Why Acquisitions May Not Be the Best Route to Innovation

Abstract

Large mergers are out (for the most part), so the army that has been developed to push mergers will find new targets. In response to competitive challenges from abroad and less capital available to potential buyers, the new advice is likely to advocate that large corporations make smaller, more focused acquisitions.

Complementary Resources and the Exploitation of Technological Innovations

“…When two or more firms are involved, Williamson (1975) hypothesized that an efficient approach to innovation is having the initial product or technology development performed by small firms, then having successful developments acquired by large firms for subsequent production and marketing. However, Davidson (1991) criticized this external innovation approach involving the acquisition of small firms by large firms because, though large firms can acquire rapidly growing firms to increase their growth rate, the resulting firms are unlikely to grow as fast as smaller, innovative firms that remain independent. Davidson's (1991) observations notwithstanding, it is plausible that small and large firms possess complementary resources that are uniquely suited to facilitating the innovation process.…”

“…However, Davidson (1991) criticized this external innovation approach involving the acquisition of small firms by large firms because, though large firms can acquire rapidly growing firms to increase their growth rate, the resulting firms are unlikely to grow as fast as smaller, innovative firms that remain independent. Davidson's (1991) observations notwithstanding, it is plausible that small and large firms possess complementary resources that are uniquely suited to facilitating the innovation process. Still, how the resources of small and large firms are combined in collaborative innovation within industries is a matter that has not received extensive treatment in the literature.…”

Contingencies influencing the effectiveness of acquisition‐based corporate growth and development strategies: the case of ITT, 1920‐1997

“…While acquisition enables big firms to enter into new markets easily, the acquisition process may not be the best route to innovation. As Davidson (1991) indicated, the acquisition of smaller firms by larger corporations might not be the best strategy for bigger firms to acquire, develop and market innovations that were originated by smaller companies. While bigger corporations provide an organizational infrastructure, they are less capable of adapting to change and providing the information and technological capability to support the innovation process.…”

“…When an organization is involved in any purposeful action, but most particularly when that action is a new undertaking, the organization will most probably face unanticipated problems (see Merton, 1936). If an organization grows primarily by acquiring smaller firms, the bigger firms are less able to adapt to the unforeseen demands of technological innovative changes (Davidson, 1991).…”

The Potential for Improving Intra-Organizational Communication in the Process of Mergers and Acquisitions via Accounting Systems

“…Importantly, while the contexts in which combinations occur may have changed, the results of M&A are no better today than they were a decade ago (Marks, 1997). In fact, now like then, fewer than 20 percent of corporate combinations achieve their desired financial or strategic results (Zweig, 1995;Davidson, 1991;Elsass and Veiga, 1994;Marks, 1997). It is acknowledged that factors such as paying the wrong price, buying for the wrong reason, selecting the wrong partner or buying at the wrong time might account for this disappointing track record (Cartwright and Cooper, 1996).…”