HIGH-TECH FIRMS are well-known for buying smaller companies as a means to acquire new technology quickly. “When they need to catch up with new technology, the quickest thing they think of is to acquire a small firm and integrate it,” says H. Dennis Park of the Naveen Jindal School of Management at University of Texas, Dallas.
But often those acquisitions backfire, Park says, when the smaller company’s best scientists quit once the purchase is complete. In fact, past research has found that up to 70 percent to 80 percent of acquisitions destroy the value that larger companies were trying to attain.
Park, an associate professor of organizations, strategy, and international management, recently collaborated with strategic management scholars Michael Howard of the Mays Business School at Texas A&M University in College Station and David Gomulya of Singapore Management University. The team examined a sample of 111,227 patents applied for after 301 high-tech acquisitions that occurred from 1990 to 2000. They wanted to see which companies filed new patents, created breakthrough knowledge, and retained engineers post-acquisition.
The team was particularly interested in two types of knowledge: tacit knowledge that cannot be easily explained or passed to another, like riding a bike; and explicit knowledge that can be codified, like developing a chemical component for a drug. They made this distinction because, when one company acquires another, it can be difficult to retain the acquired firm’s tacit knowledge without retaining the people who invented it. Another difficulty comes when the acquiring firm’s scientists refuse to use or build on another firm’s technology.
Park, Howard, and Gomulya advise acquiring firms to take steps to keep the best talent of the acquired firm—for instance, by asking engineers to sign contracts that prohibit them from quitting too soon after the acquisition is finalized.
“The Impact of Knowledge Worker Mobility Through an Acquisition on Breakthrough Knowledge” appears in the October 2017 Journal of Management Studies. It is available at onlinelibrary.wiley.com/doi/full/10.1111/joms.12320.