Corporate Level Strategies. Adding Value Through Strategic Alliances (Partnerships) and Acquisitions (M&As)

Table of Contents

INTRODUCTION

DRIVERS AND CHALLENGES FOR STRATEGIC ALLIANCES & ACQUISITIONS

OUTCOMES OF STRATEGIC ALLIANCE AND ACQUISITION (CASE STUDIES)

CONCLUSIONS AND RECOMMENDATIONS

IMPLICATIONS FOR STRATEGIC ENTREPRENEURSHIP AND LEADERSHIP

REFERENCES

INTRODUCTION:

In today’s dynamically competitive environment where no advantage is sustainable for long, strategic alliances, mergers and acquisitions (M&A) undoubtedly have built their own reputation to yield ‘win-win’ situations for several businesses. Despite the sharp upheaval of their evidentiary failures, the significance of M&A keeps pushing companies to sustain competitive advantages through access to the combined wealth of resources benefiting firms in lowering manufacturing costs, reducing financial burden, entering new markets, growing opportunities, sharing risks, and diffusing innovative technologies. Synchronously, increasing competition, structural and cultural differences, and globalisation have brought several new strategic challenges making M&A riskier and more intricate. Therefore, it is foremost essential for organisations’ strategic leadership to comprehensively understand the mutual intents, recognise the underlying drivers outlining diversification of shared competencies, and entrepreneurially evaluate the rationales of companies’ portfolios, industries’ environment and value creating potentials.

DRIVERS AND CHALLENGES FOR STRATEGIC ALLIANCES & ACQUISITIONS:

The strategic alliances and acquisitions are gruesome and traumatic experiences (MoneyWatch, 2012) which are made for several reasons such as tax circumvention, crushing the competition, reshaping strengths, overcoming entry barriers, complementing capabilities, and developing innovation and diversification to achieve economies of scale and scope (D’Alimonte, 2014). These are critical business decisions and therefore, require a holistic plan on which the mechanics of alliances and acquisitions operate compassing the merging of functional areas, integrating business processes, amalgamating intangible values, reconfiguring firms’ technologies, and consolidating entities’ proficiencies and controls (Sinkovics & Jedin, 2013). However, M&A may also lead to the cultural clash, organisational conflicts, loss of differentiation, fading brand strength, a source of major distraction and marketplace confusion (Frederiksen, 2016).

Koi-Akrofi (2016) argues that no other event is more difficult, challenging, or chaotic as M&A. Irrespective of the potential benefits and expected synergies, M&A also imply serious challenges and business risks (Farsi, 2017). Moreover, blindly and hostilely integrations destroy value-creating objectives of M&A (Chanmugam, Shill & Mann, 2005). Therefore, before pursuing an M&A, the strategic key players should also identify the institutional challenges related to complex structural, political, financial, cultural, commercial, managerial and operational blends of partners’ businesses (Buckles, 2011). In fact, multi-level, multi-disciplinary and multi-stage processes of M&A require a more pluralist strategic approach to grasp the challenges and complexities of integrative frameworks hence, team motivation, effective coordination and fair communication are indispensable aspects of successful execution (Warter, 2014).

Deloitte (2014) has precisely identified the top five challenges such as partners’ contribution, organisational hierarchy, management control, ownership structure and the process of change; and further confirms the corresponding internal-external drivers of strategic alliances like mutual trust, shared responsibilities, and strategic and cultural fits. PWC (2014) also classifies the primary drivers of M&A into strategic, market, technology, resources, risks, costs, production and regulatory categories upon which companies form contractual relationships to seek growth opportunities through allies’ complementary skills, knowledge, and their substantive capabilities. Different drivers and companies’ portfolios trigger distinct types of alliances and acquisitions depending upon factors mainly to overcome partners’ weakness and increase collective strengths.

Companies quest for diverse ways to gain advantages to rationalise or to improve rating and growth by dumping non-core or slower growth/lower margin components (Harper, 2015). It is believed that differences between partners’ offerings and core competencies are compulsory to the value proposition of strategic alliance and M&A. Thus, different firms in varied nature, time and scale of strategic combinations frequently encounter hard and soft challenges built on industries’ forces and alliances’ key drivers (Mundia, 2015). BCG (2014) report suggests that these strategic attributes are reciprocally vital in preserving the combined advantage and leveraging companies’ respective strengths to gain sustainably superior returns. Qaderi and Bouzeid (2017) recommend establishing an independent, non-political and transparent setup for M&A avoiding biased mindsets to streamline integration and tracking accurate performance.

Efficiently developed strategies generally reduce risks and limit challenges therefore, coordinated management and synchronised efforts are vital for every M&A (Gomes-Casseres, 2015). However, with the ink dry, the months of sweating over the details of M&A are done and strategic allies are ready to fit into a harmonised culture; the post-M&A challenges can appear with more intensity. Barmeyer and Franklin (2016) argue that financial, managerial and industrial issues are only the ‘visible part of an iceberg’ of M&A’s operational implementation while the richness of cross-cultural integration and mutual trust mostly matter. On top of that, a strategically focused firm requires a forward-looking partner, focused on implementation and value creating actions rather waiting for complete consensus (Brown et al, 2017).

To deal with challenges, an M&A demands a thorough planning and seamless execution of all value-creating processes it involves. Acquirers often face difficulties in assimilating the proficiencies and core capabilities of the target firms due to the potential loss of technical expertise, ingenuities and chained efficiencies (Angwin & Sammut, 2015). Also, the inadequate evaluation, dented working relationship, flawed strategies, superabundant diversification, weak business plans, unusual debts, excessive micro-management, deficient synergies, poorly crafted agreements and the ignored integration intricacies intensify M&A challenges further (McGahan, 2016). Having said that organisations need to dance rapidly and profitably with diverse but carefully selected partners minimising complexities and risks; and leveraging their strengths and competencies through strategic due diligence, ethical practices and vigilant judgment of shared knowledge, augmented technologies (R&D) and capabilities’ convergence (Haaugan, 2017).

OUTCOMES OF STRATEGIC ALLIANCE AND ACQUISITION (CASE STUDIES):

The creation of a sustainable ‘alliance-enabled’ enterprise is considered key to succeed in novel competitions (Fraser, 2017). Therefore, large corporates often plan on building global alliances to achieve rapid diversification and if strategically suited firms also buy expertise and emerging technologies. Similarly, MWH Global ‘an international employee-owned engineering firm, focused on water infrastructure’ has made a complementary diversifying nonequity strategic alliance with 100RC ‘Resilient Cities-Rockefeller Foundation’ during year-2015 (100RC, 2015). Later in year-2016, avoiding a potential liquidity collapse by some premature exits of mega shareholders, MWH was sold to a Canadian giant namely Stantec ‘a global engineering consultancy focused on energy related projects’ in all-cash deal valued at $795 million, overwhelmingly approved by firms’ shareholders (MWH & Stantec, 2016).

Through the 100RC global network, MWH has successfully translated its strategic plans into implementation tactics and quickly extended its international market, lower the legal barriers to penetrate in a new market and extended its linkages forward to valuable public and private sectors. MWH also diversified its marketing and R&D peripheries by accessing a cross-border platform of global knowledge, active clients, and capital which brought more projects in the new territories resulting into more market shares, visibility, and alliances. Besides, 100RC has attained reputed and rapidly growing long-term technical expertise building new prospects to integrate backward into the program management. Ultimately, both partners are better off through sharing of their complementary resources, capabilities, and uncertainties in a more attractive environment to successfully develop advanced global practices of urban resilience for member communities.

Prior acquisition, MWH Global was predominantly operating in the Middle East, Europe and USA (stars) with relatively lower returns in Africa and India (cash cows) and the gradually disappearing in Oceania (pets) while, Stantec being MWH’s competitor in the Middle East was struggling to win new infrastructure projects and exhausted to achieve its position in Oceania. This acquisition has boosted Stantec’s revenue by nearly 60% and its workforce by 45% (Engineers, 2016) which offers a holistic platform of collective values to their customers. MWH legacy and talents brought a global knowledge, acclaimed industry reputation and operational performance for Stantec to lift its global position, expand the company’s geographic footprint, and augment its energies and resources particularly, in the Middle East and Australasia markets (Stantec-CEO, 2016). Also, with this unique combination, employees got better prospects to enlarge their expertise pool and learn new skills. Overall, leaders of both firms are now contributing in multiple industries (water and energy) and through achieved synergies and diversification, the combined techno-commercial position of MWH-Stantec has been improved (MWH-CEO, 2016).

CONCLUSIONS AND RECOMMENDATIONS:

Collaboratively active and strategically flexible businesses often enjoy collective opportunities growth by leveraging their core competencies and shrewdly linking mutual value-adding activities. An M&A certainly involves multifaceted and time-consuming processes which are built on inter and intra-institutional challenges and the commercial risks. However, if entities remain agile to effectively integrate into all functional layers and leadership ensure its entrepreneurial focus on firms’ core objectives then harmonised actions can maximise value for all stakeholders. Otherwise, partnering becomes a jack of all trades and master of none. To compete with dynamically advanced firms and tolerate unpredicted market turbulence, companies proactively need to diversify their scope and scale by sensibly assimilating with reputed cohorts. Moreover, allies must also maintain networking with all stakeholders to manage organisational changes smoothly.

Structural and cultural differences are not necessarily a deal-breaker, in fact, lack of mutual trust, unclear responsibilities, hostile relationships and uncertain strategic fits generally lead to M&A meltdowns. Accordingly, strategic purposes and collective objectives must be well-tuned with the existing businesses. Only a correctly structured M&A improves partners’ growth potential and offers a long-term competitive advantage especially, when firms to continually refine their end-to-end business processes and diverse sets of core competencies. Subsequently, the incurred costs and perceived benefits of organisational diversification must be carefully balanced. Furthermore, criterion of success is not the size of investment but the number of correlated partnerships to sustainably produce the value propositions for connected entities.

IMPLICATIONS FOR STRATEGIC ENTREPRENEURSHIP AND LEADERSHIP:

Forming alliances with unequally empowered companies are generally challenging (Sultana, 2016) therefore, professionally require effective strategic leadership and entrepreneurial incentives. No doubt, strategic entrepreneurship and strategic leadership are brick-and-mortar of all M&A. These two pillars are the central constructs of building and reviewing organisations’ portfolios which are crucial for synchronising entities’ game-changing strategic moves. Without securing effectiveness of these two key strategic instruments, firms generally fail to hone and transform their resources into value-creating products. New concepts of strategic leadership and entrepreneurship have momentous implications for long-term strategic planning, exploring and exploiting opportunities to maintain competitive advantages. Entrepreneurial firms led by high order strategic leadership constitute organisational rejuvenations by wisely evaluating the multiple operative units, bundling unique capabilities and transforming into a wealth-creating ecosystem.

Entrepreneurial leaders also carry out strategic comparative analyses for different organisational components to measure divisional effectiveness and evaluate corporate’s portfolio balance among starts, cash cows, question marks and dogs. This vital exercise through BCG growth-share matrix guides strategic decision makers to achieve efficient resource allocation. By critically examining the organisational portfolio against industry’s trends and growth opportunities, strategic leaders always search diverse ways to improve, invest, divest and scale back their business units to sustain competitive advantage and envision above-average returns. To sum up, corporate venturing, strategic renewal, productivity, and innovations are strongly linked with entrepreneurial efforts of strategic leadership confirming companies’ competitive positions and their financial performances. However, these outcomes are only possible when strategic leaders zealously establish centralised functions of each corporate divisions and foster sustainable strategic innovation at all levels.

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