Study: Retaining talent is paramount for successful firm acquisitions

March 5, 2018, University of Texas at Dallas

A recent UT Dallas study found that when acquiring firms avoid the exodus of scientists from the target firms, their likelihood of creating highly impactful knowledge increases.

Acquisitions are common business transactions, especially in technology firms, where they are a quick way to acquire new technology or people. Large technology firms may acquire dozens of smaller companies every year.

A recent UT Dallas study found that when acquiring firms avoid the exodus of scientists from the firms, their likelihood of creating highly impactful knowledge increases.

Dr. H. Dennis Park of the Naveen Jindal School of Management is an author of the study, which was published in the Journal of Management Studies.

"Many technology firms acquire another firm, not only to get the assets from that firm, but to get the technology that they have developed and to acquire the talent that they have—the people who invented the technology," said Park, associate professor of organizations, strategy and international management. "To develop new technology from scratch is prohibitive for most firms, so when they need to catch up with new technology, the quickest thing they think of is to acquire a small firm and integrate them."

However, many end as failures. Most scholars agree that about 70 to 80 percent of acquisitions end up destroying value, Park said.

Park and his co-authors set out to determine what type of technology and what type of people need to be brought together to make an acquisition successful.

The researchers explored how the retention of target firm scientists and acquired knowledge characteristics affected new knowledge creation outcomes for the acquiring firms. Using a sample of more than 111,000 patents following 301 high-tech acquisitions from 1990-2000, they examined if the firms filed new patents, created breakthrough knowledge and retained engineers.

The study looked at two different types of knowledge: tacit and explicit. Park said that while tacit knowledge is not easily explained, like how to ride a bike, explicit knowledge can be codified, such as how to develop a chemical component for a drug.

The study found that when tacit knowledge is acquired, it is difficult to absorb the knowledge without the people who invented it.

"There's no manual on how to develop the technology, and even if the acquiring firm has the technology and can use the technology, they're not going to be able to use it to develop subsequent technology," Park said.

As a result, retaining target scientists is particularly important when the knowledge is very complex, but less so when the knowledge is similar to that of the existing knowledge of the acquiring firm.

"If you have redundancy in the , you're going to have a lot of politics between the target firm and the acquiring firm," Park said, leading to "not-invented-here" syndrome, a term referring to the common occurrence of acquiring-firm scientists refusing to use or build upon technologies developed elsewhere.

Many times after an acquisition, the target firm engineers leave the company. One way for acquiring firms to alleviate this problem is to have the engineers sign a contract that prohibits them from quitting soon after the acquisition.

It's essential for high-tech to remember that even if they are acquiring another company because of its technology, they have to remember the importance of its people, Park said.

"Technology doesn't typically stand on its own," he said. "Most technologies out there have to be brought in together with the people who invented the technology. The companies have to retain those engineers. At the end of the day, and people have to go together."

Explore further: Great expectations force risky business acquisitions

More information: Haemin Dennis Park et al. The Impact of Knowledge Worker Mobility through an Acquisition on Breakthrough Knowledge, Journal of Management Studies (2017). DOI: 10.1111/joms.12320

Related Stories

US companies are investing less in science

November 27, 2017

A new article reveals that large corporations are investing less in science. From 1980 to 2006, publications by company scientists have declined in a range of industries. The result holds across a range of industries.

Recommended for you

Study reveals patterns in STEM grades of girls versus boys

September 25, 2018

A new study, led by UNSW Sydney Ph.D. student Rose O'Dea, has explored patterns in academic grades of 1.6 million students, showing that girls and boys perform very similarly in STEM—including at the top of the class.

Chinese Cretaceous fossil highlights avian evolution

September 24, 2018

A newly identified extinct bird species from a 127 million-year-old fossil deposit in northeastern China provides new information about avian development during the early evolution of flight.

Ancient mice discovered by climate cavers

September 24, 2018

The fossils of two extinct mice species have been discovered in caves in tropical Queensland by University of Queensland scientists tracking environment changes.

The first predators and their self-repairing teeth

September 24, 2018

The earliest predators appeared on Earth 480 million years ago—and they even had teeth capable of repairing themselves. A team of palaeontologists led by Bryan Shirley and Madleen Grohganz from the Chair for Palaeoenviromental ...

1 comment

Adjust slider to filter visible comments by rank

Display comments: newest first

rrwillsj
1 / 5 (1) Mar 05, 2018
The problem that I have seen starts with the attitude of the executives of the acquiring firm. Sharing a belief that they can force immediate profits by dismissing higher paid employees of the acquired firm.

Of course the in-house scientists and engineers do not want to confiscate the work done by other scientists and engineers. Smacks of plagiarism and flaunting unearned honors. In addition to distracting and detracting from their own accomplishments.

Unfortunately these decisions for acquisitions are driven by those the most ignorant of the process of developing technology. The executives and their fraternal bankers and brokers are only interested in how much they will personally profit by manipulating the market for ideas.

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.