In May 2012, Fiat and Tata Motors have ended their alliances after a 5 year relationship. According to the article, Tata stated that “the venture with Fiat has not been as active as we had thought”. Why are alliances failing? How can they succeed?

Alliances between companies have become crucial to business success and it cannot be done without a disciplined approach. In order to maximize success, there are 5 key elements which should be in placed:

1. Partner Selection

In order to select a good partner, the company needs to collect information, data from informed third parties and conduct face-to-face meetings between senior managers. Both partners should have common strategic aspirations with each other and also resources and capabilities to achieve strategic goals.

Poor partner selection may lead to failure in alliances. Having a right choice will reap in benefits to introduce new technology, skill, personnel, access to new markets and dividing risks.

2. Alliance Structure

Both partners should move from a range of individual opinions and considerations into a single alliance’s decision. To help this, a clear template could be implemented that outlines the criteria to be used in discussions, guiding both partners to evaluate in the same direction.

In February 1994, Volvo and Renault announced the dissolution of their strategic alliance. Robert B. & Robert S. (1998) found that there was a significant lack of alignment between them. Both managements were not doing enough to explain their interest in the alliance. This was evidently clear that they have not created a set of standards and procedures to scale up the alliance.

3. Setting Long Term Goals

Instead of focusing exclusively on reducing cost and increasing revenue, the alliance should establish indicators to measure its overall performance. These could be in areas of information sharing and development of new ideas. This is beneficial, because it can highlight differing expectations of how Fiat & Tata can work together.

4. Portfolio Management

In the case of Fiat and Tata, this can be vitally important for them to create new innovations. Fiat & Tata cannot plainly rely on a single car model for success, and thus, this portfolio allows the alliance to conduct research and development.

A poorly designed portfolio can entangle the alliance and waste scarce resources. Good portfolio management can save resources, and diversify options for growth.

5. Building a Cohesive Alliance

There must be a mutual, flexible commitment on what’s appropriate, and share within each partner’s culture. An internal culture should be established so the alliance can react to changes in market demands. Strong interpersonal relationships between managers should be forged to create a friendly and cohesive environment.

It is unlikely that a company will get everything it wants out of an alliance, but it can also obtain much that it did not expect. The secret is to grab opportunities for change, not ignore them, and learn as much as they from their partners. As Fiat or Tata’s number of alliances grows, a supportive internal infrastructure would aid the business to the road of success.

In retrospect, successful alliances can be created through thoughtful management using the key elements in this discussion. Having an alliance with constant efforts to act, will give them a strong fighting chance to survive. Fiat & Tata’s dissolution will act as another lesson to be learnt for future alliances.