26th International Association for Management of Technology Conference - IAMOT 2017

In high tech industries, the constant threat of technological obsolescence forces companies to renew their core technological portfolio in order to build up and maintain competitive advantages. Due to limitations of internal R&D, many firms employ external knowledge sourcing strategies to facilitate changes of their technological portfolio. Among the various external knowledge sourcing modes, technological M&As are a proper strategy for such a change as they allow the acquirer firm to assimilate the target firm’s complete bundle of knowledge and expertise. While previous research extensively focused on the relationship between technological M&As and post-M&A innovation performance, it overlooked the role of technological M&As as a firm’s core technology portfolio change strategy. The purpose of this research is to examine this role and identify factors which influence the degree of core portfolio change the firm can achieve through technological M&As. To this end, the research examines the direct effect of two key firm-specific factors, i.e., path dependency and combinative capabilities. Further, it also investigates the moderating effect of post-M&A target firm inventor retention which disrupts path dependency and enhances combinative capabilities. The hypotheses are tested on a dataset of 287 technological M&As conducted by firms in the biopharmaceutical industry from 2001 to 2008. Information on the M&A deals was collected from the Thomson Reuters SDC Platinum database. The research also collected data from DataStream and the United States Patent and Trademark Office database to measure firm’s financial and innovation characteristics. Patents are also employed to identify the target firms’ inventors and track their retention after the M&A deal. The results of the analysis show that the path dependency of the acquirer firm hinders the firm’s core technological portfolio change. At the same time, the combinative capabilities of the acquirer firm can enhance such a change. The results also confirm that the target firm’s inventor retention should be seen as a key success factor for core technology change through technological M&A as it reduces the negative direct effects of the acquirer firm’s path dependency. This study contributes to the literature on technological M&As by examining the effects of technological M&A as a core technology change strategy. Also, by highlighting the importance of post M&A target firm inventor retention, the study provides contributions to the literature on organizational learning and the evolutionary theory of the firm. The findings of this study provide direct implications for managers of firms who consider using technological M&A not simply as a tool for improving the overall innovation performance of the firm, but as a strategy for renewing the firm’s core technological portfolio. In this case, the post-M&A integration process should be carefully managed to increase the retention of the target firm’s inventors. Key words: technological M&A, core technological portfolio change, path dependency, combinative capabilities, inventor retention, technology management