OOL OF RESOURCES NDCAPABILIES
Finn A
KEEP
Finn B
AGREEMENT INTEGRATION RESOURCE REDEPLOYMENT/ ROUTINIZATION OF TO PURCHASE PLANNING/ DECISION CAPABILITY TRANSFER NEWLY TRANSFERRED
MAKING PRACTICES / CAPABILITIES
REPLICATION SELECTION
VARIATION
The core insight consists in applying evolutionary reasoning, traditionally
developed to analyze changes at the industry or, at best, the firm level, to an intra-
organizational dimension consisting o f a specific process (see also Burgelman, 1991).
Post-acquisition integration can be then viewed as a process initialized and shaped by a
set o f pre-acquisition activities (screening, evaluation, and negotiation, primarily). Those
activities act as a variation mechanism to produce the two pools o f resources and routines
(“quasi-genetical traits” in Winter, 1995) that constitute the two firms signing the
4 Zollo (1996) provides a m ore detailed account o f the theoretical underpinnings o f this interpretation. 34
agreement to purchase or to merge. The two pools o f organizational resources and
routines are then subject to a selection process aimed at deciding which ones are to be
kept within the future (integrated) organization and which are to be disposed of. A subset
o f the resources and routines retained by the selection mechanisms is then subject to
replication mechanism that describes the transferred or shared across the two
organizations in an effort to replicate them as precisely as possible in the recipient.
Finally, the organizational traits that have been replicated across the old organizational
boundaries are subject to a retention process which, if all goes well, allows them to be
thoroughly absorbed into the new organizational context. Each evolutionary mechanism
obviously is fraught with specific complexities and risks (see Szulanski, 1993 for a sound
treatment o f the retention problem, for example). The present study, which begins
modeling part o f this comprehensive framework, only considers a subset o f them.
The following Section 4.1 will address the theoretical issues pertaining to two
important elements o f the selection mechanism described above. Section 4.2 takes then a
broader perspective in addressing the performance o f the entire process using, as
explanatory variables, elements o f the variation and selection mechanisms described
above, in conjunction with the administrative capability to manage the replication and
retention challenges.
4.1
Modeling Post-acquisition Decisions
The post-acquisition management literature shows the importance o f decisions
about both the level o f integration and the degree o f replacement o f key resources
(including, but not limited to, the top management team) for understanding acquisition 35
processes and performance. The study o f the determinants o f those decisions, however,
remains at an embryonic stage. The focus here is therefore on those two dim ensions o f
the decision-making process that takes place immediately after the completion o f the
transaction. Several other dimensions o f the post-acquisition integration process, such as
the timing o f the implementation steps or the extent to which the target company is
involved in the formulation o f the integration plan, could be important elements in our
understanding o f that complex process. In addition to considerations o f parsimonious
modeling though, the two constructs have been chosen also because they are likely to
correlate strongly with the excluded dimensions o f the integration process. For example,
a high-speed implementation approach might correlate with the decision to attain a high
level o f resource replacement, whereas high involvement o f the acquired entity implies a
low level o f resource replacement. Focusing on the decisions about the degree o f
integration o f the two firms and the replacement o f current resources may capture at least
part o f the explanatory power o f important non-included decisions.
The two variables studied are defined as follows.
Definition 4. Level o f integration is the degree to which processes are linked (connected
in terms o f logistics or information flows), aligned (changed to make them similar), or centralized across the two organizations.
Definition 5. Level o f replacement is the degree to which pre-existing processes and
resources in either one o f the two organizations involved are maintained intact, rather than substituted or eliminated.
The definition integration level builds on Thom pson’s (1967) taxonomy o f the
mechanisms for achieving organizational integration, and argues for the existence o f a
continuum encompassing the three constructs o f organizational linkage, alignment, and
centralization. The degree to which each function o f the two organizations is integrated 36
places the specific acquisition on the continuum between complete independence and
centralization.
The degree o f resource replacement follows a similar logic, but begs two
questions: (1) Has that particular resource been substituted or disposed o f ? (2) Has that
particular process or organizational routine been discontinued or replaced with another
transferred from the other organization ? Again, the combination o f the replacement
decisions in each function o f the merging firms determines a general degree of
replacement o f current resources implemented in a specific acquisition.
Clearly, the two key decisions are not completely independent o f each other.
Process centralization, for example, which can be considered the highest form o f
integration, also implies a certain degree o f resource substitution and disposition. Still,
examples o f acquisitions with both high levels o f replacement and low levels o f
integration (e.g. restructuring-driven acquisitions of failed savings and loans associations)
and high levels o f integration with low levels o f resource replacement (e.g. consensus-
based integration approaches such as Banc O ne’s) have been frequently observed. The
two dimensions, therefore, seem to be good indicators o f the type o f post-acquisition
integration strategy adopted by the acquiring firm. A post-acquisition integration strategy
can be defined as a vector o f decisions necessary to accomplish the value creation
objectives during the integration process. Hence, a simple dichotomization of the two
decisional dimensions generates a 2 x 2 matrix that identifies four strategic approaches to
the integration process, as shown in Figure 4.3.
37