How much target autonomy and integration after an acquisition?

We know that implementation is crucial to realizing whatever value is in acquisitions in the first place (e.g. Kitching, 1967; Jemison & Sitkin, 1986).  Two of the most studied implementation decisions are target integration and autonomy. However, most prior research assumes high target integration implies low target autonomy and viceversa (e.g. Datta & Grant, 1990; Datta, 1991; Pablo, 1994).

In a forthcoming article in the Journal of Management, we argue that integration and autonomy are not the opposite ends of a single continuum.  Like delegation or decentralization within established organizations (Vancil, 1979), even if acquirers fold the target into the acquirer’s structure and create a unified, integrated hierarchy, they can still delegate decision power to the target managers in the new integrated structure.

Further, we posit that when acquirers perceive potential complementarities with the target in products or technologies to bundle or combine them, they need to preserve and rely on target employees’ knowledge (Haspeslagh & Jemison, 1991) in order to leverage and realize the potential complementarity because only target employees hold the complementary knowledge the target brings. Thus, we argue acquirers are likely to choose high levels of both target integration and autonomy to effectively motivate target employees to remain in the resulting merged company and contribute their knowledge, whereas when similarity is the primary source of synergy they can proceed with fully integrating the target and granting it almost no autonomy.  We also posit that acquirers are likely to integrate the target more when they perceive similarities than when they sense complementarities.

In addition, we claim that when acquirers believe the target offers both synergy sources, perceived similarity might increase acquiring managers’ perception of familiarity and understanding of the target complementarities (absorptive capacity) and thus they are likely to decide to grant target employees less autonomy and integrate the target more than if they only perceived complementarities.  

Using a survey of 86 US complete acquisitions to capture acquirers’ perception of similarity and complementarity with the target and degree of integration and autonomy, we find support for most of our arguments and hypotheses. First, we observe that while somewhat negatively correlated (but not statistically significantly), integration and autonomy are two distinct concepts and realities (at least in our sample).

Second, when acquirers perceived complementarities with the target they significantly and systematically tended to grant higher target autonomy than when they only perceived similarities with the target. However, integration is not higher when acquirers perceived similarities than complementarities.

Moreover, whereas similarity negatively moderates the link between complementarity and target autonomy, it does not moderate the relation between complementarity and target integration.  In other words, when acquirers perceive both similarities and complementarities, perceived similarity systematically leads to lower target autonomy but does not lead acquiring managers to integrate the target more than if they only perceived complementarities.

We believe our findings advance scholarly understanding about the drivers of implementation strategy and in particular the different implementation strategies acquiring managers deploy when they attempt to leverage complementarities, similarities or both. 

Zaheer, A., Castañer, X. and Souder, D. (forthcoming). “Synergy Sources, Target Autonomy and Integration”. Journal of Management.

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