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Long Range Planning

36/2 April 2003

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Charles Baden-Fuller  Editorial

    Governance and Strategy
    Good governance is no substitute for good strategy.  Our opening paper by Sayan Chatterjee argues that the demise of Enron was a primarily a consequence of failed strategy thinking and only secondarily the consequence of failed corporate governance. His central thesis is that Enron's Asset light strategy was revolutionary and successful in the two core businesses of Gas and Electricity, but that this strategy was doomed to fail in other sectors such as Water and Paper where the conditions were wrong.  It is well known that successful strategy is context specific, dependent on factors such as technology, industry structure and customer value chains. Chatterjee's findings therefore, have strong support from strategy theory.

    What was wrong at Enron?  It seems that its architects did not analyse why the Asset light strategy was so successful in Gas and Electricity.  As a result they applied the business model that was successful in one sector to other sectors without first analysing the causes of success and the likelihood of failure. Populist thinking suggests that Enron would still be here if the governance systems had been better.  Chatterjee argues that this is naïve; Enron should have survived but for its unrelated diversification that was doomed to fail. 

    Superior Performance
    The three remaining papers in this issue touch on different dimensions of achieving superior performance.  John Draulans, Ard-Pieter de Man and Henk Volberda look at new techniques for achieving superior performance in Alliances, basing their work on a survey of Fortune 500 companies and large Dutch companies.  They argue that training and experience are both important, but that they are also substitutes.  For the less experienced firm, training can help achieve superior performance in new alliances.  Stephen Gates and Phillippe Very look at achieving superior performance in M&A integration, basing their work on exploratory research at the Conference Board.  They argue for the importance of finely tuned monitoring of integration activities, because better monitoring makes a big difference.  Alan Maltz, Aaron Shenhar and Richard Reilly pick on the theme of the M&A paper from a conceptual angle.  They argue that whilst the balanced score card allows us a superior and more sophisticated way of thinking about performance measurement, we need to go further to overcome some of its weaknesses.  The kind of issues they explore gives further support to the practical insights of the other papers.

Governance and Strategy

Sayan Chatterjee  Enron's incremental descent into bankruptcy: A strategic and organisational analysis  sxc14@weatherhead.cwru.edu

    The cover-up of losses that led to the fall of Enron has been well documented. Yet until now there has been little comment on the strategy that led to those cover-ups. The original vision of Enron's founder, Ken Lay, was of a vertically-integrated ‘asset heavy' company. The risk management strategy that it initially found so successful required ‘asset light'. Therefore there existed in the one company two competing sets of capabilities. The paper concludes with some lessons that can be applied to any organisation that depends on a complex business model.

Superior Performance

Johan Draulans, Ard-Pieter de Man and Henk W. Volberda  Building Alliance Capability: Management Techniques for Superior Alliance Performance  h.volberda@fac.fbk.eur.nl

    Co-operation between firms is not a new phenomenon, but over the past two decades the number of alliances between companies has increased substantially. But the success rate remains low – perhaps only a third of alliances may be judged successes, and many are terminated without achieving the desired results. Naturally, this has made them an interesting subject for research: but while numerous surveys have investigated the factors of success and failure, the required answers remain elusive, and alliance success rates have not improved.

    This article suggest that the questions may have been the wrong ones, and, instead of studying alliance characteristics and structure chooses to focus on one specific type of capability – the capability to manage alliances successfully. Such alliance capability is based on learning about alliance management and leveraging alliance knowledge inside the company. A quantitative study on alliances and alliance-management techniques of 46 large companies assesses the impact of the special management techniques required to strengthen alliance capability. This article evaluates a number of these techniques with regard to their impact on alliance success, and reports on alliances evaluation and the use of alliance training and alliance specialists, and how these techniques may differ in relevance according to a firm's level of alliance experience.

Stephen Gates and Phillippe Very  Measuring Performance during M&A Integration  Philippe.very@edhec.edu

    Achieving the value predicted when an M&A deal was set up constitutes a challenging task for the acquirer's management. They must develop the synergies necessary to create value, while at the same time - in what may well be an uncertain period for employees and strategies at both firms - avoiding having value leak away during the period of integration. Controlling integration is thus a critical supervisory role for those responsible for combining the firms and extracting synergies.

    Building on exploratory research made by The Conference Board, this article develops a contingency framework for measuring the progress of M&A integration, noting that experienced acquirers attach major importance to such measurement. The authors address two questions specifically: which measures are relevant for monitoring integration, and when should acquirers set up these measures. An in-depth analysis of the deal context leads to the identification of major sources of value creation leakage in a particular acquisition, and thus of relevant tracking measures derived from these value drivers. The choice of performance measures is presented along Balanced Scorecard lines, supported by many examples. The article identifies the typical phases of acquisition/integration, and also addresses the problem of lack of continuity between the closing team and those responsible for the subsequent integration.

    Relying on integration characteristics and examples, the authors argue that acquirers can gain from setting up integration measures at an early stage of the process. Their conclusions support the recommendation for the early adoption of relevant deal-specific metrics, supported by continuity between closing and integration teams, as offering the best possible basis for control and clarity of objectives during integration, and thus of the successful retention and creation of value for the new venture.

Alan C. Maltz, Aaron J. Shenhar & Richard R. Reilly  Beyond the Balanced Scorecard: Refining the Search for Organizational Success Measures  amaltz@aol.com

    While financial success may have been an acceptable measure of firm success in simpler times, its one-dimensional view has long-since been judged as inadequate by both researchers and managers. Frameworks that extend beyond such traditional measures have emerged over recent years, the Balanced Scorecard being one of the most popular. Although widely used, however, this has been shown to vary in efficacy across differing circumstances and different types of firm, as has the Success Dimension framework.

    This article seeks to continue the search for further refinement in the measurement of the organizational success of commercial firms. Testing a theoretical outline against the responses from research interviews with senior managers and adding measures as a result, it outlines the Dynamic Multi-Dimensional Performance framework (DMP), designed to give managers a useable template for assessing success. Twelve potential baseline measures are identified across five major success dimensions (financial, market, process, people, and future) that can be examined as applicable to different firms and firm types and across different timeframes. Using this framework as a starting point, specific firms can choose measures that would best fit their environment and strategic direction to improve their chances for sustainable and on-going success.

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