NETWORK PERFORMANCE ANALYSIS
A LITERATURE REVIEW
Maria Garbelli, (Tenured Assistant Professor of Management)
University of Milano Bicocca, Italy
Abstract:
Global markets have shown a significant interest in the inter-organisational performance and the evaluation thereof. The vast
literature on this topic stresses different concepts, most of which are related to the performance of firms, networks and
alliances, but the literature has not considered the performance of the strategic Business Unit or the inter-organisational
business unit. The aim of this paper is to offer a new point of view on this issue, based on the identification of the proper
levels of analysis, in accordance with the international literature.
Key Words: Performance, Measures, Strategic Business Unit, Alliance,
Network
Introduction:
In global markets, oversupply leads to hyper-competition and forces companies to adopt a
market-driven management strategy (Lambin and Schuiling, 20121) that is focused on serving
the end market faster and better than their competitors.
Market-driven companies are extremely sensitive to market changes, and they respond to
peculiar competitive features by modifying their organisations to answer market requirements
better and faster than their competitors.
Thus, a company acting in an oversupplied global market generally splits itself geographically
into strategic business units and enters into collaborative agreements with suppliers,
distributors, and even with competitors to both lower costs (Garbelli, 2005) and increase the
flexibility of the company’s processes (Aulack and Madhok, 2002)2.
1
2
J.J. Lambin – I. Schuiling (2012), Market-­‐Driven Management, Palgrave Macmillan. P.S. Aulack – A. Madhok (2002), Cooperation and performance in International Alliances: The Critical Role of Flexibility, in F.J. Contractor, P. Lorange, Cooperative Strategies and Alliances, Pergamon. In their work the Authors enhance the role of flexibility in global alliances, as ‘since international alliances are much more strongly impacted by external influences (e.g., exchange rate uncertainty, political uncertainty, instability of existing institutional The company needs to measure business performance from multiple perspectives, in
accordance with the popular phrase, ‘you cannot manage what you don’t measure.’
Performance measurement lets the company quantify and qualify management decisions and
evaluate its various types of relationships:
• inside its boundaries (with workers and shareholders); and
• outside its boundaries:
• within a competitive network; and
• with the global environment, given that social and environment issues are gaining
increasing attention.
Thus, in global markets, businesses cannot define performance from a strictly economic and
financial point of view but instead must create a performance management system that
integrates multiple and balanced perspectives to better satisfy market requirements. An
accurate and appropriate measurement of performance is critical in entrepreneurship research;
without such measurements, the theoretical literature is impeded in its ability to suggest
prescriptions for entrepreneurs (Murphy, Trailer & Hill, 19963). Measurement is just one step
in the more complex Performance Management System, which includes four stages, each of
which are related to the stages immediately preceding and following them, in a circular
fashion:
• Planning performance standards
• Managing performance (performance measurement)
• Reviewing performance (quality improvement process)
• Rewarding performance (reporting of progress)
As for the PDCA Deming Cycle, reviewing and rewarding are the last stages of the circular
process proposed, as they are the basis for future improvement of the whole performance
management system.
The purpose of our study is to review the literature on performance with the goal of
identifying the following:
• the basic characteristics of performance metrics; and
infrastructure, etc.), particularly in the case of emerging markets, having flexibility in such alliances (rather than preset rigid contracts) can have especially important implications for international alliance performance.’, see P.S. Aulack – A. Madhok, Cooperation and performance in International Alliances: The Critical Role of Flexibility, p.29. 3 G.B. Murphy, J.W. Trailer, R.C. Hill (1996), Measuring Performance in Entrepreneurship Research, in Journal of Business Research, n.36, p.15. • relevant levels of analysis (briefly, the corporate strategic business unit, the
cooperative business unit, the firm, the alliance and the network).
Main Text:
The development of global markets has forced companies to adopt complex, more
efficient organisational structures. To accomplish this, businesses combine two different types
of renovation. Individually, the company moves toward a geographical split in different
strategic business areas (SBU), each representing an autonomous branch of the business.
Second, the business is forced to cooperate with others (to create one or more common
manufacturing, assembly or distribution plant, to use a partner’s unexploited production
capability, or to develop a common research laboratory instead of building plants wholly
owned and in many cases under-used by the business) in order to reduce their competitive
costs (Garbelli 20054; Nielsen 2007) and enhance their competitive position5. The interorganisational solution is expected to develop trust between organisations, as shared informal
rules and beliefs can help partners to face external uncertainty better than they could
individually6.
According to Abell7, a strategic business area has to answer ‘who, what, how’ questions
simultaneously, defining a specific segment of the market. When a company faces business
area requirements with a specific, organisational, autonomous unit, the corporate strategic
business unit (SBU) is defined.
When a company is composed of a network of business units, it becomes fundamentally
important to be able to estimate the performance of each unit in order to optimise its
management and to evaluate the utility it keeping it operational (Kaplan and Norton 2000;
4 M. Garbelli (2005), Product Differentiation Costs and Global Competition, in Symphonya. Emerging Issues in Management, www.unimib.it/symphonya, 1. Doi: http://dx.doi.org/10.4468/2005.1.06garbelli 5 Craven set al. (1993) argue that ‘ strategic alliances are a menas for organizations to gain competitive advantage in a product/market when environmental turbulence and diversity are high and the organizational’s skill and re source gaps are high’, in D.W. Cravens, S.H. Shipp, K.S. Cravens (1993), Analysis of co-­‐operative interorganizational relationships, strategic alliance formation, and strategic alliance effectiveness, in Journal of Strategic Marketing, 1, pp. 55-­‐70. 6
On a similar subject, Noordewier et al. argue that shared beliefs between buyer-­‐vendor relationships in unpredictable markets can improve performance level. T. Noordewier et al. (1990), Performance outcomes of purchasing arrangements in industrial buyer-­‐vendor relationships. Journal of Marketing, 54 (4), pp. 80-­‐93. 7 See D.F. Abell (1980), Defining the Business: The Starting Point of Strategic Planning, Engelwood Cliffs, NJ., Prentice-­‐Hall. Neely et al. 1996; Bititci et al. 19978), as each business unit has to remain individually
competitive in the specific market in which it operates (Bititci et al. 20059). Thus, to calculate
an SBU performance involves evaluating its economic, social10 and environmental
performance in terms of results gained, analysing each business unit dimension (customersneeds-technologies) and evaluating the opportunities to change such dimensions or to keep
them unchanged over time11. SBU performance is also related to the company’s own learning
and innovation ability, which derives from its network position and absorptive capacity (Tsai
200112). Different network positions represent different opportunities for a unit to access
external information and knowledge and thus improve performance; absorptive capacity
refers to an SBU’sability to assimilate and replicate new knowledge gained from external
sources (Cohen and Levinthal 1990; Hill et al., 13), which are associated with performance
increases. According to Tsai, knowledge transfer among organisational units provides
opportunities for mutual learning and inter-unit cooperation that stimulate the creation of new
knowledge and, at the same time, contribute to the organisational unit’s ability to innovate.
Tsai also outlines the importance of inter-unit openness in increasing the SBU’s cost
efficiency through the dissemination of ‘best practices’ within the organisation.
The process and the metrics applied to performance measurement can also change
according to the particular location of the SBU. For example, Maskell focuses on the
opportunity to use specific tools to more precisely estimate business volume in different
locations (Maskell 1991)14. In a similar way, Yeniyurt (2003)15 suggests a specific
8 A. Neely et al. (1996), Getting the Measure of your Business, University of Cambridge, Cambridge; U.S. Bititci, A.S. Carrie, L.G. McDevitt (1997), Integrated Performance Measurement Systems: a Development Guide, in International Journal of Operations & Production Management, vol. 17, n. 6, pp.522-­‐535; R.S. Kaplan, D.P. Norton (2000), Having trouble with upir strategy? Then map it, Harvard Business Review, vol. 78, pp 167-­‐176; 9 According with Bititci, business units can be product oriented (the product itself determine how it compete in the market) or market oriented (the product is subjected to different competitive pressures in different markets). In both cases, the SBU performance derives from the combined performance of every activity conduct in the unit. U.S. Bititci, K. Mendibil, V. Martinez, P. Albores (2005), Measuring and managing performance in extended enterprises, in International Journal of Operations & Production Management, vol. 25, n.4, pp. 333-­‐353. 10 Its noted that ‘developing an adequate control system for a company and its business units requires recognition of the culture of the manager and workers within the different segments of the company.’, P. O’Clock, K. Devine (2003), The Role of Strategy and Culture in the Performance Evaluation of International Strategic Business Units, in Management Accounting Quarterly (Winter), pp. 18-­‐26. 11 Simons (2000) argue that the performance evaluation of a business unit has a positive correlation with the identification of a specific responsibility as it is useful to relate the output forecast of the unit ant the work expected level for human resources with the unit’s results. R. Simons (2000), performance Measurement and Control Systems for Implementing Strategy, Perentice-­‐Hall. 12 W. Tsai (2001), Knowledge transfer in Intraorganizational Networks: Effects of Network Position and Absorptive Capacity on Business Unit Innovation and Performance, The Academy of Management Journal, vol. 44, n.5. 13 W. Cohen, D. Levinthal (1990), Absorptive capacity: a new perspective on learning and innovation, Administrative Science Quarterly, 35, 1990; M. A. Hitt, R.D. Ireland, R.E. Hoskisson (2005), Strategic Management, Thomson. 14 V. B. H. Maskell (1991), World Class Manufacturing. A Model for American Companies, Productivity Press, New York, p.20 e segg. performance management system for businesses with multiple locations. His work is
particularly useful for analyses focused both on strategic business units and on competitive
sites.
The subject is even more significant whenever the business unit is managed by sharing its
functionality with partners: in this case, interfirm business units (IBU) are the operative level
of the alliance. For an IBU, the performance evaluation has to take into account the
performance measurement systems of each partner, using the same tools and metrics to
facilitate the single firm’s evaluation of its profitability within the network.
On the one hand, the IBU performance depends on the interfirm unit’s ability to improve
learning and innovation by enhancing the resources (human or technical) shared between
partners, as is the case for SBUs.
On the other hand, an IBU’s performance evaluation is closely related to the cooperation
agreement: depending on the terms of that agreement, partners can decide to keep unchanged,
modify or leave the agreement if they believe that they have obtained few or no personal
benefits. Thus, performance evaluation lets each of the partners focus on the activities
generating value for itself.
Over the last few years, markets have seen an enormous growth of alliance activity,
specifically, in voluntary interfirm agreements involving exchange, such as the sharing or codevelopment of products, technologies or services (Gulati 199816); such agreements can be
equity based or non-equity based (Osborn and Hagedoom 1997 17) and involve contested
markets and uncertainty over outcomes (Arino et al., 200118). Because of their widespread
use, alliance activities seem to have modified the level of competitive rivalry (Ziggers and
Tjemkes 201019).
As a result, a competitive network, the interorganisational structure resulting from the
whole portfolio of alliance agreements, is not strictly a set of multiple locations of business
15 Cfr. S. Yeniyurt (2003), A Literature Review and Integrative Performance Measurement Framework for Multinational Companies, in Marketing Intelligence and Planning, n. 21, pp.134-­‐142. 16 R. Gulati (1998), Alliances and Networks, in Strategic Management Journal, vol. 19, issue 4, p. 293–317. 17 R. N. Osborn, J. Hagedoom, The institutionalization and evolutionary dynamics of interorganizational alliances and networks, Academy of Management Journal n.40, issue 2, p.216-­‐278, 1997. A. Arino, P.S. Ring, J. De la Torre (2001), Relational quality: Managing Trust in Corporate Alliance, Research paper n. 434, Research Division of IESE. 19 G.W. Ziggers, B. Tjemkes, Dynamics in Inter-­‐firm Collaboration: The Impact of Alliance Capabilities on Performance., in International Journal on food system dynamics 2/2010. 18
branches with different owners, as the role of synergies between partners is of fundamental
importance. We can better define a competitive network as a collection of businesses with
similar and complementary needs and compatible information systems, but with different
aims and cultural values – all of which are linked to each other by dynamic cooperative
relations (i.e., alliance relationships of mutual cooperation) (Busi and Bititci 2006)20.
When the company operates in a competitive network (with partners under cooperative
agreements), it becomes difficult to identify and to measure its performance, making
performance dimensions are more significant for the network as a whole. At the same time, a
company in a competitive network cannot underestimate the importance of its performance
(and the SBU’s performance), the IBU and alliance benefits produced and the ability to
communicate and interact within the network in achieving mutual synergies.
In our work, we adopt a three-level perspective, arguing that alliance research can be run
at dyadic (the single alliance) level, at the firm level and at the network level (optimisation of
alliance portfolio) (Takeishi, 200121; Duysters et al.,2004)22.
Performance analysis at the firm level must combine the firm’s individual perspective
with the mutual one. Recent studies have demonstrated the relevance of commitment,
learning, trust and alliance capabilities of the firm for optimising the exploitation of the
mutual relationship but has also warned about the associated risks of alliances (lack of
learning, loss of abilities, etc.). However, there has been little attention to the question of how
to get the best from the partnership. Even if the alliance creates value, those positive effects
may fall on only one partner instead of all of the partners in a balanced way23. Moreover,
20 Cfr. M. Busi; U.S. Bititci (2006), Collaborative Performance Management: Present Gaps and Future Research, in International Journal of Productivity and Performance Management, n. 55, pp 7-­‐25, p. 9. According with Godrej, founder and manager of one of the top business organizations in India, ‘a conglomerate works when each of its businesses is run with clear and focused accountability. What makes for a well-­‐run conglomerate is the same set of principles and behaviors that distinguish a successful single-­‐business company from an unsuccessful one.’, in A. Godrej (2004), Creating Value with a Conglomerate: the Case of the Godrej Group’, in Journal of Applied Corporate Finance. 21
A. Takeishi (2001), Bridging inter and intra-­‐firm boundaries: management of supplier involvement in automobile product development, in Strategic Management Journal, vol. 22, n. 5, pp. 403-­‐433. 22
The performance evaluation can be done at the level of single partner, of single alliance or at the upper level of network. See Duysters et al. 2004 23 Provan and Sydow for example outline troubles in defining to what extent is an organization’s performance attributable to its involvement with other organizations. See K. G. Provan, J. Sydow, Evaluating Interorganizational Relationships, in S. Ebers, M. Huxham, P.S.Ring (eds), Handbook of Interorganizational Relations. Oxford (forthcoming). while the purpose of a strategic alliance may be to achieve mutual benefit, the benefits may
not be transferable to the parent firm. Lee and Cavusgil’s (2006) analysis focuses on the
alliance performance dimensions that have a positive relationship with the firm’s
performance: alliance strength, alliance stability and knowledge acquisition (the complex of
know-how and abilities transferred through the relationship). Alliance stability depends on
alliance longevity; but the longer an alliance is, the greater the collaborative benefits are. At
the same time, the greater the longevity, the higher the likelihood of one partner losing
proprietary assets (Kale et al., 200024).
The firm’s ability to compete (that is, to gain both competitive advantage and aboveaverage returns) is also affected by its position within the network, as the basic nature of the
network determines its ability to control and manage information and financial and
knowledge flows (George et al., 2001; Duysters et al. 199925). Some researchers have argued
that economic performance has a unique role in determining a firm’s benefits from alliances.
Although it is widely recognised that firms pursue multidimensional goals, the mainstream
view in strategy research is that firms are fundamentally concerned with economic results.
Economic performance has been defined according to returns on assets, returns on sales and
returns on capital (Goerzen and Beamish, 200526).
George et al. (2001) focused on attaining perspective through an empirical test on biotech
firms and found a relationship between the portfolio of an alliance’s characteristics27 and the
firms’ financial performance, both directly and indirectly, through absorptive capacity – the
firms’ ability to value and apply know-how. Heimeriks et al. (2009) investigated the
capabilities of firms to improve their performance through alliance portfolios. Along the same
lines, Yamakawa et al. determined the effects on firm performance of a balance between
exploration and exploitation in a strategic alliance, which derives from the strategic intent of
the firm and the expectations surrounding the alliance formation. Exploration reflects the
desire of the company to enter into new opportunities and to build new capabilities to better
24
P. Kale, H. Singh, H. Perlmutter (2000), Learning and protection of proprietary assets in strategic alliances: building relational capital, in Strategic Management Journal, n. 21, pp. 217-­‐237. 25
G. Duysters, A-­‐P. deMan, L. Wildeman (1999), A Network Approach to Alliance Management, in European Management Journal, vol. 17, n. 2, pp. 182-­‐187. 26
A. Goerzen, P.W. Beamish (2005), The Effect of Alliance Network Diversity on Multinational Enterprise Performance, in Strategic Management Journal, n. 26, pp. 333-­‐354, p. 340. 27
According with George et al., the relevant portfolio characteristics are: -­‐ alliance structure (vertical or horizontal agreements) -­‐ knowledge flows: -­‐ generative – involving R&D activities among partners; -­‐ attractive – the purchase or licensing agreements of know-­‐how not own by the company. serve a changing environment, while exploitation reflects the search for complementary
resources and capabilities to leverage. (Yamakawa et al. 201128).
The dyadic level of analysis emerges from the firm the firm level of analysis, as alliance
performance is affected at all times by the following:
•
partner factors: such as trust, commitment, partner fit and complementation
(Duysters et al., 2004); previous experience (Ziggers and Tjemkes, 201029),
•
alliance factors, such as alliance department, alliance manager, alliance
governance (Lee and Cavusgil, 200630; Sluyts et al., 2011)), alliance training,
alliance specialist and alliance evaluation mechanisms (Draulans et al. 200331);
•
context factors: socio-economic conditions and country level endowments (Todeva
and Knoke, 2005), as firms and alliances are located within specific country
environmental contexts, giving rise to different conditions of conducting business
(Nielsen 201032); and
•
industry factors, as firms and alliances are embedded within specific industries, the
characteristics of which may affect alliance processes and performance (Nielsen
2010).
The increasing use of strategic alliances in recent years has been accompanied by a
growth in strategic alliance research (Olk 200233).
Despite the proliferation of research on strategic alliance performance, most of it is
focused on the identification of a causal relationship between one or more factors and
performance rather than on the measurement and evaluation of alliance performance.
However, as Gulati states, understanding the factors influencing alliance performance is one
of the most interesting and also one of the most vexing questions.34
Alliance performance emerges not only from the ability of the companies involved in
building a relationship among partners but also from their ability to run and optimise them.
28
Y. Yamakawa, H. Yang, Z. Lin (2011), Exploration versus exploitation in alliance portfolio: Performance implications of organizational, strategic and environmental fit, in Research policy n. 40, pp. 287-­‐296. 29 G.W. Ziggers, B. Tjemkes (2010), Dynamics in Inter-­‐firm Collaboration: The Impact of Alliance Capabilities on Performance, in International Journal on Food System Dynamics, n.2. 30
Y. Lee, S.T. Cavusgil (2006), Enhancing alliance performance: The effects of contractual based versus relational-­‐
based governance, in Journal of Business Research, n.59, pp. 896-­‐905. 31
J. Draulans, A-­‐P deMan, H.W. Volberda (2003), Building Alliance Capability: Management Techniques for Superior Alliance Performance, Long Range Planning, n.36, pp. 151-­‐166. 32
B.B. Nielsen (2010), Multi Level Issues in Strategic Alliance Research, in T.K. Das (Eds.), Researching Strategic Alliance: Emerging Perspectives, Information Age Publishing Inc., pp. 1-­‐26. 33 P. Olk (2002), Evaluating Strategic Alliance Performance, in F.J. Contractor, P. Lorange (eds.), Cooperative Strategies and Alliances, Elsevier Science,. 34 R. Gulati (1998), Alliances and Networks, in Strategic Management Journal, n. 19, p. 293-­‐317. This fact underscores the relevance of both pre-alliance and post-alliance formation factors
and of the relationship between those factors and the alliance’s performance (Nielsen 2007,
Lunnan and Haugland 200835), for achieving four effects: efficiency; relational equity,
financial results and learning results (Nielsen 2007). According to Nielsen, some post-alliance
formation factors have a positive impact on alliance performance (collaborative know-how,
trust and complementarity), while others show a negative effect (protectiveness and cultural
distance). In a similar way, Lunnan and Haugland’s (2008) research discusses the impact on
alliance performance of:
•
key characteristics in the initial set-up phase: Lunnan and Haugland identify three
core alliance characteristics (the partner firms’ specific investments in the alliance,
the degree to which partner resources brought into the alliance are complementary
and the strategic importance of the alliance of fulfilling partner firm strategies) that
are positively related to short and long-term performance;
•
post-formation dynamics: on the one hand, the involvement of the partners in the
alliance is expected to increase, positively affecting long-term performance; on the
other hand, changes in management responsible for the alliance (personal
relationships serving to smooth company relationships to solve conflicts, enhance
future developments, etc.) can affect trust as it takes time to let new relationships
work. In the end, post formation dynamics have a negative impact on alliance
performance.
A broad literature stresses the role of the partner’s capabilities involved in a strategic
alliance. Ziggers and Tjemkes (201036), for instance, identify three alliance capabilities
(Aulakh, Kotabe and Sahay, 1996):
•
alliance experience (referring to the lessons learned from past alliance experience);
37
•
management development capabilities (the tasks that a firm performs to achieve
effective coordination and alignment within an alliance ); and
•
partner identification capabilities (to monitor partners over time).
35 R. Lunnan, S.A. Haugland (2008), Predicting and Measuring Alliance Performance: a Multidimensional Analysis, in Strategic Management Journal, n.29. 36 G.W. Ziggers, B. Tjemkes (2010), Dynamics in Inter-­‐firm Collaboration: The Impact of Alliance Capabilities on Performance, International Journal on Food System Dynamics, n.2. 37 Zollo, Reurer and Singh argue that alliance performance is positively affected by relational experience; in their analysis, they find a correlation between performance of alliances in biothecnology industry and different kind of experience: Technology-­‐specific experience; Partner-­‐specific experience. M. Zollo, J.Reurer, H. Singh (2002), Interorganizational Routines and Performance in Strategic Alliances, in Organization Science vol 13, n. 6, p. 701-­‐713. Lunnan and Haugland emphasise the role of the capabilities in achieving alliance
performance by improving alliance management (the tasks that a firm performs to achieve
effective coordination and alignment within an alliance) and relational quality (the activities
managed to make partners feel comfortable and willing to rely on trust in dealing with each
other). Trust is a firm factor affecting alliance performance and a subject of study in a
relational perspective on an alliance. It involves risk and mutual interdependence (Sheppard
and Sherman, 199838) and derives from relational norms (continuity expectations, flexibility
and information exchange) and monitoring mechanisms, i.e., the control of output, process
and social dimensions (Aulakh et al., 199639). Trust between partners allows the use of social
controls, which refers to informal controls done by the focal form and enhanced by implicit
rules and supportive structures to facilitate role understanding in organisational exchanges.
Arino et al. (2001) argue that trust derives from relational qualities, and distinguish initial
conditions (demographic and institutional, reputation, prior experiences and the venture
negotiation process); partner interactions (meeting expectations, collaborative behaviour, sins
of commission and omission and information exchanges); and external events (systemic,
corporate or individual) affecting trust formation over time.
Speckman et al. (1996) outline the role of an ‘alliance manager’, arguing for his or her
influence in each alliance stage. More specifically, Sluys et al. (201140) explain the related
benefits, such as visibility and legitimacy, fast experience accumulation and a better
management of alliance resources (such as infrastructure and alliance processes). The Authors
found a positive but indirect relationship between the existence of a specific alliance
department (or alliance manager) and alliance performance as a consequence of increased
support for alliance management and processes. Drauland, deMan and Volberda’s (2003)41
research reveals that the use of a middle level manager improves the success of the alliance.
Despite the successful identification of the factors affecting alliance performance, the
alliance’s performance measurement remains a problem unsolved – one that the literature has
tried to address.
38
B.H. Sheppard, D.M. Sherman (1998), The grammar of trust: A model and general implications, in Academy of Management Review, n. 23, pp. 422-­‐437. 39 P.S. Aulakh, M. Kotabe, A. Sahay (1996), Trust and Performance in Cross-­‐Border Marketing Partnerships: a Behavioral Approach, in Journal of International Business Studies, vol. 27, n.5, pp. 1005-­‐1032. 40
K. Sluys, P. Matthyssens, R. Martens, S. Streukens (2011), Building capabilities to manage strategic alliances, in Industrial Marketing Management, n. 40, pp. 875-­‐886. 41 J. Draulans, A-­‐P deMan, H.W. Volberda, Building Alliance Capability: Management Techniques for Superior Alliance Performance, Long Range Planning, n.36, 2003 pp. 151-­‐166. Ariño’s work (200342) has stressed three levels of alliance performance, depending on the
specific goals under consideration: organisational effectiveness, financial performance and
operational performance. The first refers to the fulfilment of the organisational goals, but with
respect to the partners’ interests. Financial performance refers to the evaluation of specific
financial goals, and operational performance refers to the evaluation of key operational
success factors (Venkatraman and Ramanujam, 1986)43.
Provan and Sydow44 believe alliance performance evaluation is affected by two issues:
first, the specific set of measures to use and second, the extent to which a firm’s performance
is attributable to its involvement with other organisations.
In answering these questions, they identify three families of performance indicators:
•
structural indicators (focused on the connections between organisations);
•
process indicators (strictly connected with learning, trust, fairness, legitimacy and
power); and
•
outcome indicators (representing organisational effectiveness based on goal
accomplishment, these can be summarised as innovation, financial performance,
non-financial performance and survival).
Adams and Downey (2008) advise against using financial performance, as a firm’s stock
price reflects only its results and underestimates the strategic alliance’s influence. Aulakh et
al. (1996) use sales growth and market share as output controls to use, whereas Lee and
Cavusgil found that alliance performance is best measured by the following:
•
alliance strength (the abilities to manage conflicts and solve problems);
•
alliance stability, which is related with the same alliance longevity; and
•
knowledge acquisition (the complex of know-how and abilities transferred within
the relationship).
The third level of our analysis concerns the network level.
A network is a set of different alliances (that can vary in number) that have to be coordinated to attain a primary joint goal (Gomes-Casseres, 199645). Studies describing
42 A. Arino (2003), Measures of strategic alliance performance: an analysis of construct validity, in Journal of International Business Studies, 34, pp. 66-­‐79. N. Venkatraman, V. Ramanujam (1986), Measurement of business performance in strategic research: a comparison of approaches, Academy of Management Review 11 (4), pp. 801-­‐814. 44 K. G. Provan, J. Sydow, Evaluating Interorganizational Relationships, in S. Ebers, M. Huxham, P.S.Ring (Eds), Handbook of Interorganizational Relations. Oxford (forthcoming) 43
networks as portfolios of alliances have emphasised the role of network performance
evaluation as a fundamental management technique that can be used to better exploit
interorganisational relationships. According to some authors, concentrating on a single
alliance per firm underestimates the relevance of the synergies of interdependent alliances as
part of a portfolio: managing a whole network is likely to create value beyond what can be
accomplished if each alliance were managed separately (George et al., 200146; Heimeriks et
al. 200747; Nielsen 2010). According to the network approach, alliances are managed in a
way that their total set of alliances benefits, as the individual alliances have to be managed as
part of a portfolio of alliances (Duysters et al. 199948)
Network performance evaluation has to take into account the analysis of the alliance
portfolio (Goeltz 201049); the following parameters show inverted U-shaped relationships
with firm performance: network size50, activity diversity, partner diversity, industry diversity,
and technological diversity.
Even if it is not easy to identify the relevant measures for network performance – or a
unique model for performance management – it is nonetheless important to establish some
rules, erga omnes valid, for building a structured and balanced network performance system.
Some studies have investigated network performance from a purely financial
perspective51. A multi-dimensional operationalisation of alliance performance measurement,
however, can be useful when applied to capture process and outcome aspects of alliance
performance (Nielsen 200752).
Network performance is positively correlated with the ability of the businesses to create
and maintain a strong relationship with other organisations in a specific location; it becomes
45
B. Gomes-­‐Casseres (1996), The alliance devolution – The new shape of business rivalry, Cambridge,. G. George, S.A. Zahra, K.K. Wheatley, R. Khan (2001), The effects of alliance portfolio characteristics and absorptive 46
capacity on performance. A study of biotechnology firms, in Journal of High Technology Management Research, vol. 12, pp. 205-­‐226. 47
K. Heimeriks, G.M. Duysters, W. Vanhaverbeke (2007), Learning mechanisms and differential performance effects in alliance portfolios, in Strategic Organization, n.5 (4), pp 373-­‐408. 48
G. Duysters, A-­‐P. deMan, L. Wildeman (1999), A Network Approach to Alliance Management, in European Management Journal, vol. 17, n. 2, pp. 182-­‐187. 49
D. Goeltz (2010), Alliance Portfolio Characteristics and Organizational Learning, in T.K. Das (Eds.), Researching Strategic Alliance: Emerging Perspectives, Information Age Publishing Inc., pp. 181-­‐206. 50
As noted by Heimeriks et al. (2009), ‘firms managing large alliance portfolios do not necessarily perform better than those with smaller portfolios’, in K.H. Heimeriks, E. Klijn, J.J. Reurer (2009), Building Capabilities for Alliance Portfolios, in Long Range Planning, vol. 42, issue 1, pp. 96-­‐114. 51
A. Goerzen, P.W. Beamish (2005), The Effect of Alliance Network Diversity on Multinational Enterprise Performance, in Strategic Management Journal, n. 26, pp. 333-­‐354. 52 B.B. Nielsen (2007), Determining International Strategic Alliance Performance: a Multi-­‐dimensional Approach, in International Business Review vol.16. possible to perform every operation in that network, because the collection of data from the
environment and the actors in it lead to better management of the relations between supplier
and retailer). Thus, it is reasonable to both measure a company’s ability and to use network
performance for evaluating the relationships built among partners by splitting it in different
dimensions.
This evaluation must take into account the following: the number of companies involved
in the network; the number and type of the relationship between each company; the location
of the effects of the relationship; the duration of the effects of the relationship; and the
duration of the relationship. The evaluation goes beyond the mere identification of alliance
performance from a strictly financial point of view, as it is also important to outline the
system of social issues, cultural principles and information systems used by the companies
involved, which can affect the proper management of the whole relationship. A similar metric
has been identified for vertical networks (Supply Chain Network) in utility (Kleijnen and
Smith, 2003)53 – the ability of the relationships to produce benefits for all the partners
involved.
Schilke and Goerzen (201054) focus particularly on alliance management capabilities in
order to effectively manage the entire strategic alliance’s portfolio and find a positive
relationship between alliance management capabilities and improved network performance.
Duysters, deMan and Wildeman (199955) found that Top Management plays a central role
within the network approach, as it involved in crucial moments in the alliance’s lifespan, such
as its creation and break-up (Sluys et al. 2011). Top Management is also relevant in its role as
moderator (in case of conflicts) and in prioritising at the network level (to keep in mind the
goals to achieve). In line with Schilke and Goerzen, Sluys et al. (201156) found a relationship
between the involvement of the top management team and the development of alliance
learning mechanisms.
Conclusion:
53 J. Kleijnen, M. Smith (2003), Performance Metrics in a Supply Chain Management, in Journal of the Operational Research Society n. 54, , pp. 25-­‐28. 54 O. Schilke, A. Goerzen (2010), Alliance Management Capability: an Investigation of the Construct and its Measurement, in Journal of Management vol. 36, n. 5. G. Duysters, A-­‐P. deMan, L. Wildeman (1999), A Network Approach to Alliance Management, in European Management Journal, vol. 17, n. 2, pp. 182-­‐187. 56
K. Sluys, P. Matthyssens, R. Martens, S. Streukens (2011), Building capabilities to manage strategic alliances, in Industrial Marketing Management, n. 40, pp. 875-­‐886. 55
Global companies face the particular challenges of global markets by engaging in
international strategic alliances and adopting flexible management solutions. The pool of
strategic alliances into which a company enters can lead to the creation of a competitive
network.
To evaluate and manage over time its agreements with other partners, a company needs to
measure its performance. Along with the evaluation of its performance, a partner in a network
needs to stress different levels of performance evaluation, corresponding to the complexity of
its competitive structure. More specifically, performance evaluation means assessing the
economic, social and environmental results attained by a firm, as well as the performance
achieved by the company’s network.
Therefore, performance evaluation requires measuring and comparing against benchmarks
over time:
Ø strategic business unit (SBU) performance;
Ø interfirm strategic business unit (IBU) results;
Ø the performance attained by the firm by determining the impact of the system of
network relationships on overall performance;
Ø single alliance performance; and
Ø the performance of the whole network as a system of alliances engaged by a
holding company.
SBU and IBU performance, as well as a single company’s performance, have been
analysed over the long term, in practice and in theory, by developing numerous indexes and
measures. However, there are still issues to be addressed:
Ø how to measure alliance and network performance by identifying specific
measures and indexes to describe the relevant performance areas of interest; and
Ø how to relate a similar system of evaluation with a clear value creation and, more
specifically, to financial results.
It would also be interesting to apply a triple bottom line approach to the performance
evaluation of alliances and networks, investigating the relevance of a social and
environmental analysis.
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