Realizing Innovation through Technological M&As : Target Firm Selection, Post-M&A Inventor Contexts, and the Subsequent Technology Portfolio Renewal

Abstract

In high-technology industries, which are characterized by short technology life cycles and a dynamic external environment, firms need to keep creating novel innovation in order to sustain their competitive advantage. Within this context, technological Mergers and Acquisitions (M&As) have been highlighted as a prominent external knowledge sourcing strategy for the last decade. Technological M&A has been increasingly used, especially in high-technology industries such as computer software and hardware, machinery, communication equipment, life science, and others. Technological M&As are characterized by the integration of the knowledge bases of two different firms. Unlike other external knowledge sourcing strategies such as strategic alliances or cross licensing, through technological M&As, the acquirer firm can assimilate the target firms bundle of knowledge resources, including human resources and their organizational contexts. With respect to these properties, previous literature on technological M&As investigated two significant factors

1) the dyadic knowledge base characteristics of the acquirer and the target firm, and 2) the post-M&A integration of the target firms human resources. Considering the existing research stream and practical issues of technological M&As, this dissertation focuses on three major building blocks of technological M&As: Target firm selection based on dyadic knowledge characteristics, Target firm inventors post-M&A organizational context, and Acquirer firms core technology portfolio changes through technological M&As. The interplay and consideration of these components are important for the success of technological M&As, and each of the components also provides individual strategic implications. Each building block has significant impacts on the success or failure of technological M&As. First, when selecting a target firm in technological M&As, the acquirer firm should consider the double-edged characteristics of the target firms high quality knowledge. That is, target firms high quality knowledge with significant impact is also difficult to transfer without a common knowledge area. Second, when considering the post-M&A integration of the target firm, not only the target firm inventor retention but also their network retention and field retention are important success factors for the knowledge transfer and synergy realization through technological M&As. Third, technological M&A is a prominent strategy for a firms core technology portfolio change. The target firm inventor retention is an important strategic factor when conducting technological M&As for core technological portfolio change. The objective of this study is to empirically investigate the impact of primary factors in each of the described processes of technological M&As on the firms subsequent innovation performance, thereby uncovering the success factors for technological M&As. Chapter 3 of this dissertation examines the dyadic knowledge base characteristics between the acquirer and the target firm that should be taken into account when selecting target firms in technological M&As. Specifically, the study analyzes the impact of the knowledge overlap between the acquirer and target firm on post-M&A innovation performance. Extending previous studies which merely focused on quantitative characteristics of the acquirer and target firms knowledge, the study presents a framework for examining the impact of both qualitative and quantitative characteristics of knowledge on two distinguished knowledge areas, i.e., the overlapped and non-overlapped parts of the target firms knowledge base. The results of the analysis show that the high quality of overlapped knowledge has positive effects on the subsequent innovation performance, while its effects are negative for non-overlapped knowledge quality. The study also shows consistent results with regards to the quantitative side of the knowledge overlap. The results of the study suggest that sufficient knowledge overlap is essential in order to successfully assimilate a target firms high quality knowledge. Focusing on the post-M&A integration context of technological M&As, Chapter 4 investigates the effects of the target firm inventors post-M&A organizational context on subsequent innovation performance. Extending the previous literature which states the importance of post-M&A key inventor retention in technological M&As, the study focuses on more detailed dimensions of inventor retention. Specifically, the study examines how the retention of the target firm inventor network and the inventors technological fields affects the post-M&A innovation process. Specifically, the study looks at the effects on both knowledge preservation and synergy realization. The results show that both the target firms inventor network and the field retention are beneficial for the target firms knowledge preservation. However, they simultaneously decrease the creativity in the combined entity, decreasing post-M&A synergy realization. The results of this study suggest that the acquirer firms need to leverage the various dimension of target firm inventor retention to efficiently achieve their objective of the technological M&As. Chapter 5 of this dissertation proposes technological M&A as a firms core technology portfolio renewal strategy. In order to explore the important factors of firms core technology portfolio change through technological M&As, the study investigates two significant factors of organizational change based on the evolutionary theory of the firm and the organizational learning theory, i.e., path dependency and the combinative capabilities of the acquirer firm. The study examines the direct effect of each factor on the post-M&A core technology portfolio change. Additionally, the study suggests target firm inventor retention as a strategic factor which can moderate the direct relationships of the path dependency and the combinative capabilities of the acquirer firm with core portfolio change. The results of the analysis indicate that the path dependency of the acquirer firm impedes the inflow of the target firms knowledge and causes a Not-Invented-Here (NIH) syndrome, thereby negatively affecting any post-M&A core technology portfolio change. On the other hand, high combinative capabilities of the acquirer firm facilitate small changes using the target firms knowledge and help to amplify those changes, ultimately generating a positive effect on core technology portfolio change. Further, the target firm inventor retention can serve as a significant moderator, mitigating the negative effect of path dependency. The study contributes to the field of organizational learning by empirically demonstrating that technological M&A yields a significant effect of learning-by-hiring through the absorption of the target firm inventors. The findings of this study present practical implications for firms that are considering technological M&A as a core technological portfolio renewal strategy. In conclusion, this dissertation focuses on major building blocks of technological M&As that significantly affect the firms post-M&A innovation performance. Providing both theoretical contributions and practical implications, the dissertation empirically investigates the importance of those procedural building blocks of technological M&As. Even though the number of technological M&As is constantly increasing, most M&A deals fail to learn from the target firms knowledge resources and realize synergies. This dissertation allows firms to understand the mechanisms of technological M&As in more detail and therefore have a higher potential for realizing creative synergy through technological M&As. Ultimately, the innovation created through technological M&As can enhance firms dynamic capabilities which allow firms to deal with the fast-changing environment and enable them to sustain their competitive advantage.