Hoskisson, M. A. (1990). Mergers and Acquisitions and Managerial Commitment to Innovation in M-Form Firms. Strateguic Management Journal Vol 11 , 29-47.
This paper by Hitt & Hoskisson (1990) has presented a theory which suggests a tradeoff between growth of a firm via acquisition and the organization’s managerial commitment to innovation. The paper’s model indicates that acquisition process affects an organization’s commitment to innovation to an extent whereby it becomes a substitute for innovation since a lot of energy and resources are directed to the acquisition. Increased size, the negotiation process, greater diversification and increased leverage brought about by acquisition affect the manager’s time and risk orientations, reducing their commitment to innovation (Hoskisson, 1990) .
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Hitt & Hoskisson (1990) have examined the implications of their proposed model encompassing a tradeoff between acquisition and innovation. The study has cited research to represent the model presented in the paper. However, additional research is required. The findings of the study indicate that some correspondence to the model such as diversification, debt and acquisition apparently affect managerial commitment to innovation. Acquisition as a substitute for innovation in companies need to be addressed more directly as well as the measurement for managerial commitment for innovation and how it is affected by acquisition
This source will be used in week 7’s research project literature review to demonstrate the negative impacts of an organization focusing on acquisition rather than innovation for growth. The study has indicated that merged firms are likely not to perform as well as firms not involved in acquisition due to their negative impact on managerial commitment to innovation.
Xue, Y. (2007). Make or buy new technology: The role of CEO compensation contract in a firm’s route to innovation. Rev Acc Stud , 659-690.
This study by Xue (2007) has explored the extent to which management compensation policies affect the strategy choices (make or buy) for obtaining new technology for a firm. These strategies entail internal R&D/make and acquisition/buy with the former being inherently more risky. Internal R&D strategy is also characterized by expenditures hence a negative effect on accounting earnings. For these reasons, the paper has hypothesized that risk-averse and utility maximizing managers are more likely to implement the buy strategy, especially also if their compensation is based on financial performance measures (Xue, 2007) . The author also suggests that managers with stock-based compensation are likely to choose internal technology development.
The study has utilized data from U.S. high tech industries coupled with a simultaneous equation regression framework to support its hypothesis. By examining the relationship between managers’ compensation contracts and firm’s choice of getting new technology, the paper has studied organizational innovation process in an effective principal-agent framework. The paper’s conclusion is that different types of incentive compensation have a different impact in determining the managers’ approach to innovation
This study directs an interesting avenue for future research, which will be considered in the new research paper. This includes the impact of managerial incentives on a firm’s choices between innovation strategies.
Zhao, X. (2009). Technological Innovation and Acquisitions. MANAGEMENT SCIENCE Vol. 55, No. 7 , 1170–1183.
In this research paper, the author investigates whether innovation is an influencing factor for a firm’s acquisition decision and also how acquisition affects a firm’s innovation. Zhao’s research findings is that firm’s that engage in acquisition become less innovative (Zhao, 2009) . After the acquisition, the firm’s technological innovation declines.
Zhao’s primary research question in this paper was whether technological innovation affects a firm’s propensity to engage in acquisition and whether acquisition affects subsequent innovation success.
The findings of this study indicate that innovation acquisition is one of the most effective way of addressing the internal innovation deficiency problem. In as much as technological innovation plays a role in the acquisition decisions of a firm, acquisition also affects the level of innovation these paradoxical findings will be further expounded in the next paper.
Hitt, M. A., Hiskisson, R., Ireland, D., & Harrison, J. (1991). Are acquisitions a poisonous for innovation . Academy of Management Executive Vol 5 No 4 , 22.
According to Hitt et al (1991), the recent bubble of acquisition may be damaging to the innovative capacity of American firms, reducing their competitiveness in the global market. The findings of this study indicate that acquisition activity is leading to a decline in R&D input and output. Based on the evidence, the authors propose that firms should try and compensate for the negative effects of acquisition on innovation. Acquisition when well-planned and implemented can enhance the firm’s innovation process.
The study has sampled 191 firms which have engaged in acquisition and the influence on patent and R&D intensity. However, the study findings are a bit contradictory with the hypothesis despite the authors’ conclusion. Some firms recorded an increase in R&D output after engaging in acquisition (Hitt, Hiskisson, Ireland, & Harrison, 1991) . Contrary to the paper’s title, not all acquisition translate to a poison pill for innovation.
The paper indicates that unless an acquisition is well planned and targeted, a firm’s innovation capabilities could be injured. Innovation is critical for a firm’s competitiveness in the business world, but acquisition could be used to supplement it. A firm can successfully follow an acquisition strategy and still be innovative.
Beers, C. V., & Sadowski, B. M. (2003). On the Relationship Between Acquisitions, Divestitures and Innovations: An Explorative Study. Journal of Industry, Competition and Trade 3:1/2 , 131-143.
This study by Beers and Sadowski (2003) investigates whether organizations that have combined acquisitions and divestitures are more innovative than those that don’t. According to the paper, innovation has been described as new products or processes to a firm or the market. The study’s results were that divestitures, especially in the service industry affect internal innovation in the firm. In the manufacturing industry, a positive correlation has been found between acquisitions and divestitures as well as acquisition and innovation.
This study implemented an empirical model to examine the relationship between acquisitions and the probability of a firm to be innovative. To test this model, data from 2381 firms have been used (Beers & Sadowski, 2003) . The paper’s analysis was critical in providing insight into the acquisition and divestitures process.
The results of the study can be used in adding a different perspective of acquisition an additional strategy, divestiture, which can stimulate innovation. In the paper, I will suggest that acquisition. Particularly divestitures should be considered as a significant avenue of corporate restructuring efforts towards innovation.
References
Beers, C. V., & Sadowski, B. M. (2003). On the Relationship Between Acquisitions, Divestitures and Innovations: An Explorative Study. Journal of Industry, Competition and Trade 3:1/2 , 131-143.
Hitt, M. A., Hiskisson, R., Ireland, D., & Harrison, J. (1991). Are acquisitions a poisonous for innovation . Academy of Management Executive Vol 5 No 4 , 22.
Hoskisson, M. A. (1990). Mergers and Acquisitions and Managerial Commitment to Innovation in M-Form Firms. Strateguic Management Journal Vol 11 , 29-47.
Xue, Y. (2007). Make or buy new technology: The role of CEO compensation contract in a firm’s route to innovation. Rev Acc Stud , 659-690.
Zhao, X. (2009). Technological Innovation and Acquisitions. MANAGEMENT SCIENCE Vol. 55, No. 7 , 1170–1183.
