Critical success factors for strategic alliances in the information technology industry: An empirical study

Decision Sciences, Winter 1996 by Rai, Arun, Borah, Santanu, Ramaprasad, Arkalgud

ABSTRACT

Intense competition in the marketplace is forcing organizations to examine different ways by which they could enhance or retain their competitive edge. Strategic alliance is one such option through which an organization can leverage its resources to emerge as an effective competitor. Such alliances are burgeoning in the information technology industry, which is characterized by rapid change and short innovation cycles. Successful management of alliances has proved to be very elusive for the most part, and there is a lack of theoretical and empirical work in this area. Literature on critical factors was synthesized, and then a parsimonious set of critical factors was identified using a combination of interview and survey methodologies. Our study has implications for both practice and future research.

Subject Areas: Critical Factors, Information Technology Industry, and Strategic Alliances.

INTRODUCTION

Strategic alliances are innovative and interesting forms of relationships between organizations [20]. Kanter [15] suggests that organizations create alliances in their quest to compete against fast and nimble competitors. Tully [27] provides some evidence to suggest that companies relying on strategic alliances are more profitable than their vertically integrated counterparts. In effect, strategic alliances provide an effective means to improve both the economies of scale and scope offered by traditional modes of organization. Consequently, there has been a dramatic increase in the number of strategic alliances [8].

Despite such advantages, strategic alliances do not always achieve desired results. Uncertainty about the behavior of partners can be a cause for significant concern, thus leading to unstable and conflicting relationships [10]. Furthermore, many of the costs and risks of strategic alliances are indirect and long-term, and alliances initiated for short-term gains may generally lead to a loss of technological dynamism for the firm [19]. Parkhe [20] notes that a failure to understand the problems associated with strategic alliances can be attributed to a significant dearth of theoretical and empirical research on the topic. This paper is an effort to enhance existing knowledge on how strategic alliances should be effectively managed.

Based on a review of the existing literature, this paper identifies critical factors that affect strategic alliances. These factors are then examined in the context of alliances in the Information Technology (IT) industry. This industry was chosen not only because most worldwide strategic technology partnerships exist in this area

[9], but also because of its enormous growth potential [22]. The remainder of the paper is organized as follows: first, we synthesize critical factors identified in the literature. Next, we explain the empirical methodology employed, and then present a discussion of our results. Finally, we conclude by identifying implications for practice and future research.

CRITICAL FACTORS OF STRATEGIC ALLIANCES

Partner Congruity

Difficulties may arise because partners are not in complete agreement about the purpose of an alliance and the process by which its goals can be achieved. It is also possible that the short- and long-term objectives of partners are misunderstood, so the direction of the alliance may be rather fuzzy. Mutual agreement on the purpose of the alliance is important because it provides institutionalized direction, which acts as a legitimate mechanism both among and within the parent organizations [24]. Gulati [8] recommends complementing such an agreement with mutual trust and understanding. Difficulties between partners may be further compounded when one of the partners of an alliance is from another country.

Partner Evaluation

The choice of a partner has a significant impact on the performance of an alliance since that choice determines the mix of skills and resources available to the alliance [11]. It is crucial to determine if the resources of a likely partner have the potential to match the requirements for which the alliance was initiated. The process of selecting partners is clearly complex. With the rise of a global economy, alliances between domestic and international partners are becoming very common. When dealing with international firms, access to relevant information may be even more difficult. The values, commitment, and capabilities of partners need to be carefully scrutinized.

Organizational Advocacy

Deciding to develop competencies in cooperation with other companies, especially with the explicit support of top management, is the first step toward a successful initiation of an alliance [11]. The innovation literature recognizes how important both champions and top management support are in the change implementation process. Peters and Waterman observe that "champions and systems of champions are the single most important key to sustained innovative success in the excellent companies" [21, p. 209]. The presence of champions who believe in the project and are trusted by principal executives may be quite important in promoting new organizational forms such as strategic alliances.