The rapid proliferation of strategic alliances during the past decade has captured the interest of both the business press and the academic literature. A number of empirical studies have documented the unprecedented growth of joint ventures in a variety of industries, and much has been made of the beginning of a new era of cooperation in which firms seek partnerships in several facets of their operations. Many see the growth of alliances as a key to sustained competitive advantage for U.S. industry.
Yet, despite the popularity and presumed strategic importance of alliances, the fact that they often fail suggests that our understanding of the appropriate ways for managing different kinds of alliances is quite limited. There are numerous cases of firms that have become disenchanted with alliances. Several studies have reported failure rates as high as 80 percent, failure that usually leads to their dissolution or acquisition by one of the partners.1 Prominent failures in the automobile industry alone include, for example, alliances between General Motors and Daewoo Corporation, General Motors and Isuzu Motors, Chrysler and Mitsubishi Motors, Chrysler and Maserati, Fiat and Nissan.
We believe that part of the reason contemporary alliances fail so often is because many partners view them, in game theory terms, as prisoner’s dilemma situations. Each partner fears that the other will get the larger payoff by acting opportunistically while it cooperates in good faith. The result is that both partners choose not to cooperate and are worse off than if they had cooperated. Conceptualizing alliances in this way, while appropriate in some instances, is restrictive, leading to the false belief that one management style fits all alliances and all stages of a particular alliance. In fact, as we will show in this paper, alliances vary considerably and, depending on their structure and how they evolve, they may need to be managed very differently from the recommendations that result from seeing them in a prisoner’s dilemma context.
One shortcoming of the prisoner’s dilemma framework is that it underestimates the importance of each partner acting unilaterally to enhance the possibility that all partners will cooperate. Our fieldwork has shown how vital unilateral commitments can be to the success of alliances. In this paper, we present a view of alliances that helps us understand why unilateral commitments can be so helpful.
We also argue that process is important.