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Examining Relationships...

Author(s):

Dr. Julie J. Gentry
Dr. Julie J. Gentry, Assistant Professor University of Arkansas, Fayetteville, AR 72701, 501/575-6137.
Dr. Judith Schmitz Whipple
Dr. Judith Schmitz Whipple, Assistant Professor Western Michigan University, Kalamazoo, MI 49008, 616/387-6140.

81st Annual International Conference Proceedings - 1996 - Chicago, IL

Examining Relationships Between Formation Motives, Organizational Factors, and Alliance Success

Overview.
The presenters will report the findings of a recent survey involving buyers, suppliers, and logistics services providers on their use of strategic alliances. The primary research objective was to examine how a firm's size, geographic location and other key characteristics influence the motives for forming alliances and likelihood of alliance success.

Background.
Several recent studies have addressed the various advantages, disadvantages, forms, and products involved with existing strategic alliances. However, much of the literature is based on data gathered from Fortune 500 companies or from a limited number of case studies. The researchers propose that while strategic alliances are used by firms of differing sizes and in various locations, the motives behind forming alliances and the methods used to form them may differ. This survey research explores these differences in order to extend the existing knowledge of alliances and add more prescriptive insight into how successful alliances can be used in various operating environments.

Scope of the Research.
This research focuses on how formation motives may differ by channel role. Further, the research examines organizational factors such as firm size, firm location, and annual sales, which (to the researchers' knowledge) have not been investigated in prior alliance research. Finally, the sample selection is unique in that buyers, suppliers, and service providers are all included to determine how perspectives on alliances may differ.

Several questions will be answered within the scope of this research. First, do purchasing firms, suppliers, and service suppliers approach alliance efforts with the same motives? Are firms that are located in larger cities afforded more opportunities to engage in successful alliances than those located in rural areas? Are larger firms more likely to meet alliance objectives than smaller firms?

Objectives of the Research.
The primary objective of this research is to explore how various organizational factors affect a firm's ability to implement successful strategic alliances. Three specific objectives are as follows:

  1. To investigate and discuss any significant differences between motives for forming strategic alliances among firms of varying size, location, and channel role.
  2. To investigate and discuss any significant differences between technologies and practices utilized among alliances involving firms from different organizational positions.
  3. To investigate the degree of success in meeting alliance objectives among firms of varying size, location, and channel role.

Definition of a Strategic Alliance. A popular practice in contemporary business is the creation of interfirm alliances between two or more organizations. The concept of strategic alliances can be viewed as an alternative to vertical integration, since these practices are an attempt to manage and control channel efficiencies without combining ownership. The risks of vertical integration are minimized, while the rewards and synergies can still be realized (Ellram 1991).

On another end of the relationship spectrum, strategic alliances are replacing discrete, transaction-oriented relationships. Spekman (1988) suggests that this long-term approach improves joint forecasting, improves interfirm and intrafirm interaction, and is mutually beneficial in long-term planning. Both firms must provide information of their activities which impinge in or affect the other's system, and cope collectively with environmental uncertainty.

Strategic alliances are not limited to relationships between buyers and sellers of goods. Logistics alliances are gaining in popularity as firms attempt to build stronger and more strategic relationships with service providers. Logistics alliances focus on partners' willingness to modify their logistical processes concerning the movement and storage of products, services, and information to increase efficiency and effectiveness and the overall channel performance (Bowersox 1990).

For the purpose of this research, a strategic alliance is defined as a firm which your company has an ongoing cooperative relationship, involving a commitment over an extended period of time, and a mutual sharing of information; it may also include the sharing of risks and rewards of the relationship (Ellram 1990). This definition is not limited to any one type of alliance, since it is based on actions rather than specific roles of the parties involved.

Research Methodology.
In order to investigate interfirm alliances across a broad spectrum of firm types, the target sample included purchasing firms, manufacturers, retailers, wholesalers, and logistics service providers. A 4-page survey instrument was sent to 400 members of the Council of Logistics Management, 400 members of the National Association of Purchasing Management, and 300 members of the American Society of Transportation and Logistics in July 1995.

In total, 1,100 surveys were mailed out and 180 usable surveys were returned, providing a response rate of 16 percent. The geographic area of firms surveyed included the states of Arkansas, Kansas, Missouri, Oklahoma, and Texas.

Survey Respondents.
Among the respondents were 54 suppliers to other manufacturers (30.0%), 55 suppliers to retailers (30.6%), 17 wholesalers/retailers (9%), 44 logistics service providers (24.4%), and 10 (6%) firms that were either government, contractors, or consultants.

A goal of the research was to investigate any significant differences between alliance practices among firms of different sizes and locations. Table 1 shows the breakdown of annual sales from responding firms, while Table 2 illustrates the varying populations of the cities in which the responding firms are located. The number of employees for all responding firms ranged from two to 30,000, with a mean of 1,324.

Table 1: Annual Sales of Firm Respondents
Sales Number Percent
Less than 1 million 6 3.4
$1 < 10 million 20 11.1
$10 < 50 million 26 14.4
$50 < 100 million 20 11.1
$100 < 500 million 33 18.3
$500 million < 1 bill 19 10.6
$1 billion or more 56 31.1
  180 100%
Table 2: Population of Cities Respondents are Located
Population Number Percent
Less than 5,000 8 4.5
5,000 < 20,000 21 11.7
20,000 < 50,000 18 10.0
50,000 < 100,000 21 11.7
100,000 < 500,000 28 15.6
500,000 < 1 million 19 10.6
1 million or more 65 36.1
  180 100%

Current Alliance Activity.
It was first necessary to assess the current alliance activity for responding firms before further investigating the specific alliance motives, technologies utilized, and alliance achievements. Respondents were asked if they currently have alliances in place with material or product suppliers, service suppliers, and customers. Of the 180 responding firms, 125 (69.4%) did have alliances in place with material or product suppliers, 98 (54.4%) did have alliances in place with service suppliers, and 98 (54.4%) did have alliances in place with customers.

Alliance Motives.
A primary objective of the research was to determine whether the motives for forming alliances differ across potential partners (material or product suppliers, service suppliers, and customers). The following motives were identified through an extensive literature review to be included in this research:

  1. Access to new markets
  2. Achieving a core competency
  3. Increased customer service
  4. Increased supplier/customer involvement
  5. Access to research and design expertise
  6. Access to information technology
  7. Supply/demand stability
  8. Leverage/share capital investment
  9. Price/cost reduction
  10. Supplier/customer base reduction
  11. Increased customer dependence/loyalty
  12. Internal cost savings
  13. Increased utilization of equipment
  14. Improved quality of product/services
  15. Increased cycle time/reduction of leadtime
  16. Reduction of inventory
  17. Other party initiated alliance.

Respondents were asked to rank the importance of each of these motives with respect to the different alliance partners. The data indicated that the alliance motives do differ among firms of different size and channel role. The survey also contained a question asking respondents to rate to what degree each of the above objectives had actually been achieved with respect to a specific alliance.

Technologies and Practices Utilized.
The concept of strategic alliances can be interpreted differently among industry practitioners. Therefore, it was deemed necessary to ask survey respondents to what degree various technologies or practices are used within alliance relationships. This information can be used to detect significant differences in practice with respect to the type of alliance in place. Data were gathered on the following technologies/practices:

  1. Electronic data interchange
  2. Barcodes
  3. Satellite communication
  4. Radio Frequency
  5. Just-in-time
  6. Electronic funds transfer
  7. Sharing of production/sales forecasts
  8. Joint strategic planning
  9. Joint capital investments
  10. Dedicated equipment
  11. On-going cost reduction programs
  12. Joint sharing of cost reductions
  13. On-going quality improvement programs.

The data did indicate that differences exist between technologies and practices utilized among alliances involving firms from different organizational positions.

Successful Strategic Alliances.
A final question on the survey asked respondents to rank the importance of certain factors relative to their firms' ability to form successful strategic alliances with different channel members. The following factors were investigated in this phase of the research:

  1. Your firm's location
  2. Size of your firm
  3. Number of available suppliers and customers
  4. Compatible long-term goals
  5. Upper management support
  6. Trust
  7. Sharing of critical information
  8. Joint strategic planning
  9. Ability to meet performance expectations.

The data indicated that although some of these factors seem to be more important than others for successful strategic alliances, significant differences did not exist among firms of different types.

Summary.
This research investigates strategic alliance practices on several levels. First, significant differences between motives for forming strategic alliances among firms of varying size, location, and channel roles were found. Secondly, technologies and practices utilized among alliances involving firms from different organizational positions were explored. Alliances were also found to vary in degree of success relative to the different organizational factors among firms. Finally, there are certain factors such as trust and upper management support that are critical for successful alliances, regardless of the actual channel role of the firms involved.

REFERENCES

  1. Bowersox, Donald J. "The Strategic Benefits of Logistics Alliances."Harvard Business Review (July-August 1990): 36-43.
  2. Ellram, Lisa M. "Supply Chain Management: The Industrial Organisation Perspective." International Journal of Physical Distribution and Logistics Management 21.1 (1991): 13-22.
  3. Ellram, Lisa M. "The Supplier Selection Decision in Strategic Partnerships." Journal of Purchasing and Materials Management 26.4 (Fall 1990): 8-14.
  4. Spekman, Robert E. "Strategic Supplier Selection: Understanding Long-Term Buyer Relationships." Business Horizons (July-August 1988): 75-81.

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