Wednesday, April 8, 2015

Tragedy for Allianz Group

With the rapid development of economic globalization and technology, companies start to realize the significance of interrelation between others in the highly competitive market environment. The introduction of the concept “Strategic Alliance” by J.Hepland and R.Nigel, which stresses the cooperation between two or more parties, has become the most important organizational innovation since the 1920s. Even though this concept is at a lower degree in the business relationships compares to “The Synergy Mirage”, which lies emphasis on business merger, we could still explore the impact of it and learn from it.

On the one hand, an effective alliance or merger could enable the companies to develop new market, improve technical level, reduce risk and achieve economies of scale. On the other hand, potential risk might bankrupt the companies if they misjudge the internal and external situation and develop incorrect strategies.

Take the merger of Dresdner Bank by Allianz Group in 2001 for instance. At the very beginning, Schulte Noelle, the CEO of Allianz Group, anticipated blurred boundaries between the banking and insurance industries and overestimated the penetration between banks and insurance agencies. Considering the ongoing pension reform in Germany, Schulte thought that a strategic alliance with Dresdner Bank could promote the development of the potential market in personal and corporate pension as well as asset management business, and consequently help the company to win a dominant status in the financial market.

However, the merger provided nothing but a tough and brand-new task for Allianz.
Allianz had to use their own funds to make up for loss in banks because of the bankruptcy of the debtors in the sluggish market, and consequently led to its decline in equity capital and the downgrade of its credit rating. Furthermore, the weak global economy struck its core business (the insurance industry). And by the end of 2001, the stock price of Allianz nosedived up to 60%.

Considering that, alliance or merger is not with great ease for any companies. Strategic decision-makers should consider the compatibility, capability and commitment of the company before making any decisions. Only by the accurate cognition of the internal as well as the external condition, can a company succeed in the fierce competition finally.

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