Firms in different economic sectors are increasingly incorporating the concept of strategic alliance as one of their best management practices in an effort to develop their competitiveness. However, strategic alliances such as mergers and acquisitions are characterized by a relatively high rate of failure.
This is well illustrated by the case of BP. The firm failed in its effort to acquire a number of firms in the Russian oil industry. There are a number of factors that organizations should consider in their effort to form strategic alliances such as mergers and acquisitions. Some of these factors are evaluated below.
Process
- Ensuring strategic consistency –A clear corporate strategy should be developed in the process of undertaking mergers and acquisitions. The two parties involved in formation of merger and acquisition should participate in development of the corporate strategy in order to ensure a high level of consistency.
- Building shared value– Before entering into a merger and acquisition relationship, it is important for the top management teams of the firms involved to evaluate the degree of shared value between the two organizations. One of the factors that led to failure of BP and Rosneft merger is poor management of the strategic alliance. This is evidenced by the fact that the merger was characterized by conflict of value between the two firms.
- Development of a merger plan– To increase the rate of success in mergers and acquisition, it is important for the firms involved to develop a comprehensive merger plan. The plan should outline the roles and responsibilities of parties involved in the merger. In the process of acquiring Rosneft, BP did not develop a merger plan which led to its failure.
- In addition to the above elements, it is important for a strong interface team and a clear communication plan to be developed.
People
The human factor is one of the most important elements that firms involved in mergers and acquisitions should consider. This arises from the fact that it determines the success of the pre-acquisition and post-acquisition processes.
Additionally, a strong relationship between the workforces of firms involved in mergers and acquisitions should be developed. Another element of human factor that should be integrated relates to change management. Effective management of change aids in eliminating possible resistance from employees.
Technology
Firms involved in merger and acquisition should undertake effective system integration in order to promote communication and information sharing amongst employees.
Causes of failure in strategic alliances
- Culture shock
One of the major factors that cause failure of mergers and acquisition is culture shock. In the course of their operation, firms develop organizational culture that is unique from other firms. Formation of strategic alliances may result in conflict of culture between the two firms involved.
This may limit attainment of the desired objective. Therefore, it is important for firms’ management teams to conduct a comprehensive cultural analysis prior to making their merger and acquisition decision. The analysis will aid in determining the degree of cultural fit between the firms and hence the probability of the merger succeeding.
- Poor integration
Lack of effective organizational integration is another factor that causes failure of mergers and acquisitions. Information about a possible merger and acquisition may lead to uncertainty, anxiety and fear amongst an organization’s employees. Consequently, it is important to ensure that such information is effectively communicated in order to ensure employees of their job security.
- Lack of effective control
In addition to the above elements, mergers and acquisitions fail due to lack of effective control. Therefore, it is important for firms involved in merger and acquisition to ensure that effective control is incorporated.