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Execution and Performance of Strategic Alliances In Indian Software Industry*

CASE STUDY, STRATEGY
ET Cases - GSMC, 18 Pages
AUTHOR(S) : Komal J Khatter, Research Scholar, Strategic Management, IIT Delhi and Prof. Sushil, Deputy Director, IIT Delhi

Case Preview

Execution and Performance of Strategic Alliances in Indian Software Industry

 

In the last few decades, most of the companies considered alliances as an important way to achieve strategic goals. The strategy of alliance started becoming the one of the preferred strategy to compete in global environment. Although there has been growth in alliance activities, yet there are strong evidences which show that alliance performance has remained weak. This generates curiosity, that when so many companies are entering into alliances, then why nearly half of them are not successful. It provides evidence that initializing and successfully maintaining an alliance is more difficult than expected.

Overview of the Company

Established in 1990, ABC is India’s premier e-business software provider and is focused on growing businesses. It has been a premier Enterprise Resource Planning (ERP) solutions provider for Indian businesses and was the first Indian company to offer Application Service Provider (ASP) services through its ERP -on-the-net offerings.

Life Cycle of Strategic Alliance at ABC

The strategic alliances at ABC go through certain phases as outlined below:

1. Market Research
2. Partner Search
3. Partner Evaluation
4. Business Partnership Agreement
5. Alliance Implementation
6. Performance Evaluation

Phase I - Market Research: The first step is to conduct a survey of the market, where the company wants to start an alliance. The first step undertaken by the company is to create a country profile on the basis of demographics, language, industry types/size. This helps in getting an understanding of the country’s IT maturity levels in terms of number of IT companies, software solutions in the market, government investment in IT projects. On this information, company takes the decision on whether alliance should be searched in this country or not.

Phase II - Partner Search: The second step involves the search for the prospective partner for developing an alliance. The following steps are undertaken:

• Creating database of leading IT companies through internet search
• Contacting the country’s Chamber of Commerce, IT bodies/forums
• Sending mailers to all companies in the database
• Participating in exhibitions in that country
• Participating in business delegation to that country
• Creating a shortlist of the companies who have shown interest in the alliance

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Phase VI - Performance Evaluation: Finally, the evaluation of the alliance is done. ABC has become the market leader in the ERP space in many countries, with most of the large business houses as its clients. The alliances have contributed significantly to the revenues and profits of ABC. The alliances have also been useful for ABC in reducing their operational cost and getting better market access and hence business.................

Successful Sales Alliance

About the Partner

It is among the largest IT company in Country X with clients across private sector, banking and government sector. It has a big market share of the IT hardware market................

About the Alliance

ABC has been working together with this partner for close to ten years. Even though the partner was familiar with the software selling process it decided to invest in bringing a trained ABC sales person on an equal cost sharing basis...........

Key Variables in the Formation and Execution of the Alliance

Alliance Objectives

The alliance was created with the main objective of geographical expansion, along with some other objectives. The primary objective for ABC was to open up in a new country and to expand its customer base in the country. The initial study had also revealed that this is an investor friendly country with good infrastructure and business climate so it was also thought that having a base in this country could be useful to target the neighboring countries as well...............

Partner Selection

ABC had done a big mailing campaign in contacting several IT companies from outside India. Its senior executives also visited the country as a part of a business delegation and got a first-hand idea about the IT landscape of the country. Based on the past experience of the other alliances, the various key factors were evaluated for the selection of the right partner. The partner company was of a similar size as ABC and had a similar organization culture...............

Organizational and Technological Compatibility

The alliance had good organizational and technological compatibility among the partners. The top executives of both the companies shared a healthy personal relation.

The partnering company having operated in the market for past fifteen years, had good understanding of the IT landscape and had also initially built some small software solutions. So it was well aware of what is required for building, selling and deploying a software solution. This really helped in laying the right foundation for the alliance.................

Alliance Structure

The alliance was structured in such a way that it should not only meet the alliance objectives for ABC, but should also deliver value to the partner.

Initially, the Partner’s assets were used for breaking into the market at a low cost. However, after some customers were acquired and the team size was increased both the companies decided to buy all the fixed assets necessary for the smooth and independent operation of the alliance. All these assets were bought on a cost sharing basis....................

Contractual Clauses

ABC usually signs a standard partnership contract with all its partners with some minor tweaking to accommodate very specific concerns of the partner. The practice of a standard contract quickly communicates a structure of the alliance to the partner and helps in easy and quick agreement of the alliance terms. It also increases the operational efficiency and improves the results of the alliance formation team of ABC...............

Communication

There is a frequent and standard communication among the partners. Alliance executives follow a standard meeting schedule. ABC has always believed that having a good communication channel with the partner is one of the key pre-requisite of the alliance structure. The contact person and the escalation route for both the companies are clearly defined in the partnership contract..............

Inter-Partner Cooperation

The success of the alliance, itself shows that the alliance faced a good inter-partner cooperation among the partners. This was streamlined with the help of contractual clauses and other supporting variables. During the partner selection process, the partner was asked as to why they want to go for the alliance and what kind of term was being envisaged for the alliance...........

Conflict Resolution

The high frequency of communication made it easy for the partners to avoid any conflicts. However, if there were any conflicts, the same were resolved between the appropriate levels of executives. While some guidelines for conflict resolution are given in the contract but not every situation can be envisaged and put in a contract form..............

Alliance Leadership

As a part of the alliance formation, it is discussed and articulated as to how the alliance leadership will be handled. The Partner leads the decision making process for all areas pertaining to the market knowledge, decisions pertaining to the local logistics, background check of the customers, tying up with local companies to enhance the reach of the alliance, how to manage the local expenses better, to provide better profitability for the alliance, providing the suitable infrastructure for the alliance to operate.............

Alliance Goal Congruence

The main objective of the company was to grow and expand on an international scale. Through this alliance company could open a new market, and as the partner was already having a huge customer base, it helped the company in sales maximization. The additional cost in the product sold through this alliance was not high so the alliance proved to be cost effective as well. The following points helped in developing goal congruence in this alliance..............

Knowledge Acquisition

As the partner is in complimentary business, there is significant knowledge transfer and acquisition in this alliance. The partner was having a major customer base in the Banking industry where ABC did not have any presence. With the help of the partner, ABC acquired the domain knowledge about the banking industry and how its products can be molded to suit the needs of this industry...............

Organizational Learning

Working for the past so many years with this partner has contributed significantly in the organizational learning for ABC. It has helped ABC in developing a better understanding of the new industry verticals which ABC was not focused on earlier. It provided a better understanding of how to deal with the IT companies as a partner and what all things to take care of at the time of partner selection.............

Safeguarding Mechanism

Several steps are taken by ABC in order to ensure that the partner continues to stay committed to the alliance. The structure of the alliance is such that the partner that as long as he stays committed to the alliance he continues to get commission on all the accounts which were acquired by the alliance................

Alliance and Situation Dynamics

Alliance dynamics: When the partner was approached by another ERP company for a partnership with a better commission model it tempted the partner to change the alliance partner. This put a lot of stress in the alliance functioning and its future. However, this was resolved by a dialogue between the senior management where ABC made the partner realize that ABC has more experience in that geography and has made huge investments for the long-term...........

Performance Evaluation

Overall, this alliance is called as a successful alliance, leading to high performance for all three aspects: alliance, enterprise, and partner. The results of the alliance in terms of alliance are mentioned below:

Performance Evaluation of the Alliance

This alliance has been running for the past so many years and has been successful in meeting most of the objectives and goals that were setup at the time of alliance formation.

• From a new entrant a few years back, today ABC has successfully established itself as a market leader in the ERP space in the country.
• ABC has not just been able to get a bigger market share and revenue but by the sharing of the expenses with the partner it has also been able to generate good profitability.
• ...............

Performance Evaluation of the Enterprise

This alliance helped ABC in getting a quick entry into this country by leveraging the alliance partner’s local contacts. The first sale in the country was done very quickly by selling the ABC ERP solution to one of the customer of the alliance partner.

• The alliance has helped ABC in reducing its operational expenses as all the sales cost were shared equally by the alliance partner
• It has helped ABC in becoming a major player in the ERP market in that country with a large market share
• ...................

Performance Evaluation of the Partner

The alliance proved to be of very high performance for the partner as well. This alliance helped the partner in diversifying into the software solutions space which was not a focus area previously.

• It helped the partner to do further cross-selling to its existing customer base resulting in better stickiness with the customer
• Through this alliance the partner got some new clients which were not being serviced earlier and this gave the partner an opportunity to sell its product portfolio there
• .............

Unsuccessful Sales Alliance

About the Partner

It is among the leading IT companies in Country Y with clients across the private sector and government sector. Its primary line of business is importing IT hardware...........

About the Alliance

ABC decided to enter into this country 10 years back; at that time it was clear that the IT maturity in the country was not too good. Most companies thought of IT as servers and desktops only and the ERP was a new concept..............

Key Variables in the Formation and Execution of the Alliance

Alliance Objectives

The primary objective for ABC was to open up in a new country and to expand its customer base in the country. ABC gathered some market intelligence about this country and realized that for most companies IT basically meant acquiring computer hardware and using basic software like Word, Excel, etc. The use of application software was not too common and ERP was an unknown concept...........

Partner Selection

ABC did some research on the internet and found that very few IT companies had a web presence. The websites of these IT companies were also not too exhaustive, which was another indicator that IT awareness in the country is low.............

Organizational and Technological Compatibility

The organizational and technological compatibility among the partners was not very good in this alliance. Partners faced differences in organizational cultures and the lesser involvement of promoter also led to lower compatibility among the management of partners...............

Alliance Structure

ABC had created a similar alliance structure which had worked well for the other successful alliances. So all the sales and marketing costs were shared equally between the two companies and in lieu of this the partner was given certain percentage of the revenue sharing for all the ABC products sold through the alliance. However, there were some good practices of the other successful alliance which were not accepted by the partner as a part of the alliance structure...............

Contractual Clauses

The partner was not in favor of signing a standard agreement of ABC and after a lot of deliberations between the two companies the agreement was signed with the following deviations from the standard template of ABC:
• The partner was adamant in getting exclusive rights of selling ERP in the region which would prevent ABC from signing up with another partner during the contract period
• ..............

Communication

The usual Communication guidelines which ABC followed in all the alliances was actually a weakness in this case as the partner’s alliance manager was not too comfortable with English and the ABC alliance managers were not conversant with French, so both had to rely on the services of a translator which acted as deterrent in establishing the right working relationship between them............

Inter-Partner Cooperation

One of the key aspects of the ABC Alliance model was to ensure that the partner has complementary skills or did not have any competing products on board. This criterion was fulfilled during the partner selection process and would ensure inter-partner cooperation..............

Conflict Resolution

The general methodology of conflict resolution in the alliance model worked well for ABC across all the other alliances, however in this case since the promoter was not himself involved in alliance execution and the General Manager was not in favor of the alliance therefore conflict resolution was not easy. Till the time ABC was accommodating the whims of the General Manager it was working fine............

Alliance Leadership

During the alliance formation it was discussed that the alliance leadership during the entire sales process will be done by the ABC Country Manager with adequate inputs from the senior management of ABC. The partner had clearly mentioned that he will not be able to invest time and resources in the sales model and will only be giving infrastructure support..............

Alliance Goal Congruence

It is a part of the alliance objectives and the Partner Selection process of ABC to ensure that there is adequate goal congruence between ABC and its partners. In all its alliances, the Partner is asked as to why they want to go for the alliance and what kind of term is being envisaged for the alliance. ABC also ensured that there is no conflict of interest or competing products in the Partner’s portfolio.............

Knowledge Acquisition

There was hardly any knowledge acquisition which was done by ABC while working with this partner.

Organizational Learning

Working with this partner gave ABC some learning experiences, which have been explained below. While the failure of this partnership was costly for the organization, it paved the way for a closer scrutiny of the ABC alliance model such that the reasons for alliance failure are foreseen at the time of alliance formation itself..........

Alliance and Situation Dynamics

Alliance dynamics: The partner was used to selling hardware where the basic business model was to make margin on every small deal. Being a volume business, the primary business metric was how many units have been sold and how much margin has the business made in a day/ week................

Safeguarding Mechanism

The standard alliance model of ABC mandates that as long the partner stays committed to the alliance he continues to get commission on all the accounts which were acquired by the alliance. After the termination of the alliance all the commissions were to be stopped..................

Performance Evaluation

This alliance was not successful due to all the reasons which have been highlighted above in greater detail.

Performance Evaluation of the Alliance

The non-achievement of alliance objectives, complete dissatisfaction from both the partners and pre termination..............

Performance Evaluation of the Enterprise

This alliance had helped ABC in acquiring ten customers and establishing a foothold in the market. It gave ABC a good exposure on how to operate in non-English speaking markets. With the help of some bilingual resources hired by the alliance ABC was able to translate the software and all the marketing
collateral in French
.........................

Performance Evaluation of the Partner

• This alliance helped the partner in experimenting with the software solutions space, which was not a focus area previously. After this alliance the partner took a conscious decision of focusing only on the hardware sales
• ...................

Teaching Note Preview

Execution and Performance of Strategic Alliances in Indian Software Industry

 

Synopsis

In this case study, two alliances of Indian mid-sized IT Company were carried out to understand the execution and performance evaluation of alliances. Among these two, there was one successful international alliance of the company, while the second one was an unsuccessful alliance of the company. The focus of the case study was to find out the variables which lead to success of the alliance and how execution has an impact on the performance of the alliance. The case analysis was done with the purpose to find out that whether excellence in execution leads to better performance of alliances or not.

Pedagogical Objectives

  • • To identify the dimensions of execution and find out how they are used by the company in its alliance.
  • • To identify the measures of performance evaluation and find out how is company analyzing its performance.
  • • To develop and validate relationships between variables of execution of strategic alliances and performance of strategic alliances.

 

Assignment Questions

  • I. Which variables are more significant for execution of alliances in software industry?
  • II. How can you categorize similar variables of execution and performance into groups and develop a framework for execution and performance of alliances?
  • III. Compare and contrast the execution of two alliances studied in the case?
  • IV. ...........

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Abstract

**IIM RAIPUR- ET CASES Award (GSMC 2016) – For a Case With Global Implications

Award Winning Case Study

This case study analyzes the international alliances of a midsized software company in India. The case study starts with the company profile; product description; market and customer specification of the company. This is followed by a general explanation of the business operating model of the company. The company has adopted the strategy of strategic alliances for its growth. After that the way company is following the phases of the life cycle of strategic alliances are outlined. Following which the summary of five alliances of the company is presented. This is followed by presenting two alliance situations of the company in detail. Finally, the analysis of the two situations is given. The case depicts the execution of alliances in real life scenario and it also develops the relation between the execution and performance of the alliances.

Pedagogical Objectives

  • To identify the variables of execution and performance of strategic alliance
  • To find a relationship among execution and performance of strategic alliances

Case Positioning and Setting

This case study can be used in MBA Program - Strategic Management course

* GSMC 2016, IIM Raipur



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