Alliance failure rates

Strategic alliance failure rates, reconsidered

Strategic alliance failure rates, reconsidered

The question of the rate at which strategic alliances fail never goes away. Nor does the wide-spread article of faith that strategic alliances inherently have a high failure rate, usually well above 50%. To take just three recent quotes taken more or less randomly from the Internet:

"The failure rate of strategic alliances is significant. Depending upon which source is referenced, the failure rate can be as high as 82% or as low as 50%."1

"Despite the advantages of alliances for both parties the failure rate is remarkably high, around 50%."2

"Depending on which surveys you believe, the failure rate [of strategic partnerships and alliances] is somewhere between 60-72%."3

What is missing, however, is any reliable data backing these figures or any attempt to analyse failure rates by industry segment, strategic alliance type, date and so on. What data that is used to back up the estimates of failure rates is often seriously outdated, based on tiny sample populations or taken from inherently unreliable, theoretically-skewed, papers written by academics. So, for example, some of the data relied upon to arrive at these estimates is decades old and some comes from surveys (we use the word loosely) of little more than a handful of strategic alliances.

The question as to why any competent manager would bother investing in any activity with a likely failure rate of 82% is left unasked. By comparison, the failure rate on investments in the venture capital industry is around 66%.

To test the hypothesis that strategic alliances have a failure rate of between 80% and 50% we decided to examine our own data gathered from the analysis of hundreds of strategic alliances. The question we asked was: what percentage of respondents in our surveys of current and past partners of clients agreed or disagreed with the following statements:

1. The strategic alliance has been a success; or,

2. The strategic alliance has met the expectations we had at the outset; or,

3. The strategic alliance is on track to meet its objectives.

So that we could be sure that the data is reasonably current we used data only for surveys conducted in the last three years.

The result? The percentage of respondents in our database disagreeing with any of those three statements was 18% (n=959), the percentage agreeing was 65%, the remaining 17% neither agreed nor disagreed with the statement in question.

A couple of footnotes to these figures are in order. First, our clients tend, by definition, to be large organisations with a strategic alliance management function and with an interest in getting their strategic alliance right so that would probably put a small positive bias in the data.

Second, a lot of the strategic alliances we analyse for clients are intensive research-driven strategic alliances with small biotechnology companies and academic institutions. These alliance probably have a higher failure rate than, for example, distribution and manufacturing strategic alliances in other sectors so that may put a negative bias in the data.

These two biases probably pretty much cancel each other out.

So, in conclusion, we think that a failure rate of around 18-20%, for large organisations with a dedicated strategic alliance management function and trained strategic alliance managers, feels about right. If we had to use these figures to generalize across the market generally we would estimate a failure rate of between 20% and 25%. In short, far below the generally accepted estimates of the typical failure rate of strategic alliances.