ALLIANCE PERFORMANCE

                                        David Michael Gray
                                   University of New South Wales

                     Track: Market Orientation and Relationship Marketing

This research represents the preliminary stages of a research project to develop an integrated
understanding of the competencies which underpin business partnering and alliance success.
Stage one of the research involved a review of the literature to identify the variables which
are important to the performance of business partnering and alliances. Based on the
literature review we propose a conceptual model of business partnering and alliance
competency. The framework is tested based on the preliminary results of two case studies of
Australian Automotive component manufacturers.

Partnerships and alliances have been identified as an important component of marketing
strategy. Accenture for example, estimate that by 2004 alliances would account for 16
percent to 25 percent of median company value (Kalmbach and Roussel 1999). Though
important to the practice of marketing, their high instability and failure rate and their
associated costs remains a continuing source of concern (Das and Teng 2000). The aims of
this study are to better understand the relationship between alliance competency and alliance

          Conceptual Approaches to Business Partnering and Alliance Competence
Alliance collaboration ability has been identified as a core competence of an organisation
(Day 2000; Dodgson 1993; Gulati 1995). The competence-based view argues that successful
alliances have developed an organizational capability for securing, developing and managing
alliances (Lambe CJ; Spekman RE; Hunt SD, 2002; Sivadas and Dwyer, 2000). A review of
the literature identifies the following range of competencies which we posit are all
components of alliance competence (See Figure 1). These competencies currently identify a
range of often overlapping attitudes, abilities, knowledge, skills or abilities which are needed
to successfully perform various alliance tasks or activities in the alliance process.
We define alliance performance in terms of partner satisfaction with the relationship (Cannon
and Perreault 1999). There is some evidence to believe that there is a positive relationship
between alliance competency and alliance and partnering performance (Lambe, Spekman and
Hunt 2002) and that the concept of alliance competence is a much broader construct than first
thought.                                      Figure 1:
                               Conceptual Model of Alliance Success/Competence



     Alliance     Purchasing     Quality         Relational      Operational       Network      Market
   Competence     Competence   Management       competence       competence      competence   Orientation
   (Lambe et al

              ANZMAC 2003 Conference Proceedings Adelaide 1-3 December 2003                                 1034
The contribution of this paper is to examine the nature of alliance competency and its
relationship to alliance performance. We argue that alliance competency is much more than
alliance experience, the ability to develop alliance managers and identify new partners
(Lambe, Spekman and Hunt 2002). We posit that alliance competence is multifaceted and we
propose to integrate the components identified below into an overall model of alliance
competency. These components also include the sub-competencies of purchasing, quality
management, inter-personal relationships, operational competency, network competency and
market orientation.

•   Purchasing competence directly addresses the competencies required to manage a
    company’s supplier network and has been shown to have a positive relationship on
    manufacturing performance including manufacturing cost, quality and delivery
    (Narasimhan et al 2001; Narasimhan and Das 2001).
•   Quality management competence includes a set of practices and principles which directly
    impact on the performance of strategic alliances, supplier networks and organizational
    performance in general (Dean and Terziovski 2001). These practices include for example,
    customer involvement in design and development, testing of products and services,
    customer satisfaction surveys, continuous improvement (Dean and Terziovski 2001).
•   Relational competence is argued to be not directly associated with partnership
    performance but is mediated by relationship quality (Phan et al 2002). In these terms
    relationship quality is defined to include trust, interpersonal satisfaction, commitment and
    joint problem solving.
•   Operational Competence is posited to have a direct link to relationship satisfaction and
    supplier performance (Cannon and Perreault 1999), and includes information exchange,
    operational linkages, legal bonds and governance mechanisms, cooperative norms and
    relationship specific adaptations.
•   Network competence is positively related to innovation success and to market orientation
    (Ritter, Wilkinson and Johnston 2002). Network competence is perceived to be a function
    of the firm’s ability to execute network tasks and the qualifications of the people who deal
    with the firm’s relationships (Ritter 1999).
•   Market orientation is positively related to both innovation and corporate success and
    measures the firm’s responsiveness to both market and customer needs. It is a capability
    in which various researchers have identified a number of different dimensions including
    behavioural, cultural, systems, and relational aspects (Narver and Slater 1990, Kohli and
    Jaworski 1990, Becker and Homburg 1999, Helfert et al 2002).

This research uses a multi stage data collection process including in-depth interviews, case
studies and a cross sectional survey of the Australian automotive components and building
and construction industries. The criteria for selecting the industries were (1) an extensive use
of alliances and partnerships, (2) ability to compare competencies between a production
environment (automotive components) and a project environment (building and construction),
and (3) variance in the size of organisation.

Qualitative Study of Main Competency Constructs – Research in Progress
This paper contains the initial findings from two case studies conducted with two automotive
component suppliers based in Sydney. These case studies are exploratory, qualitative and
longitudinal and are still ongoing. Further historical and contemporary data is currently being
gathered through interviews, documentation and observation. Interviews were conducted

                    Market Orientation and Relationship Marketing Track                   1035
using mainly open ended questioning techniques with the general manager, marketing
manager, sales manager, factory manager and quality managers of each company. Each
company also nominated one major customer to review their partnership, with these partners
still to be interviewed. The direct quote responses identified below for each of the two cases
provide evidence of major competency themes which run through the organisation. We have
aligned these themes where identified in Table 1 and Table 2, with each of the competency
sub-constructs. Both companies are known in the automotive components industry as leaders’
in the management of their partnering relationships.

Case 1 - Automotive Components Supplier
Established for more than 60 years the company is privately owned, family run and currently
into the fourth generation of family ownership. It is a major exporter of automotive
components to the United States and currently exports to Singapore, China, Japan, Europe,
England, USA and Mexico with nearly 50 percent of its revenue export based and an average
annual growth rate of 30 percent.

Table 1 Case 1 - Alliance Competency Themes

Construct   Description
Alliance    Experience - Experience in the relationship does make a significant
competence  difference. In the first few years we spent considerable effort getting to
            understand our partner’s processes, methods, political hierarchy, decision
            making process, design requirements and their culture. The relationship has
            now stabilized, our knowledge of the business is extensive and we
            understand the partner’s requirements in detail
Quality     Team competencies - Team competencies included the need to provide
Management timely information, to provide prompt feedback to other team members and
Competence to the partner. This means keeping everyone up-to-date in respect to design
            problems, new product launch dates, prototypes, engineering change
            requests. Members of the team need to be able to handle pressure including
            such activities as mid-night phone calls.
            Adaptation and continuous improvement – The capacity for proactive
            adaptation is required in the partnership. We need to be constantly looking
            for ways to improve our service, quality, technical support and product
            innovations for the partner. Competition is so fierce that unless we take an
            innovative strategy our competitors will eventually subdue us.
Relational  Interpersonal relationships are a key component of partnership success. In
Competence particular it is the effective and efficient functioning of the company’s links
            with our partner. If there is a problem we know that our partner trusts us to
            fix the problem.
            Power Imbalance - The question of power imbalance is a difficult one. In
            general the extent to which the company co-operates depends on how
            important the customer is and the expectation of future profitability.
            Sometimes the partner has changed alliance personnel so that they can then
            apply pressure to reduce prices or improve productivity. This is a difficult
            challenge because it means that we have to make a new game plan to
            accommodate the new customer alliance manager.
Operational Co-operation – Cooperation involves the protocols for sharing information,
Competence structure and regularity of meetings and communication with the customer.
            There was a particular need to ensure that members of both our team and
            the partner’s team were kept in touch with developments.

           ANZMAC 2003 Conference Proceedings Adelaide 1-3 December 2003                 1036
              the partner’s team were kept in touch with developments.
              Cultural Understanding - It is important to have the right culture to foster
              collaborative skills. This means employee involvement, participation,
              sharing of information and effective conflict resolution. The partnership is
              critical to the company and one ineffective member of the team can bring
              down the team and adversely affect the relationship.
Network       Decision making skills - The ability to communicate, ask for information,
Competence    negotiate, problem solve and supervise what ever the task is required are
              essential skills required by everyone engaged in the partnership and all
              partnerships that we engage in.
              Forward planning – Forward planning is essentially about improving the
              accuracy of our forecasting. Poor forecasting will directly impact on our
              inventory levels and we spend a great deal of effort to identify the forward
              plans of our partner and other major players in the supply chain.
              Valuation of partnering benefits – the ability to critically analyse the value
              of the relationship including the margin, team fit, strategic fit, enjoyment of
              the team, reputation of the partner and other members of the supply chain.
Market        Knowledge – Knowledge is critical. This is about being up-to-date in the
Orientation   latest technology and technical issues such as plating, surface coatings. This
              knowledge can then be used to value add to the partner’s process. We use
              international trade shows and our customers to help in keeping up-to-date.
              Mutual recognition - There is a mutual recognition of the value of the
              relationship amongst the partners and there is the expectation that future
              business will continue.
              Common goals -The partnership must share common goals and be prepared
              to commit capital and human resources to pursue these common goals.
              These goals and opportunities change over time. In order to be able to
              recognize these opportunities each partner must have a detailed knowledge
              of each other’s business.

Case 2 - Automotive Components Supplier
The company is Australian owned with over 120 years of experience and is a large
independent ferrous casting and forging operation. The Company operates from two sites: a
newly developed foundry in South Australia and a combined foundry forge, sintering and
machining operation in Western Sydney in New South Wales. The company directly exports
15 per cent of its total sales with a further 20 per cent of sales exported indirectly as
components within customer's products. The company is ISO9001 and QS9000 accredited
and is known in the automotive components industry as a leader in the management of its
partnering and supplier relationships.

Table 2 Case 2 - Alliance Competency Themes

Construct     Description
Quality       Team competencies - Staff involved in alliances need team based skills
Management    including continuous improvement, problem solving, and team
Competence    management. The basis of our alliance strategy is really team based. The
              team handles most of the day-to-day issues. The key issue is to define the
              up front competency and commitment required and this will depend on the
              importance of the alliance to the company.
              Knowledge management and innovation – Our attitude is to keep the
              alliance partner abreast of improvements in technology and to provide that
              technology where necessary. We are involved in the alliance partner’s
              continuous improvement program to ensure that the customer maintains
                    competitive advantage. We are committed to be a part
              theirMarket Orientation and Relationship Marketing Track of the           1037
              customer’s continuous improvement process.
                alliance partner abreast of improvements in technology and to provide that
                technology where necessary. We are involved in the alliance partner’s
                continuous improvement program to ensure that the customer maintains
                their competitive advantage. We are committed to be a part of the
                customer’s continuous improvement process.
                Understanding of quality requirements - The alliance partner relies on our
                inspection process. If a defect is found the customer may send an inspector
                from Melbourne to inspect the whole batch. We are driven by the
                customer’s supplier rating system and we must maintain the maximum
                rating. To us it is more than just a supply arrangement, it becomes a
                question of commitment
Relational      Interpersonal skills – The effective operation of the alliance requires the
Competence      staff involved to have interpersonal skills including communication,
                problem solving skills.
                Interdependence and relative power – Each alliance has to decide how far
                to compromise with the alliance partner. For example if your partner faces
                a threat and needs your support in terms of a price reduction then there will
                be intense pressure to comply. With major customers there is almost no
                choice unless the decision will place the company into a loss making
Operational     Formalization of agreements - The Company has three key customer
Competence      alliances without formalized alliance agreements. However, there is a
                formalized alliance process. At the beginning of a major project our
                executive team meets with our partner’s executive team for two days to
                discuss business objectives for the project, sales forecasts, and design
                considerations, tooling requirements, capital investment requirements,
                project management and team leadership issues, meeting and liaison
                protocols between the two companies.
Market          Market orientation – when evaluating commercial considerations and
Orientation     negotiating the deal requires an in-depth understanding of the partner’s
                commercial need as against the competitor. This means having a detailed
                understanding of market conditions and competitive intelligence data. It is
                essential to have a target price in mind. In developing the price a total cost
                philosophy should be adopted in which all of the costs are considered
                including handling, storage, warehousing and manufacturing.

This paper is a work in progress and part of a research project to develop a competency based
theory of business partnering and alliance performance. It examines the extent to which
alliance competence can be explained as a multifaceted construct including alliance
experience, the ability to develop alliance managers and identify new partners plus the sub-
competencies of purchasing, quality management, inter-personal relationships, operational
competency, network competency and market orientation. Based on preliminary interviews
with two companies in respect of their alliances with major customers we have found
evidence that alliance performance depends on the successful utilization of a range of skills
including quality management, inter-personal relationships, operational competency, network
competency and market orientation. At this stage of the research we have not yet investigated
the sub-competency of purchasing but will do so in follow-up interviews with these

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