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Why Alliances, Mergers and Acquisitions Fail
by Larraine Segil

 
   
 
   

While the number of M&A deals is on the upswing, many are doomed to fail. 78% of mergers and acquisitions fall apart within three years of conception. Most alliances face the same fate - 70% of alliances either fail outright, fall captive to shifting priorities, or achieve only initial goals, and 55% fall apart within three years after they are formed.

While every organization is different and faces multiple challenges, Vantage Partners have identified a number of recurring patterns that often are precursors to M&A and alliance failure. This series will explore each obstacle - looking at the area of concern, explaining its potential effect on the business relationship, and offering an example of a best practice company which has overcome the challenge.

Lack of Internal Alignment and Understanding

Having the capability to build and maintain internal alignment is defined as having an effectively implemented process for identifying key decisions and issues related to a partnership, knowing who the relevant stakeholders are, and consulting with stakeholders to keep the organization appropriately informed and involved throughout the lifespan of a partnership.

Consequences of not having a formal process for gaining and maintaining internal alignment:

Lack of internal alignment and/or understanding leads to:

  • poor and/or uninformed decisions about whether to enter into the alliance in the first place;
  • significant risk of sending mixed messages to, or acting inconsistently toward, its partners, misleading or confusing them, and jeopardizing trust between them;
  • internal bickering, non-delivery, and strain on internal resources as people are left unclear about priorities and focus.

In its study, Managing Alliance Relationships: A Cross-Study of How to Build and Manage Successful Alliances, Vantage Partners found that 77% of respondents report that their companies have a process for building and maintaining internal alignment, deeming it one of the most prevalent of the ten capabilities. Yet, this is also the capability reported to be the most ad hoc and least formalized. A mere 7% of respondents report that they applied the ten capabilities as a consistent practice to all alliances. However none of the companies surveyed said that they had a formal or institutionalized method for building internal alignment.

Examples of two companies who apply best practices to build and maintain internal alignment:

A manufacturing company has an efficient contract approval process that effectively ensures internal alignment over contract terms before a deal is signed. Formal sign-off is required from Legal and Finance only, but input is solicited from stakeholders across the company. Every deal at this company is assigned an owner who is responsible for determining who the stakeholders are, collecting their input, and communicating with them as the deal is put together. If someone is left out, the deal owner is held personally accountable.

The Corporate Strategic Alliances group at a computer hardware company is responsible for managing all alliances that involve multiple product divisions. One of their roles is to continuously facilitate and maintain alignment between and among the various product divisions working with one partner. A few people from the group are assigned to each strategic alliance to work with and point people from each product division to resolve internal issues and facilitate alignment around corporate decisions that affect the product groups and their relationships with the partner.

Evaluating and Considering Relationship Fit with Potential Partners

Having the capability to evaluate and consider relationship fit means that in addition to strategic compatibility, issues such as differences in corporate culture, operating style, organizational standards, and business practice are seriously considered during partner selection. Jointly, potential partners need to determine how to complement and adapt to the competencies each possess in order to establish a plan for collaborative interaction throughout the life span of the alliance.

More often than not, if relationship fit is considered by companies, it is done on an ad hoc basis. In its study, Managing Alliance Relationships: A Cross-Study of How to Build and Manage Successful Alliances, Vantage Partners found that although 70% of alliance managers surveyed report that their companies have this capability on at least come of their alliances, a mere 9% of them report its consistent practice on all alliances.

Consequences of not evaluating and considering relationship fit with potential partners:

If companies do not address whether and how they will manage their inevitable differences from the outset, they will have to deal with conflict without agreed to processes, tools, standards, or principles by which to guide smooth resolution. In addition, ad hoc conflict resolution in the face of the emotional impact of a problem takes a lot of time and expends needless resource.

Best practices for evaluating and considering relationship fit with potential partners:

A small wireless technology and service company assess its compatibility with potential partners through extended site visits designed to provide a first hand view of the working environment, and standard protocols and practices of a partner. Executives spend days in potential partners’ offices observing the corporation’s culture and exchanging information about how each company operates. They take note of details like dress code, the awards on the walls, workplace environment, and generally how employees relate to one another. To clarify any administrative distinctions between them, potential partners also discuss steps required for budgetary approval, decision making, and the like. An EVP from this organization reports, “We recently looked at six potential partners and ultimately chose (company X) because they had the best applications, tools and concepts in our market and our cultures fit like gloves.”

A chemical company requires potential partners to participate in a four to five day strategy session. These sessions are designed to build understanding between potential partners so that differences do not have to preclude partnership. During these sessions, the companies share information and build a joint strategy for a potential alliance together. The process of aligning around a strategy generally exposes contentious issues and reveals a potential partner’s ability to collaborate. In a few cases, the session has also helped reveal that a particular partnership would not be productive, and in those cases, the company has been able to amicably end the relationship without damaging possible opportunities to work with the potential partner in the future.

Building a Strong Working Relationship While Negotiating an Optimal Deal

In negotiating an alliance, companies need to negotiate on two tracks --- crafting the best substantive deal possible so that the alliance has maximum value, and developing a strong working relationship so that the partners can ultimately work together in a way that allows them to realize that value.

In the recent study by Vantage Partners, Managing Alliance Relationships: Ten Key Corporate Capabilities, while this capability was rated the single most important, a mere 11% of respondents reported its consistent practice on all alliances. In fact, according to almost all respondents, the quality of their company’s alliance deals and of their alliance relationships after negotiations vary from deal to deal and depend entirely upon the skill of the negotiators involved.

Consequences of not having a negotiation process that enables optimal deals and strong working relationships between partners:

The most commonly reported impacts of not having this capability are sub-optimal deals that waste value and working relationships preventing partners from realizing the value created at the negotiation table.

Building the relationship cannot be relegated to an activity to undertake after negotiation --- no matter how many people change or how much time passes between negotiating and implementing the alliance, the way partners work together in the negotiation continues to shape how the partners will work together over time.

This is why it is important to ensure that those negotiating the alliance have the skills to be “hard” on the substantive issues and “soft” on the people. In order to get one’s partners to do this, it may be useful to have as a standard protocol --- pre-negotiation joint planning sessions, where partners can discuss the best process to apply in the actual negotiations.

Best practices for building a strong working relationship while negotiating an optimal deal:

A global pharmaceutical company has a standard end-to-end, eight-stage negotiation process, with each stage supported by web-based tools and templates. This process not only aids alliance negotiators in structuring good deals, it also helps them build strong working relationships while negotiating. For example, the process provides a set of tools that facilitate negotiation preparation. One such tool prompts negotiators to not only think about what their interests are in a negotiation, but also to consider what their counterpart’s interests and concerns are likely to be. Another tool is designed to help a negotiator “step into the shoes” of the other side and understand (though not necessarily agree with) their perspective. To enhance collaboration at the table, the process also provides an on-line coaching tool that advises on ways to bring difficult or adversarial counterparts around to a more cooperative approach. In addition, negotiation teams are required to debrief and review their negotiations with a formal review mechanism designed to capture and catalogue creative options and negotiation lessons for use by future negotiators.

An IT company “launches” its alliance negotiations. Rather than jumping right into negotiations, the company jointly develops a negotiation process with its partners. To do so, they identify the toughest issues that will need agreement and subsequently craft a way to jointly resolve them without hurting their relationship. For example, the partners may agree to address each issue openly and employ external standards and criteria, bringing a sense of legitimacy and fairness to the decisions they make during negotiations. They also identify challenges that may affect the relationship during negotiations and brainstorm ways of dealing with these challenges should they arise. In an attempt to clarify whom the members of negotiation teams are as well as any advisors or executives involved, both companies explicitly define all roles and responsibilities. Additionally, they sometimes go further by sharing internal decision-making processes, discussing and aligning levels of authority, and even agreeing to specific communication protocols.


     
   
     
   

The Author

 

Larraine Segil is a Partner at Vantage Partners, a consulting firm with expertise in building corporate relationship management capabilities. She is author of Measuring the Value of Partnering – How to use metrics to plan, develop and implement successful alliances; Intelligent Business Alliances; Fast Alliances.com: Power your E-Business; Dynamic Leader, Adaptive Organization: Ten Essential Traits for Managers; and Partnering - The New Face of Leadership.

Larraine can be reached at e-mail: lsegil@vantagepartners.com.

     
   
     
   
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Copyright 2004 by Larraine Segil. All rights reserved.

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