paths. It is very important to properly place the employees of the alliance, because if the placement is improper, there will be sequelae, which will be detrimental to the future work of the alliance.

Step 4: Protect client interests from harm. In any case, protecting the interests of customers is the top priority! Although the alliance has ended its historical mission, the alliance partners must still work together with their respective customers, and must still respect and fulfill their commitments to customers. Failure to keep the promises made to customers in the first place can cause significant harm to the fundamental business of the business. Such commitments are more important than the alliance agreement itself, so management must establish relevant processes for customers to ensure that such commitments are fulfilled, both financially and staffing.

Step 5: Fully communicate with securities market analysts and the press. If your company is a public company, communicating proactively and candidly with analysts and the press is imperative. Otherwise, analysts and the press will go their own way, self-centered, expressing opinions on the disintegration of the alliance, causing unnecessary uproar in the market.

Step 6: Communicate with each affiliate. After the news of the union's disintegration is communicated to union employees, it must also be communicated to all parties in the union. It should be noted that what employees hate most is "the last minute to know that the alliance is about to disintegrate and that their jobs will be lost". Communication must play a supportive role in stabilizing the morale of coalition partners and coalition employees.

STEP 7: Fulfill the necessary legal steps. The final step is to have an attorney examine the alliance agreement, written agreements, non-disclosure agreements, all memoranda, and all other documents related to the alliance. Lawyers must also confirm all necessary steps for the union to break up.

An Example

Dissolution of an alliance tends to challenge the parties to the alliance, as the following example illustrates. A few years ago, the two companies decided to form an alliance based on an important little technology. Company A invested in it, and the two companies collaborated in different ways.

The two companies have established an alliance for a period of 2 years. In the first year, progress on the alliance was very slow. The creator of this technology (the CEO of Company A) is getting impatient as he wants to be the first to bring this technology to market and the time left for him is getting more and more impatient. less and less. Company B, on the other hand, is skeptical that the technology can be integrated into the enterprise's business solution model to bring real value to customers.

As a result, Company A tries to steer the alliance towards a sales model, while Company B tries to steer the alliance towards a joint development solution. While the two companies are making progress in different directions, time is passing second by second, market demands are changing, and the alliance deadline is getting closer.

The two companies eventually sat down together and mapped out the type of alliance needed. The answer, though hard to come by, they agreed to go in parallel in both directions. They agreed to jointly develop a market solution using this new technology. They also agreed to aggressively sell to specific customers while jointly developing these market solutions.

It was definitely a difficult time when both parties found themselves in the middle of the alliance agreement that they had to start over. At this time, both sides of the alliance are under great pressure. But fortunately, with the full support of the senior management of companies A and B, they just fought a bloody way. However, in today's rapidly changing environment, this reliance on heroic feats to create a successful alliance is unwise.

The two companies could have benefited greatly from two frameworks: first, a decision-making framework to determine whether an alliance needed to be established; and second, a decision-making framework to address the decline of the alliance. The former framework, which both companies could have implemented internally, should have agreed on why the alliance was created and in which areas to collaborate.

As the alliance progressed, the top executives of the two companies should have been foresighted and revisited the partnership. Decision frameworks that address the decline of alliances could have helped companies either reinvigorate or dissolve alliances. The framework would also have given both parties an early incentive to implement the alliance agreement, rather than having to get caught up in crisis management as they are now.

In fact, giving up the alliance is hard to say. This is because of the strong relationships that have been established among the alliance partners. At times, employees in an alliance have identified their own business with another business. Dissolution of an alliance must be done with the same care as the formation of an alliance, since the dissolution of an alliance can cause harm to all parties involved. This is even more important when alliance partners turn into competitors. The framework for disbanding alliances provides an excellent process for enabling collaborators to smoothly transition into the post-alliance era.

This article is excerpted with permission from Building, Leading, and Managing Strategic Alliances: How to Work Effectively and Profitably with Partner Companies by Fred A. Kugin and Jeff Hook. Copyright 2002 by Cap Gemini Ernst & Young USLLC. The book is published by AMACOM in New York, a division of the American Management Association (AMA). Translated by Li Jian.

The English version of this book is available from McGraw-Hill Education (Asia) in Singapore.

Fred A. Kuglin is the Vice President of B2B Supply Chain Services at Ernst & Young (US) Ltd. He is an expert in strategic planning and supply chain management and has held senior positions at Frito-Lay and EDS/AT Kearney , author of Customer-Centered Supply Chain Management and The Supply Chain Network@Internet Speed. Jeff Hook is vice president of consulting alliances at i2 Technologies.