Acquisition Integration and Productivity Losses in the Technical Core: Disruption of Inventors in Acquired Companies

Abstract

Acquisition integration is a pivotal factor in determining whether the objectives of an acquisition are achieved. In this paper, we hypothesize that the productivity of corporate scientists of acquired companies is generally impaired by integration, but that some scientists experience more disruption than others. In particular, acquisition integration will be most disruptive, leading to the most severe productivity drops, for those inventors who have lost the most social status and centrality in the combined entity. Drawing from prior literatures on the knowledge-based view of the firm, and on mergers and acquisitions, we develop hypotheses about a concise set of conditions that will lead to substantial performance drops for acquired technical personnel. We test our hypotheses, using patent application data, on a sample of 3,933 inventors in pharmaceutical firms whose companies were acquired. Results are strongly in line with our theorized expectations.

A Recursive Perspective on Discursive Legitimation and Organizational Action in Mergers and Acquisitions

“…By highlighting the problematic consequences of legitimation, this analysis provides a new explanation for the problems and failures frequently encountered in mergers and acquisitions (Haspeslagh and Jemison 1991, Paruchuri et al 2006, Shaver 2006. In particular, this analysis increases our understanding of how unrealistic and even illusionary ideas about merger benefits are promoted to the detriment of integration.…”

The Process of Postmerger Integration: A Review and Agenda for Future Research

“…Puranam and Srikanth (2007) found that structural integration increased leveraging of the target's existing knowledge (as measured by post-acquisition patents citing the target's pre-acquisition patents) but decreased the leveraging of the target's innovative capabilities (as measured by post-acquisition patents co-authored by acquiring and acquired firm personnel). Paruchuri, Nerkar, and Hambrick (2006) found that structural integration harmed patenting activity for inventors who lost relative standing as a result 11 of the acquisition. Moreover, among targets that were integrated, those inventors who were more socially embedded and whose expertise diverged more from that of the acquirer experienced greater productivity declines.…”

Integrating Acquired Capabilities: When Structural Integration is (Un)Necessary

“…Such changes can alter valuable organizational routines within the acquired firm, and in doing so can undermine its innovative capabilities (Benner & Tushman, 2003;Leonard-Barton, 1992;Ranft & Lord, 2002). These adverse consequences for motivation and organizational routines can significantly and permanently damage innovation capabilities in acquired firms (Paruchuri, Nerkar& Hambrick, Forthcoming;Puranam et al, 2006). Given these costs, why do acquirers structurally integrate technology acquisitions, instead of relying on possibly less disruptive linking mechanisms such as cross-unit teams and integrating managers, which preserve the structural autonomy of the acquired organization?…”