Acquisitions That Make Your Company Smarter

On paper, the match between the two companies looked like a good fit. The larger business (which we will call InfraSolutions, not its real name) specialized in managing IT infrastructures. The smaller (which we’ll call Mictech, not its real name) specialized in developing such infrastructures. InfraSolutions executives admired Mictech’s approach to project development. “We want to do projects the way they [Mictech] did projects,” said the CEO of InfraSolutions.

A year after acquiring Mictech, however, the InfraSolutions team still had not learned Mictech’s secrets. Instead, InfraSolutions’ employees continued to stick to their old way of doing projects.

InfraSolutions’ experience is far from unique. What had gone wrong for InfraSolutions is similar to what goes wrong for most companies that acquire companies in order to integrate knowledge-based resources. Many such knowledge-based acquisitions fail to achieve their goals, mostly due to similar post-acquisition integration problems.

Acquisitions intended to integrate knowledge-based resources are most common in high-tech industries, where companies like IBM, EMC, Schneider Electric and Microsoft build end-to-end solutions for their customers that combine organically developed knowledge-intensive products with purchased ones. Knowledge-based acquisitions are focused on acquiring new knowledge — related to product features, customer needs, processes and technologies — and depend on assimilating the two companies’ expertise.

Our research suggests that knowledge-based acquisitions are fundamentally different from traditional acquisitions. In particular, the expertise for which a company is being acquired represents a part of its collective knowledge that gives it a competitive advantage. This expertise is embedded in company routines and social capital and thus in the way that the target company carries out its operations. In such instances, the acquiring company is interested in something that a group of people have created that involves their vision, ways of working together and approach to carrying out certain activities, the trial-and-error processes they have been through, and so on.

In other words, the acquiring company is interested in the experience and expertise of the target company, not just its existing products. Pfizer Inc.’s acquisition of Icagen Inc. in 2011 for approximately $56 million is an example of such a deal. This acquisition provided Pfizer with expertise in pain research that it was lacking. Another example is The Walt Disney Company’s acquisition of Pixar in 2006.