Forming alliances between organizations seems good when the groups have a cohesive vision and sunny prospects, but sometimes the more interesting question is: how do alliances dissolve and why? In a study of transoceanic shipping companies, researchers (Greve et al., 2010) assess these questions. Transoceanic shipping is an interesting situation in itself because firms often team up with others to share shipping routes. Multiple firms operate ships on the same route and single ships may carry cargo from multiple firms. Hence, there’s a lot of overlap and interdependence among allied firms.
THE RESEARCH STUDY
Before talking about the factors that lead to the dissolution of alliances, let’s talk about how alliances are formed. Organizations see an opportunity to cut costs by sharing the burden of operating multiple vessels along one route. Thus, those firms can increase their presence in other markets because the ships are not all tied to a particular route. They may make contact with firms in multiple markets and, under many circumstances, it behooves them to form alliances rather than compete.
So that’s why alliances are formed; now here’s where things start to go downhill.
Beyond competition, the most common reason that alliances dissolve is because there is an imbalance of power. It may seem like a good idea for the weakling company to cozy up to the larger company, but when it comes to decision making, the stronger company will stifle the smaller. In the end, it is not in a smaller company’s interest to ally with a larger company.
One thing in the article that appears particularly interesting was an unexpected finding that alliances formed in triads were more likely to breakup than dyads, and the groups of three tended to become groups of two.
THE BOTTOM LINE
Overall, this article implies that it is unwise to get into an alliance with a firm substantially larger than yours, and that one party in a triad alliance is bound to drop out.
Greve, H. R., Baum, J. A. C., Mitsuhashi, H., & Rowley, T. J. (2010). Built to last but falling apart: Cohesion, friction, and withdrawal from interfirm alliances. Academy of Management Journal, 53, 302-322.