Business and Technology- Review of Academic Article

Complementary Technologies, Knowledge Relatedness, and Invention Outcomes in High Technology Mergers and Acquisitions

By Marianna Makri, Michael A. Hitt, and Peter J. Lane

The purpose of this article was to determine if the relatedness of scientific knowledge and complementary knowledge led to innovation outcomes in high-technology mergers and acquisitions (M&As). This topic is important in the age of rapid technological advancements in order for firms to keep their capabilities and competitive advantages distinct and highly-valued compared to competitors. This article gives managers and executives insight into the types of target firms that will be best suited to increase innovative outcomes after M&As and also, acknowledges the strategic effects of different M&As.

 Prior to this study, researchers determined that the relatedness of technological knowledge between two pre-merger firms contributed to their innovation outcomes after they merged (Makri et. al, 2010, p.603). The authors expanded from this theory and wanted to determine how scientific (compared to technological) knowledge plays a role in influencing innovative outcomes. They also addressed if the relatedness of complementary (compared to similarity) knowledge influences innovative outcomes.  This led to four domains which serve to compare the types of knowledge present in potential merger firms: science similarity, science complementary, technology similarity, and technology complementary.

The researchers tested three different hypotheses, each with four different subcomponents, using a model they developed. Results found that both scientific relatedness (where researchers focus on how to improve the core design of a product or component)  and technical relatedness (where researchers or employees focus on combining components) were both important to increase inventions after M&As.  Another key finding was that similarities between firms made it easier for firms to integrate through the merger due to similar path dependencies, however, there was a decreased number of inventions since the firms' knowledge capabilities were so alike. Furthermore, it was found that complementary knowledge led to more inventions and higher innovation after the firms merged (Makri et. al, 2010).

This led to the following managerial implications. Acquisitions are important for high-technology firms because the market demand for better, more advanced products puts pressure on companies to give their consumers what they are want. Therefore, when a company is in the selection process of picking a potential target firm, it should look at the knowledge capital of the firm and compare it to the company's knowledge (via knowledge relatedness).  In order to reap the best benefits from a merger or acquisition, Makri et. al (2010) imply that the target firm should have both scientific and technological knowledge relatedness that is complementary to their own.  Using complementary knowledge also provides the best hope for strategic change, because the new innovations will lead the company dynamic into new market areas with new products or capabilities. However, if a firm is just looking to renew its organizational structure, an acquiring company should seek a target firm with knowledge similarities as these changes are less likely to push the status quo.

Source: Makri et. al. (2010). Complementary Technologies, Knowledge Relatedness, and Invention Outcomes in High Technology Mergers and Acquisitions. Strategic Management Journal, 31, p.602-628