Volkswagen and Ford revealed on 15 January that they have joined forces to develop new, medium-sized vehicles in a partnership that – despite the scale of the project and closeness of the working relationship – will involve no mutual purchasing of ownership shares.
In its report on the announcement, Sky News highlighted the atypical nature of the partnership, noting: “Unusually, the tie-up will be governed by a joint committee containing top executives from both companies rather than by any cross-ownership structure such as a merger.” [1]
According to the Financial Times, [2] the partnership is one of the largest so-called ‘non-mergers’ to have occurred since the Renault-Nissan Alliance of 1999: an arrangement that was later expanded with the addition of Mitsubishi. However, while that Alliance was never announced as a formal merger, each party still bought shares in the other: Renault snapping up almost 37% of outstanding stock from the then-stricken Nissan, then – once it had financially recovered – Nissan reciprocating in 2001 by taking a 15% stake in Renault.
Sky explained that, under the terms of the Volkswagen-Ford tie-up, the latter will design and build medium-sized pickup trucks for both brands, plus larger vans for the European market. VW, meanwhile, will concentrate on making a range of smaller vans. If the work goes well, the partners already have a memorandum of understanding in place to collaborate on electric and self-driving vehicles.
Reflecting on the demands for lower-emission product lines in the marketplace, Ford CEO Jim Hackett told the media: “It’s my opinion that you can’t do this alone. We believe the fundamental shift is helping automakers to focus on their specific strengths.”
Non-mergers have proven their effectiveness outside the automotive realm. As a 2016 article at US-based website Fierce Healthcare shows, [3] they have also yielded winning results for American hospitals. In one case study that the piece highlights, three regional health systems in Maryland pooled their expertise in a non-merger of 2012 to create a healthcare management services firm, covering business areas such as cash flow, IT and HR. The subsidiary’s revenue climbed to $1.2 billion per year.
From a management perspective, what makes non-mergers such an appealing option? And what sort of ground rules should be established at the outset to ensure the collaboration gets off on the right foot?
The Institute of Leadership & Management head of research, policy and standards Kate Cooper says: “The trouble with mergers is twofold: firstly, there is often an intense power dynamic, and secondly, many of them fail to deliver the cost savings that were promised at the outset. One classic case – that of LloydsTSB, formed in the 1990s – was so unsuccessful that the parties had to untangle it. I remember talking to a senior Lloyds director who was involved in that change programme, and she told me: ‘There were the green Lloyds branches and the blue TSB branches, and you could not undo that history.’”
Cooper notes: “Having worked in an organisation that took part in a merger, I can testify that, in the end, you don’t really merge: it’s more a case of two factions coming together. But this news about Volkswagen and Ford highlights all the reasons why we at the Institute have cited collaboration as one of our primary Dimensions of Leadership.
“Our view is that if you, as an organisation, are not collaborating, then you’re not going to survive. That’s down to a whole range of factors, from the sheer complexity of the business environment to the need to remain competitive. There’s also the need to keep asking questions; to find out vital information that will help you to prepare for disruptions – even though you won’t necessarily be able to predict the precise shape those forces will take.”
She points out: “On the point of how these inter-brand collaborations should get off on the right foot, I can direct you to a handy, free resource. As a result of asking leaders about what, in their view, makes for great joint projects, we developed ‘collaboration cards’ that address key aspects of the feedback we received. As well as providing thoughts on how to deal with power, they cover areas such as how to develop trust; how to monitor, measure and evaluate progress – and how to communicate.”
Cooper explains: “One factor that makes straightforward collaboration a more attractive path than a full-blown merger is the feeling of safety. As soon as companies start talking about merging, staff on either side fall prey to anxiety. They start to wonder what will happen to their jobs – particularly given the ‘two people, one job’ decision-making game that typifies the merging process. If you simply collaborate, then you retain your sense of identity. Plus, you are only doing it for mutual benefit: it’s not about one firm taking advantage of another.”
She adds: “As a final note, I would particularly like to reference Wharton professor Adam Grant’s 2013 book Give and Take, on which he based a subsequent TED talk. [4] In his book, Grant argues that if you give freely of your time, energy, resources and knowledge, your generosity will be repaid in a karmic fashion. He gives some great examples to support his case that some of the most successful businesspeople are givers. I’m sure that I will be talking much more about that ethos throughout 2019.”
For further insights on the themes raised in this blog, check out the Institute’s resources on collaboration