Case analysis of Volvo – Renault alliance
The article described the life cycle of the alliance between car manufacturers Volvo and Renault. That was one of the largest and most prominent alliances in Europe at that time. The marriage of the two corporations was promising as it held economic promises that were applauded by the industry experts. Three years after the alliance had been founded, the allies split apart under not very friendly circumstances. Although the motive was good, outcome was unhappy. Six factors were recognized in the article that undermined the failure of the alliance:
Misalignment of senior and operating managers
Cultural differences between the french and the Swedes
MAIN POINTS IN THE ARTICLE
According to the article 60 % of the alliances fail. Even if the motive was strong between the parties and expectations were high, there are plenty of things that can go wrong in an alliance. Marriage of two companies can at its best mean higher production effencies and lower costs. It can expedite access to technology, markets and customers and also promote organizational learning. Strategic competencies can be expanded and strategic responses to a much larger competitors can be launched, provided that the co-operation between the two companies proves to be successful.
3 THE PROBLEM THE ALLIANCE FACED
The Senior Executives of both Volvo and Renault considered the alliance healthy and successful when the interviews were done in 1993. Components exchange was going well maybe because it had a long history. But operational executives were not that happy with the co-operation. Two projects proved that there were challenges in the alliance:
- P4 project was a development that aimed to manufacture a common platform for high-end executive car. In order to agree on the safety requirements and to have enough high power in the motors there was a delay of the launch.
- Truck production was another issue. It seemed that Renault’s truck operation was afraid of being swallowed by Volvo, and that Volvo feared losing both it’s brand identity and consumers franchise.
The co-operation between Volvo and Renault started as an alliance. That meant 50:50 control in ownership and internal governance was maintained by 21 committees. CEOs of both Renault and Volvo later claimed that that the ultimate aim had always been a merger of these two companies. Especially for some Volvo employees that news came as a surprise. Volvo CEO Per Gyllenhammar and Renault CEO Louis Schweitzer were conting on faster decision making after the merge.
Factors that contributed to the problems
Thus all of the mentioned six factors contributing to the failure of Volvo-Renault alliance were important, we found misalignment of management, leadership style, cultural differences and timing the most critical in this case. There will be more reasoning and discussion of those after clarifying the other two factors.
Path dependence was especially harmful for Volvo side when its business was recoved by American markets. The rigid structure of the alliance, including cross-shareholdings and a poison bill, made almost impossible to find alternative ways to survive in severe competition.
Recontracting of an alliance without approval from all parties can be difficult due to heavy opposition; in this case Gyllenhammar plainly miscalculated the reaction to the proposed merger.
The Volvo-Renault alliance is especially an exemplar for senior executives in many ways. The management involved in deploying the new alliance strategies were senior executives instead of the operational executives as it should have been in order to complete the tasks successfully. Senior executives of both Volvo and Renault side indicated that alliance was healthy and proven to be successful.
On the other hand, operational...
Bibliography: James, G. 2007.Lessons from the Mega-Mergers. URL: http://www.bnet.com/article/lessons-from-the-mega-mergers/163246?tag=mantle_skin;content. Quoted: 4.10.2010.
Kumar, R. Negotiating Strategic Alliance Partnerships. URL: http://www.negotiationtraining.com.au/articles/planning-alliances-strategically/. Quoted: 4.10.2010.
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