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Understanding Strategic Alliances

FEATURED PAPER

An Imperative for the Success for Projects and Portfolios in Hybrid Organizations

By David Tain

Alberta, Canada


1- Projects and Portfolios in Strategic Alliances

The organizational vision allows firms to set the extent and pace of their growth, guiding long-term operations. Based on the vision, the corporate strategy gets its shape by logically arranging initiatives and decisions, defining intermediate goals that materialize through the value generated by projects and portfolios. In some cases, delivering these initiatives demands the use of resources and capabilities that go beyond those found in single firms. The specific demands that frame these initiatives incentivize the formation of hybrid entities that, by exploiting complementarities, help achieving long-term objectives of parent organizations.

The development and exploitation of oil assets in extreme locations, such as ultra-deep offshore basins or arctic regions, is a clear example of the challenges faced by a corporation that attempt to generate value in constrained business environments. Successfully exploiting these assets requires strong organizational commitment, with large disbursement of capital and significant deployment of technical resources over long periods of times (usually decades), though the successful delivery of projects and portfolios. The level of complexity of these initiatives is considerable, exposing corporations to substantial risks, especially during exploration, construction and operation, exacerbated by variables that are specific to the local business environment. As a consequence, it is usual that multiple organizations combine resources and capabilities in strategic alliances to mitigate challenges and share the benefits of conducting these endeavors.

In essence, strategic alliances are hybrid forms of organizations based on cooperative relationships in multiple firms. These relationships, usually medium to long term, are focused towards the achievement of common objectives, using resources and/or governance structures from the parent organizations. It is important to highlight, however, that one of the main attributes of these hybrid organizations is that they are also networks formed by relationships of power and trust where there’s a constant exchange of influence and resources, as noted by Thorelly (1986). In other words, the amalgamation of resources and capabilities of multiple firms will therefore result in a new structure with a unique set of elements that will generate value for the parent organizations though an inter-organizational symbiotic relationship.

Although the formation of strategic alliances offer significant advantages in terms of complementarity and shared exposures, they also bring important risks and organizational inertias that need to be considered when planning and managing projects and portfolios. Indeed, a recent study conducted by the international consulting EY in 2015 reported that megaprojects executed by Joint Ventures have a higher failure rate compared to those performed by their single entities counterparts, evidenced in substantial delays and cost overruns. Considering the fact that oil majors are the preferred operators in Joint Ventures (JV) due to their technical capabilities and experience, it is reasonable to imagine conflicts emerging from divergences in corporate cultures, processes and objectives between operating and non-operating partners.

In a similar analysis, Jergeas and Ruwanpura (2010) noted that misalignment among the JV project partners is a contributor to cost and schedule overruns in mega oil sands projects in Alberta. Among the underlying causes, the authors identified in the study important elements emerging from partners’ interactions, including cultural differences, internal conflicts in the alliance and divergent criteria on the way projects should be structured and managed. In a partnership scheme, project complexity will be circumscribed by operational attributes of parent organizations. This can often derive conflicts associated to differences in corporate visions and long-term objectives. When conflicts at the strategic level occur, an opportunistic environment materializes in the hybrid organization, generating uncertainty about the other party’s behavior, as noted by Ren, Gray and Kim (2009), ultimately impacting the performance of the alliance.

Understanding the key structural elements in strategic alliances is essential to recognize some of the organizational variables that will constrain projects and portfolios that require capabilities and resources from multiple organizations. By the same token, it is also important to evaluate some of the issues that make strategic alliances fail. This will only assist in the design of the most appropriate organizational architecture for the hybrid organization, but also will increase the mitigation potential of managers when problems in the relationship emerge.

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About the Author

david-tain
David Tain, PMP

Alberta, Canada

 

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David Tain
, MSc., PMP is a Project Management Professional with an international career in the management and execution of major oil and gas projects. His managerial experience has a major focus in projects execution, Strategic Organization, negotiation and the study of human behavior in the project environment. He currently works as a Facilities Development Lead for a JV formed by ConocoPhillips and Total E&P in the development of a major Oil sands asset in Alberta, Canada.

David obtained his Civil Engineering degree from Santa Maria University in Caracas, Venezuela in 2001. He completed a Master Certificate in Project Management from Villanova University in 2009, a MSc. in International Management (Oil and Gas concentration) at the University of Liverpool, UK and the Strategic Decision and Risk Management Program at Stanford University in 2016. David received his PMP® certification from the Project Management Institute (PMI®) in April 2009 and has been engaged in Project Management activities for over 16 years in the Development and Execution of Oil and Gas Major projects in South America (Venezuela) and in Canada, both in EPC and in the owner operator sectors.

A member of the Canadian Heavy Oil Association, the Strategic Management Society and the International Association of Energy Economics, he is fluent in English, French and Spanish. David can be contacted at [email protected].

To view other works by this David Tain, visit his author showcase in the PM World Library at http://pmworldlibrary.net/authors/david-tain/