Capability transformation through acquisitions: The interplay between interest alignment and knowledge leveraging mechanisms

Firms across many industries use acquisitions as a vehicle for renewing their capabilities. Many such acquisitions fail to achieve their goals, mainly because of the trade-offs involved in managing the post-acquisition integration process. The acquisition integration process not only is an important phenomenon by itself but also offers a unique opportunity to gain insight into how firms transform their capabilities more generally. Recent strategic management literature has begun to recognize the importance of incorporating individual-level cognitive, motivational and behavioral mechanisms into firm-level explanations, although empirical studies within this vein have been scarce.

This longitudinal inductive study traces the process of capability transformation in an acquisition of a medium-size entrepreneurial firm by a larger corporation.

The authors found that capability transformation involved a continuous interplay of knowledge leveraging and interest alignment mechanisms, converging around a set of practices that were considered critical for the capability. Only after firms achieved an agreement about this set of practices that knowledge leveraging efforts translated into actual performance.

The study contributes to the literature on competitive advantage by developing a better link between the potential advantage derived from the availability of knowledge-based resources and the translation of this availability into actual firm performance. This study also advances knowledge on managing post-acquisition integration process by demonstrating which managerial skills and actions contribute to the integration capability.