Companies Form Strategic Partnership to Build America’s Natural Gas Highway
Nathaniel H. Chan
Ateneo Graduate School of Business-Iloilo Campus Regis Program
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Companies Form Strategic Partnership to Build America’s Natural Gas Highway
Background of the Case
In 2012, Clean Energy Fuels Corp, a California-based alternative fuels provider, and
Navistar International, the Illinois semi-trailer truck manufacturer, agreed to a joint marketing
strategic partnership to build America’s Natural Gas Highway to answer the need for a coast-tocoast, border to border refueling infrastructure for alternative fuel vehicles. The partnership aims
to build 150 liquefied natural gas (LNG) filling stations in major cities and on in-between routes
to create a whole network of stations all over the United States. The partnership plans to do this
by offering transport companies and truck fleet operators a package deal of natural-gas powered
trucks, inexpensive alternative fuel, and widespread refueling network. In their scheme, Navistar
will sell its LNG truck fleets to shippers at the price of a diesel-powered truck, together with a
mandatory five-year fuel-purchase contract with Clean Energy.
For the plan to work, the
partners are also engaging Pilot Flying J Travel Centers, a large network of truck and travel
stops, to provide service locations for the refilling stations; and Chesapeake Energy, a natural gas
driller, who is investing S150 million towards the project. The idea of the partnership is simple –
Navistar sells LNG trucks to shippers, Clean Energy provides the fuel,
Pilot Flying J makes
available the fueling stations, and Chesapeake drills natural gas and provides investment capital.
Top-level planners of the project think that this will work because natural gas is the energy of the
future and requires no government funding. They believe that natural gas is both economically
sustainable and ecofriendly, and therefore, will help the industry to transition to alternative fuels
successfully.
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Definition of the Problem
Initially you would think that there is no problem as the strategic partners appear to have
covered all the bases for their plan to build America’s natural gas highway. But if you analyze
the case deeper, the problem that you can identify is the lack of coherence in the mission, goals
and objectives of the strategic partnership. The partners appeared to have identified a problem in
the supply chain of alternative fuel to consumers which both recognize as an opportunity for
them to fill the gap. Realizing that they cannot do it on their own based on their individual
organization’s capabilities, they decided to partner for them to be able to service this gap. Two
more companies, Pilot Flying J Travel Centers and Chesapeake Energy, are needed to make the
plan work. However, these two companies have direct relationships only with Clean Energy
Fuels Corp and not with Navistar. Pilot Flying J Travel centers allowed Clean Energy Fuels
Corp to build, own and operate LNG refueling stations in some of their sites while Chesapeake
Energy invested $150 Million to Clean Energy Fuels Corp to help fund the development of these
stations. The project appears to be the initiative only of Clean Energy Fuels Corp and for each
part of the project it decided to partner with three separate companies that might have different
vision on how the project should go. Because of this set-up, there is no centralized goal setting
and planning that is evident in this case. Aside from the lack of centralized planning, the
strategic partners were also overly optimistic as they only looked at the strengths and
opportunities that they saw with the project but they did not take time to identify the inherent
weakness in the internal environment of the strategic partnership as well as the threats present in
the external environment.
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Objectives for Problem Solution
The general objective is to address the problem of clarifying what the common mission,
goals and strategies of all organizations involved in the project are. This will entail calling for a
summit where the different stakeholders need to do the following actions to attain the general
objective.
1. To evaluate the current mission, goals and strategies of the existing partnerships.
This will enable the different stakeholders to ascertain whether they are aligned to the
general direction of the project. The fact that the Clean Energy Fuels Corp, as the
lead organization, have different business relationships with the other stakeholders
make the idea of vested interests coming into play in the project a very high
probability.
2. Perform a SWOT analysis to determine the general viability of the whole project.
This will allow the participating companies to examine their internal and external
environments and identify strategic issues that need to be addressed to meet the
mission and goals of the project. Clean Energy Fuels Corp and Navistar are so upbeat
in the future success of the project that they might overlook some of the threats in the
external environment as well as weaknesses in their partnership that may cause the
project to fail.
3. Define the new mission and goals of the strategic partnerships to make it coherent and
responsive to the results of the SWOT analysis.
4. Lastly, formulate corporate, business and functional level strategies that will help the
partners achieve their goals.
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Alternate Courses of Action
The strategic partners can take several alternate actions based on the result of the
proposed summit. In reviewing the purpose of the project, the goal is “to offer transport
companies a package deal made up of eco-friendly fleets, inexpensive fuel and reliable fueling
stations”.
Since the four involved organizations have different company missions, they must
align these with the mission or purpose of the project to build America’s Natural Gas Highway.
For example, it is not enough that Chesapeake drills natural gas and invests capital, it must also
believe in the rationale of the project. It is not enough that Navistar provides the trucks that run
on LNG for profit but it must also share the same mission with Clean Energy Fuel Crop to create
a healthier planet through the use of natural gas as a cleaner source of energy. The value of
strategic fit between partners is very critical because the creation of a shared mission-vision will
help in eliminating selfish intentions and enable all stakeholders to work together for the success
of the project.
After coming up with a common or shared mission-vision, the stakeholders need to do a
SWOT analysis of their internal and external environment to determine the long-term viability of
the project. The strength of the new strategic partnerships is the core competencies brought by
the individual corporations to the project. All are leaders and innovators in their respective
industries and this strength is very important in ensuring the success of the endeavor. The
weakness that can be identified in this strategic partnership is the inadequate knowledge of the
partners with one another. It is very important that potential partners are evaluated as to their
readiness in forming a strategic partnership that will be based on mutual trust to avoid frustration
and failure in the long-run. Reviewing the financial position of the partner organizations is also
of paramount importance to ascertain their capacity to perform their obligation to the partnership.
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Was Clean Energy Fuels Corp able to do due diligence on their partners in this project? This
question needs to be answered to determine the outlook of the project. The opportunity in this
new industry is tremendous considering the potential of natural gas as a cheaper and cleaner
alternative source of fuel. The immense amount of natural gas deposit also adds to the great
potential of this project. This opportunity was evidently seen by all the corporations involved
explaining their participation in the venture. However, there are also a lot of threats in the
external environment that can lead to the failure of the project. One of the external factors that
need to be considered is the market. Is there a large market or customer-base for this industry?
Given that most of the vehicles being manufactured still have engines that run on gasoline or
diesel fuels, the size of the market needs to be considered because of the huge amount of
investment that was put into the project. Another external factor that needs to be considered is
the legal-political environment. Does the industry have the support of the government? Are
there government incentives being given for corporations to shift to the use of cleaner alternative
fuels? Is the government willing to give subsidy or loan just in case the project encounters
financial difficulties in the future? These threats are real and can impact on the survival of the
project.
Having done a SWOT, analysis, the project proponents can then revise their mission and
goals based on these identified strengths, weaknesses, opportunities, and threats. They can make
their mission attuned not only to transport fleets but also to automakers and regular consumers so
they can have a wider market range. If they can come up with similar packages that will also
lower down the purchase cost of cars for the regular consumers in exchange for a mandatory
fuel-purchase contract for a certain number of years, while at the same time assuring a wide
network of refueling stations, this will make the project more viable and profitable.
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After coming up with new mission and goals, the strategic partners now need to formulate
strategies for them to be able to meet their new goals. In this regard, a comprehensive business
plan needs to be agreed upon by the stakeholders for the project to be effective right from the
start. Some of the possible strategies that they can do is to determine how many new refueling
stations are to be opened every year, potential tie-ups with automakers in reaching out to regular
consumers, partnering with other stakeholders and even competitors in the industry that will
widen the reach of the project, and potential government subsidy in rolling out more stations for
the project. The governance of the project should also be properly defined to make sure that all
these strategies are properly implemented and executed.
The summit should also examine the exact relationships of all the organizations and if
this is the right relationship for this kind of project. Is a strategic partnership arrangement already
enough for the project or is a joint venture through formation of a new corporation be a better
option for the project? Will a merger and acquisition be a more appropriate step? All these
arrangements should be examined because of the different organizational cultures of the
participating organizations that might have an impact on the long-term success of the project.
If the discussions during the summit reveal that the different companies are not
strategically fit for the project, they can then discuss the exit strategies from the partnership so
that they can avoid the tremendous problems of a failed strategic partnership including heavy
financial losses, opportunity cost, and even legal expenses of exiting the partnership.
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Conclusion
In conclusion, the best course of action for the strategic partners to take is to revisit the
mission, goals and strategies of the project, to perform a SWOT analysis, to come up with shared
mission and goals, and to formulate and execute different strategies that will assure the viability
and success of the project. This exercise will hopefully avoid them the hardship of a possible
failed partnership due to lack of planning and will save them from huge financial losses and
missed opportunities resulting from the unsuccessful alliance.
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References:
Daft, RL. (2016). New Era Management. 11th Edition. pp. 242-253.
McLennan, A., Troutbeck, R. (2002) R. Building Strategic Partnerships. pp. 6-9.
Frost and Sullivan: Growth Team Membership. (2017) “Growth Process Toolkit: Strategic
Partnerships - Accelerating Growth through Principled Partner Selection and Proactive
Relationship Management.” pp. 3-4.
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