Acquiring IT Competencies through Focused Technology Acquisitions Abhishek Kathuria, Astrid Fontaine, and Michael J. Prietula
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 2 Kathuria, A., Fontaine, A., and Prietula, M. 2011
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 3 Kathuria, A., Fontaine, A., and Prietula, M. 2011
EEA Model Pre Acquisition Post Acquisition (External) Reality ‐ 1 +1 ‐ 1 +1 ‐ 1 +1 … • Extend March’s computational model of Target Acquiring Acquiring exploration-exploitation Organization Organization Organization Organization Code Organization Code Organization Code Culture (Partial Acquiring + partial Target) ‐ 1 +1 ‐ 1 ‐ 1 ‐ 1 +1 … +1 +1 ‐ 1 +1 ‐ 1 +1 … ‐ 1 +1 ‐ 1 +1 ‐ 1 +1 … • Manipulate two P 1 P 1 P 1 P 2 P 2 P 2 strategic variables Employees Employees Employees across three Employee 1 Employee 1 Employee 1 +1 ‐ 1 +1 ‐ 1 +1 ‐ 1 … +1 0 ‐ 1 ‐ 1 +1 ‐ 1 … +1 0 ‐ 1 ‐ 1 +1 ‐ 1 … computational . Employee 2 Employee 2 experiments . Knowledge +1 ‐ 1 +1 ‐ 1 +1 ‐ 1 … +1 ‐ 1 +1 ‐ 1 +1 ‐ 1 … . Employee 3 Employee 3 – Appropriation of 0 +1 ‐ 1 ‐ 1 ‐ 1 +1 … 0 +1 ‐ 1 ‐ 1 ‐ 1 +1 … Employee m (m<n) +1 0 ‐ 1 ‐ 1 +1 ‐ 1 … knowledge . Employee 4 . 0 +1 ‐ 1 ‐ 1 ‐ 1 +1 … – Appropriation of culture . Employee 5 ‐ 1 +1 ‐ 1 ‐ 1 ‐ 1 +1 … Employee n 0 ‐ 1 ‐ 1 ‐ 1 ‐ 1 ‐ 1 … . . • Examine relative . knowledge gain Employee N (N = n + some m) 0 ‐ 1 ‐ 1 ‐ 1 ‐ 1 ‐ 1 … 4 Kathuria, A., Fontaine, A., and Prietula, M. 2011
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 options 5 Kathuria, A., Fontaine, A., and Prietula, M. 2011
Results • 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 6 Kathuria, A., Fontaine, A., and Prietula, M. 2011
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 of high levels of culture • Gains substantiated when target firm is insulated from socializing dynamics of acquiring firm through one-way structural forms 7 Kathuria, A., Fontaine, A., and Prietula, M. 2011
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