Acquiring IT Competencies through Focused Technology Acquisitions - - PowerPoint PPT Presentation

Acquiring IT Competencies through Focused Technology Acquisitions

Abhishek Kathuria, Astrid Fontaine, and Michael J. Prietula

Kathuria, A., Fontaine, A., and Prietula, M. 2011 2

Introduction

• Fast-paced nature of technology change in IT industry leads to high

knowledge depreciation

• Need to rapidly develop new competencies & associated knowledge

to maintain competitiveness

• IT product & services firms use acquisitions as innovation strategy
• Acquisition is a necessary, but not sufficient, condition for providing

new competencies and knowledge

• Risk and failures surrounding acquisitions relate to integration of

acquired competencies

Kathuria, A., Fontaine, A., and Prietula, M. 2011 3

Focused Technology Acquisitions

• Acquisition of relatively smaller, coherently-defined technology-

based firm to add technological resources to strategic capabilities

• Individuals not only bring knowledge they gained, but also historical-

situational context of pattern of work within which knowledge was developed and applied

• Success dependent upon integrating acquired knowledge held by

individuals and organizational culture reflected in practices of the target firm

• Knowledge: Cognitive process of individuals, defining what they know and their routines and interactions
• Culture: Situated in a particular context and in time, somehow reflecting perspectives of the collective and

enforced through forms of institutionalization

(External) Reality ‐1 +1 ‐1 +1 ‐1 +1 …

Pre Acquisition

Post Acquisition

Acquiring Organization

Organization Code (Partial Acquiring + partial Target) ‐1 +1 ‐1 +1 ‐1 +1 …

Employees P2 P1 Employee N (N = n + some m) 0 ‐1 ‐1 ‐1 ‐1 ‐1 …

. . .

Employee 1 +1 0 ‐1 ‐1 +1 ‐1 … Employee 2 +1 ‐1 +1 ‐1 +1 ‐1 … Employee 3 0 +1 ‐1 ‐1 ‐1 +1 … Employee 4 0 +1 ‐1 ‐1 ‐1 +1 … Employee 5 ‐1 +1 ‐1 ‐1 ‐1 +1 …

Acquiring Organization

Organization Code +1 +1 ‐1 +1 ‐1 +1 … Employees Employee 1 +1 0 ‐1 ‐1 +1 ‐1 … Employee 2 +1 ‐1 +1 ‐1 +1 ‐1 … Employee 3 0 +1 ‐1 ‐1 ‐1 +1 … Employee n 0 ‐1 ‐1 ‐1 ‐1 ‐1 …

. . .

P1 P2

Target Organization

Organization Code ‐1 +1 ‐1 ‐1 ‐1 +1 … Employees Employee 1 +1 ‐1 +1 ‐1 +1 ‐1 … P1 P2

. . .

Employee m (m<n) +1 0 ‐1 ‐1 +1 ‐1 … Culture Knowledge

Kathuria, A., Fontaine, A., and Prietula, M. 2011 4

EEA Model

• Extend March’s

computational model of exploration-exploitation

• Manipulate two

strategic variables across three computational experiments

– Appropriation of knowledge – Appropriation of culture

• Examine relative

knowledge gain

Kathuria, A., Fontaine, A., and Prietula, M. 2011 5

Results

• Experiment 1: Impacts of

Knowledge and Culture

• Main effects:

– Knowledge appropriation helps quickly – Cultural appropriation helps consistently

• Interaction effects:

– Knowledge and culture are fungible – Indifferences sets of strategic

• ptions

• Experiment 2: When new employees retain their culture

– Retained agents insulated against conformity influence of acquiring firm – Maintaining cultural autonomy improves performance – Effects of cultural autonomy magnified by higher knowledge appropriation levels

• Experiment 3: Parameter Landscape

– Failed acquisitions suffer when a firm acquires wrong culture: Culture is a dual-edged sword – Successful acquisitions rely on gaining right knowledge, right culture, and imposing less conformity

Kathuria, A., Fontaine, A., and Prietula, M. 2011 6

Results

Kathuria, A., Fontaine, A., and Prietula, M. 2011 7

Conclusions

• Appropriation of knowledge exhibits decreasing returns: selective

retention of employees with specialized IT technical knowledge

• Knowledge and culture appropriation provide complementary

strategies and strategic options

• Strategic choices of resource-constraint driven appropriation of low

levels of knowledge and returns-maximization driven appropriation

• f high levels of culture
• Gains substantiated when target firm is insulated from socializing

dynamics of acquiring firm through one-way structural forms