Mergers and acquisitions (M&As) have become a common phenomenon in the world of business. The high overall investment that M&As represent (Barkema & Schijven, Reference Barkema and Schijven2008), as well as their strategic importance, have contributed to them becoming an important focus of study in finance and strategic management literatures (Haleblian, Devers, McNamara, Carpenter, & Davison, Reference Haleblian, Devers, McNamara, Carpenter and Davison2009). To date, a large part of work about M&As has focused on the motives leading firms to undertake M&As (e.g., Seth, Reference Seth1990; Trautwein, Reference Trautwein1990; Walter & Barney, Reference Walter and Barney1990; Rhodes-Kropf & Robinson, Reference Rhodes-Kropf and Robinson2008; King, Slotegraaf, & Kesner, Reference King, Slotegraaf and Kesner2008), and on the performance of these processes (e.g., King, Dalton, Daily, & Covin, Reference King, Dalton, Daily and Covin2004; Moeller, Schlingemann & Stulz, Reference Moeller, Schlingemann and Stulz2005; Schoenberg, Reference Schoenberg2006). In particular, the potential of M&As as means of reinforcing the core competencies of the new firm (or the acquiring firm) and/or to access a new set of valuable capabilities has been highlighted (e.g., Capron, Reference Capron1999; Capron & Pistre, Reference Capron and Pistre2002; Uhlenbruck, Hitt, & Semadeni, Reference Uhlenbruck, Hitt and Semadeni2006; King, Slotegraaf, & Kesner, Reference King, Slotegraaf and Kesner2008). However, the process by which firms integrate, transfer, and manage resources in the post-acquisition phase remains relatively unexplored. Consequently, there have been calls for further research in this area (Haleblian et al., Reference Haleblian, Devers, McNamara, Carpenter and Davison2009).
The pressure of competition, the speed of technological change, and the reduction of product life cycles make it difficult for firms, even those of large size, to quickly develop by themselves all the necessary knowledge and capabilities. In this context, organizations may resort to external sources (Zhao, Reference Zhao2009), such as alliances and M&As, to complement their internal efforts. M&As may allow the incorporation of new capabilities at a speed unattainable through internal development and to obtain new knowledge and specific capabilities subject to market failure (Uhlenbruck, Hitt, & Semadeni, Reference Uhlenbruck, Hitt and Semadeni2006).
While M&As have potential for expanding firms’ knowledge and capabilities, the literature indicates that the acquisition of a firm possessing valuable knowledge and capabilities does not guarantee that they will be transferred to or exploited by the new organization (Ranft & Lord, Reference Ranft and Lord2002; Reus & Lamont, Reference Reus and Lamont2009; Al-Laham, Schweiger, & Amburguey, Reference Al-Laham, Schweiger and Amburguey2010). For transfer to occur the post-acquisition process of integration of the acquiring and acquired firms must be carried out successfully (Bresman, Birkinshaw, & Nobel, Reference Bresman, Birkinshaw and Nobel1999; Haspeslagh & Jemison, 1991; Ranft & Lord, Reference Ranft and Lord2002; Junni, Reference Junni2011).
The transfer of knowledge and capabilities in the process of integration of organizations is complex and challenging (Capron, Reference Capron1999; Ranft & Lord, Reference Ranft and Lord2002; Al-Laham, Schweiger, & Amburguey, Reference Al-Laham, Schweiger and Amburguey2010). Several problems may make it difficult (Haspeslagh & Jemison, Reference Haspeslagh and Jemison1991; Al-Laham, Schweiger, & Amburguey, Reference Al-Laham, Schweiger and Amburguey2010; Junni, Reference Junni2011), particularly cultural conflicts (Buono & Bowditch, Reference Buono and Bowditch1989; Teerikangas & Very, Reference Teerikangas and Very2006; Björkman, Stahl, & Vaara, Reference Björkman, Stahl and Vaara2007; Stahl & Voigt, Reference Stahl and Voigt2008; Sarala & Vaara, Reference Sarala and Vaara2010; Junni & Sarala, Reference Junni and Sarala2011) and human resources problems (Ranft & Lord, Reference Ranft and Lord2000, Reference Ranft and Lord2002; Graebner, Reference Graebner2004; Castro & Neira, Reference Castro and Neira2005; Junni, Reference Junni2011).
Several studies have found that after a merger or acquisition the acquired firm experiences a higher than normal turnover of top managers (Walsh & Ellwood, Reference Walsh and Ellwood1991; Cannella & Hambrick, Reference Cannella and Hambrick1993; Krug & Hegarty, Reference Krug and Hegarty1997) and the loss of other key human capital (Roberts & Mizouchi, Reference Roberts and Mizouchi1989; Ernst & Vitt, Reference Ernst and Vitt2000; Ranft & Lord, Reference Ranft and Lord2000, Reference Ranft and Lord2002; Reus & Lamont, Reference Reus and Lamont2009). The top management and personnel who hold knowledge and skills linked to the development, advancement, and functioning of the capability considered most valuable by the acquiring firm (or dominant partner) are described as the acquired firm's high value human resources (HVHR) (Ranft & Lord, Reference Ranft and Lord2000; Reus & Lamont, Reference Reus and Lamont2009). If they leave after an M&A and before they can be effectively utilized to improve competencies, the knowledge possessed by those personnel may not be transferred.
The loss of high value human capital, as well as damaging the firm's key capabilities (Coff, Reference Coff2002), provides industry rivals with opportunities to acquire experienced resources and, perhaps more important, tacit knowledge that holds the potential to enhance a firm's capabilities and competitive positions (Cannella & Hambrick, Reference Cannella and Hambrick1993; Haleblian et al., Reference Haleblian, Devers, McNamara, Carpenter and Davison2009). Therefore, ‘identifying and keeping key employees (…) is almost always important for extracting value from an acquisition’ (Zander & Zander, Reference Zander and Zander2010: 32).
Despite recognition of the importance of retention of the acquired firm's human resources in the outcomes of M&As (Cannella & Hambrick, Reference Cannella and Hambrick1993; Reus & Lamont, Reference Reus and Lamont2009; Al-Laham, Schweiger, & Amburguey, Reference Al-Laham, Schweiger and Amburguey2010; Butler, Perryman, & Ranft, Reference Butler, Perryman and Ranft2012), the empirical evidence regarding its effect on the transfer of knowledge and capabilities is limited and, in general, has focused on case studies of acquisitions in high technology industries (Ranft & Lord, Reference Ranft and Lord2002; Graebner, Reference Graebner2004; Castro & Neira, Reference Castro and Neira2005). Consequently, further research is needed using methodologies that will permit more generalizable results.
This paper focuses on retention of the acquired firm's HVHR. Specifically, it aims to respond to the following research issues: (1) Does the retention of the acquired firm's HVHR contribute to the transfer of knowledge from the acquired firm to the acquiring firm?; (2) Is the impact of the retention of the acquired firm's HVHR on knowledge transfer moderated by the degree of embeddedness of the knowledge to be transferred?; (3) What factors influence the level of retention of the acquired firm's HVHR?
On the basis of earlier research (Zollo & Singh, Reference Zollo and Singh2004; Reus & Lamont, Reference Reus and Lamont2009), we argue that the retention of acquired HVHR by the acquiring firm is an effective managerial mechanism for favoring transfer of knowledge from the acquired firm to the acquirer. In addition, we posit that the importance of the retention of the acquired firm's HVHR for the transfer of knowledge in M&As may be moderated by the degree of embeddedness of the knowledge to be transferred. Research has established that a firm's capabilities involve both individual and collective knowledge (Spender, Reference Spender1996; Argote, Reference Argote1999). Embedded knowledge is the collective form of tacit knowledge residing in the complex pattern of relationships within the group or the firm. Embedded knowledge is linked to the context in which it is developed and used, and depends to a large extent on the relative stability of the set of individuals who make up the group (Berman, Down, & Hill, Reference Berman, Down and Hill2002). Statistically, testing the moderating effect of embeddedness of knowledge on the association between retention of HVRH and knowledge transfer is an important contribution of this study because to date, as far as we know, that effect has not been considered.
In addition, drawing on literature about important dimensions of the post-acquisition process (Haspeslagh & Jemison, Reference Haspeslagh and Jemison1991; Hambrick & Cannella, Reference Hambrick and Cannella1993; Marks, Reference Marks2007), we examine factors that influence the level of retention of the acquired firm's HVHR. Specifically, we analyze how the autonomy granted to the acquired firm, the frequency of use of rich media among the personnel of both firms in the post-acquisition phase, and the financial incentives influence the retention of the acquired firm's HVHR. We also examine the effect of the pre-acquisition profitability of the acquired firm on the retention of its HVHR.
To sum up, this paper contributes to the growing, yet sparse, literature that analyzes the implementation process and knowledge transfer in M&As. At the same time it addresses recent calls for research on how firms integrate, transfer, and manage the human resources of the combined firms using an alternative methodology to that based on archive data (such as surveys) to analyze the process of integration (Haleblian et al., Reference Haleblian, Devers, McNamara, Carpenter and Davison2009).
The conceptual model tested in this research is summarized in Figure 1.
Figure 1 Hypothesized model
This paper is organized as follows. First, the conceptual framework guiding the study is established and a set of hypotheses proposed. Then they are tested empirically on a sample of 57 domestic, related, friendly Spanish M&As, belonging to a wide variety of industries. In the final section the results are discussed, pointing out the main limitations of the study.
CONCEPTUAL FRAMEWORK
People are the principal agents of knowledge creation. A firm's stock of knowledge and its capabilities are formed from the experiences of its members over the course of time (Nelson & Winter, Reference Nelson and Winter1982).
The creation of value following the acquisition depends largely on the retention and integration of critical talent, that is, top management and other key personnel. Nevertheless, one of the consequences of M&As is the post-acquisition departure of acquired personnel (Cannella & Hambrick, Reference Cannella and Hambrick1993; Krishnan, Miller, & Judge, Reference Krishnan, Miller and Judge1997; Ranft & Lord, Reference Ranft and Lord2000; Bergh, Reference Bergh2001; Paruchuri, Nerkar, & Hambrick, Reference Paruchuri, Nerkar and Hambrick2006).
Most of the empirical studies show that top management turnover has a negative effect on outcomes and on acquisition success (Cannella & Hambrick, Reference Cannella and Hambrick1993; Krishnan, Miller, & Judge, Reference Krishnan, Miller and Judge1997; Saxton & Dollinger, Reference Saxton and Dollinger2004; Zollo & Singh, Reference Zollo and Singh2004; Cording, Christmann, & King, Reference Cording, Christmann and King2008; Butler, Perryman, & Ranft, Reference Butler, Perryman and Ranft2012), due to the disruptions created by increasing levels of uncertainty and by organizational conflict, as well as the loss of human and social capital.
According to the resource-based view (Barney, Reference Barney1991), firm-level value creation and competitive advantage are based on possession and development of valuable, firm-specific, and costly-to-imitate resources, and the management's skill in combining them (Barney, Reference Barney1991; Mahoney & Pandian, Reference Mahoney and Pandian1992). Intangible and knowledge-based resources are considered the fundamental base of value creation.
In line with the resource-based view several authors (Cannella & Hambrick, Reference Cannella and Hambrick1993; Bergh, Reference Bergh2001; Zollo & Singh, Reference Zollo and Singh2004) have pointed out that when the managers of acquired firms possess knowledge and skills that are valuable, unique, and specific to the firm, those managers cannot be easily replaced. Supporting this vision, the recent meta-analysis by Butler, Perryman, and Ranft (Reference Butler, Perryman and Ranft2012) shows that the turnover of the acquired firm's top management team has a negative effect on firm performance.
Management continuity may affect the acquiring firm's intangible resources, namely its reputation (Hall, Reference Hall1992). By ensuring management retention, the acquiring firm is sending a signal that it values the acquired firm's leadership and previous strategies, as well as its interest in ensuring a smooth transition (Cannella & Hambrick, Reference Cannella and Hambrick1993). Moreover, management retention favors coordination between the acquired and acquiring firms and reassures the rest of the employees, to some extent, that their interests will be taken into account (Krishnan, Miller, & Judge, Reference Krishnan, Miller and Judge1997), minimizing overall resistance to change (Ellis, Reus, & Lamont, Reference Ellis, Reus and Lamont2009).
The turnover of the acquired firm's managers not only implies the loss of knowledge and valuable role models, but also has a negative effect on the morale of those that remain (Buono & Bowditch, Reference Buono and Bowditch1989). Acquiring a firm, or assuming the role of lead party in a merger, may generate a ‘superior–inferior’ or ‘winner–loser’ attitude (Marks & Mirvis, Reference Marks and Mirvis2001). The departure of key managers of the acquired firm can have a great symbolic impact on the rest of the employees, as it sends a signal that the personnel of the acquired firm is of little value for the acquirer, favoring the perception that the employees of the acquired firm are the losers of the process.
The study by Graebner (Reference Graebner2004) shows that the acquired managers play a key role in value creation through actions that keep employees focused, maintaining organizational momentum during the acquisition implementation process. The results of her study suggest that the acquired managers can help to reduce employee turnover by undertaking actions to deal with their problems and concerns. Likewise, Saxton and Dollinger (Reference Saxton and Dollinger2004: 141) concluded that ‘the successful appropriation of knowledge implied by a good acquisition may require maintaining those that know the target's operations best – its managers.’
From the organizational learning perspective, the managers of the acquired firm may possess expertise and functional backgrounds that are complemented by those of the acquiring firm, which improves organizational learning and has a positive impact on value creation (Krishnan, Miller, & Judge, Reference Krishnan, Miller and Judge1997). Furthermore, their knowledge of the organization's underlying political structure will be essential for the successful implementation of the acquisition (Bergh, Reference Bergh2001).
Therefore, when the objective of the acquisition is the transfer of knowledge and capabilities to the acquiring firm, the retention of management, in particular that of the acquired firm's top management, can be critical for the transfer, since these managers play a substantial role in the development of conditions that feed the creation of knowledge, support the retention of other groups of employees linked with the core competencies (Ranft & Lord, Reference Ranft and Lord2000, Reference Ranft and Lord2002), and favor the necessary interaction between the two firms (Graebner, Reference Graebner2004) for the transfer to occur. Although, from a learning perspective, retention of management by the acquiring firm is considered important for the successful transfer of the acquired firm's capabilities to the acquirer (Ranft & Lord, Reference Ranft and Lord2000, Reference Ranft and Lord2002; Graebner, Reference Graebner2004), M&As cause duplication of people in many posts in the new firm, so it may be necessary to reach a compromise between managerial stability and the organization's cost efficiency.
Several authors (Ranft & Lord, Reference Ranft and Lord2000; Kapoor & Lim, Reference Kapoor and Lim2007) point out that the people who possess the knowledge generating the core competencies are not necessarily the senior managers. Although the latter are fundamental in establishing the agenda for core competency building, in general it is the employees at lower levels who develop and maintain the competency.
Empirical research supports the positive effect of retention of other groups of employees, as well as the top management, on acquisition outcomes. Ranft and Lord (Reference Ranft and Lord2000) showed that retaining engineering and sales personnel was as important for the transfer of critical knowledge-based resources as retaining the top management. Reus and Lamont (Reference Reus and Lamont2009) confirmed that key employee retention had a strong positive effect on acquisition performance. More recently, Ahammad and Glaister (Reference Ahammad and Glaister2011) found that retention of the key employees of the acquired firm during the first year after the acquisition contributed significantly to market share and sales growth.
Some researchers (Buono & Bowditch, Reference Buono and Bowditch1989; Kumer, Reference Kumer2008), who have studied post-acquisition integration, have reported that the best-performing employees or those holding valuable intellectual property, and whose skills and expertise are therefore most valuable for the firm, may be the first to leave, since they have more opportunities to find alternative jobs. Buono and Bowditch (Reference Buono and Bowditch1989: 226) reported on an acquisition motivated by accessing the expertise of the acquired firm's technical, engineering, and scientific experts. During the post-acquisition period, the operational consolidation in other areas was interpreted by these experts as a ‘sign of things to come.’ Although their expectations were groundless, the result was a high level of voluntary turnover among the very people that influenced the acquirer's decision to buy the company in the first place. Roberts and Mizouchi (Reference Roberts and Mizouchi1989) concluded that an acquisition generally originates the departure of key scientists. Ernst and Vitt (Reference Ernst and Vitt2000) observed that ∼23% of the key inventors in the acquisitions analyzed occupied new positions in other firms following the combination and that those who remained, in general, reduced their contribution after the acquisition. Some go voluntarily to avoid the stress and anxiety associated with the acquisition. Their departure, as well as compromising the success of the M&A, may strengthen rivals, providing them with the opportunity to acquire tacit knowledge that may improve their capabilities and competitive positions (Haleblian et al., Reference Haleblian, Devers, McNamara, Carpenter and Davison2009). As pointed out by Meyer (Reference Meyer2008: 209): ‘The irony is that it may have been just these employees that were crucial for making the acquisition worthwhile, and that by undertaking integration, the acquirer disproportionately disrupts these important resources.’
Given the value, rareness, inimitability, and non-substitutability of firm-specific knowledge associated both with key top management and with other groups of employees linked to the most valuable capability to be transferred, their retention is essential for the transfer and the success of the acquisition. The permanence of the top management helps to safeguard the capabilities; their replacement may disturb the processes through which the acquired firm encourages learning and the accumulation of knowledge. Likewise, the retention of other employees in whom the knowledge resides favors the transfer, since it is they who must participate in the process of interaction required for the transfer. On the basis of these arguments, we propose:
Hypothesis 1: The higher the level of retention of the acquired firm's HVHR, the greater will be the transfer of knowledge from the acquired firm to the acquirer.
Frequently, the most valuable resources to be transferred and/or combined during the implementation of an M&A are those based on tacit knowledge and rooted in individuals’ relationships with the social system of the organization (Haspeslagh & Jemison, Reference Haspeslagh and Jemison1991). Badaracco (Reference Badaracco1991: 79) uses the term ‘embedded knowledge’ to refer to that which ‘resides primarily in specialized relationships among individuals and groups and in the particular norms, attitudes, information flows, and ways of making decisions that shape their dealings with each other.’ Embedded knowledge is the collective form of tacit knowledge residing in organizational routines, practices, and shared norms. Embedded knowledge does not reside in a single individual but in the way in which the various members of the group interact. This knowledge exists between rather than within individuals. Although the members can articulate their individual knowledge, the group also relies on the tacit understanding of how to work together; that is, only the team possesses the total knowledge.
To transfer embedded knowledge from the acquired firm to the acquirer, it is necessary to prevent turnover of acquired employees after the deal is closed (Ranft & Lord, Reference Ranft and Lord2000, Reference Ranft and Lord2002; Puranam, Singh, & Zollo, Reference Puranam, Singh and Zollo2006). If any member of the team abandons the firm, the organizational routines and the social structure of the group may change (Nelson & Winter, Reference Nelson and Winter1982), damaging the capability of the group (Ranft & Lord, Reference Ranft and Lord2002). Moreover, it may be difficult to replace them due to the links established with other members or groups. Given the importance of these relationships, their departure could even increase the risk of losing other employees.
In this paper we posit that the importance of the retention of the acquired firm's HVHR for the transfer of knowledge in M&As may be influenced by the type of knowledge to be transferred. Retention is of greater importance when the objective of the M&A is to transfer a capability that is based on the relationship of cooperation between different people, as opposed to individual skills. For this reason we hypothesize that:
Hypothesis 2: The effect of the level of retention of the acquired firm's HVHR on transfer of knowledge from the acquired firm to the acquirer is moderated by the degree of embeddedness of the knowledge to be transferred.
If retention of the acquired firm's HVHR is fundamental for the transfer of knowledge, it is necessary to implement measures to prevent their departure. Among the mechanisms for favoring retention of the personnel are: granting autonomy to the acquired firm, using rich media, and offering financial incentives.
The level of autonomy granted to the acquired firm is one of the main strategic decisions affecting the creation of value in M&As. In some M&As, the acquiring firm allows the acquired firm to enjoy a high level of autonomy after closure of the agreement, while in others it is totally integrated.
Evidence exists that acquired firms experience a greater sense of disruption and loss when they are integrated with their acquirers than when they are not (Puranam, Singh, & Zollo, Reference Puranam, Singh and Zollo2006). The reduction of autonomy in strategic and operational decision making generates a sense of failure, and therefore constitutes one of the principal determinants of the turnover of top managers. Hambrick and Cannella (Reference Hambrick and Cannella1993) discovered that executives who enjoyed a high level of autonomy in decisions regarding strategy, systems, and procedures showed a lower level of turnover, during the first year after the operation, than those firms that were rapidly integrated. Also, Lubatkin, Schweiger, and Weber (Reference Lubatkin, Schweiger and Weber1999) concluded that the greater the perception of loss of autonomy on the part of the acquired managers, the higher the rate of turnover, particularly during the first and fourth years after the operation.
A low degree of autonomy implies that the managers of the acquiring firm take a very active role in the operations of the acquired firm, which may produce greater changes and adjustments in the months following the M&A. In this situation, the perceived value of the acquired managers’ skills and knowledge is reduced, and consequently their relative standing (Hambrick & Cannella, Reference Hambrick and Cannella1993). The greater the scope of the change, the greater the risk of undesired departures (Appelbaum, Lefrancois, Tonna, & Shapir, Reference Appelbaum, Lefrancois, Tonna and Shapir2007). The granting of autonomy, on the other hand, is an indicator that the managers of the acquired firm can exercise some control over the actions undertaken during the post-acquisition integration process (Ellis, Reus, & Lamont, Reference Ellis, Reus and Lamont2009).
Ranft and Lord (Reference Ranft and Lord2000) concluded that the autonomy granted to the acquired firm was the main predictor of retention of key personnel in high technology acquisitions. Other studies (Paruchuri, Nerkar, & Hambrick, Reference Paruchuri, Nerkar and Hambrick2006; Kapoor & Lim, Reference Kapoor and Lim2007) found that acquisition integration negatively affected the productivity of the knowledge workers of the acquired firms. So:
Hypothesis 3: The greater the autonomy granted to the acquired firm, the higher will be the level of retention of the acquired firm's HVHR.
Several authors (Graebner, Reference Graebner2004; Appelbaum et al., Reference Appelbaum, Lefrancois, Tonna and Shapir2007; Marks, Reference Marks2007; Kumer, Reference Kumer2008) have pointed out that communication is an effective strategy for favoring retention of human resources in M&As.
If the goal is to conserve the acquired firm's top management, or any other group, this objective must be transmitted clearly. The acquiring firm must communicate its needs, intentions, and integration plans; otherwise, uncertainty and insecurity will increase, and with them, the probability of undesired departures. To show that the M&A will create new opportunities, without generating false expectations, may also stimulate the continuity of personnel in the firm (Buono & Bowditch, Reference Buono and Bowditch1989).
Communication in the first stages is crucial in reducing the uncertainty faced by the personnel, stabilizing the situation and restoring the employees’ commitment to the new organization (Graebner, Reference Graebner2004; Marks, Reference Marks2007; Meyer, Reference Meyer2008; Klendauer & Deller, Reference Klendauer and Deller2009). Rafferty and Restubog (Reference Rafferty and Restubog2010), in their longitudinal analysis of a merger, found that the perceived quality of information about the change was negatively associated with anxiety and positively related to affective commitment to change, while Kiefer (Reference Kiefer2005), in another longitudinal study of a merger, found that anxiety, anger, and frustration were positively related to employee withdrawal.
Although it is recommendable to use a broad set of communication channels, perhaps no medium can substitute for interpersonal communication, particularly when the objective is to deal with the human side of the M&A, as it helps to reduce the tension and the anxiety characteristic of these processes (Colombo, Conca, Buongiorno, & Gnan, Reference Colombo, Conca, Buongiorno and Gnan2007).
According to Daft, Lengel and Trevino (Reference Daft, Lengel and Trevino1987: 358), media richness refers to capacity of a communication medium to facilitate insight and understanding. ‘A rich medium facilitates insight and rapid understanding.’ Media richness theory (Daft & Lengel, Reference Daft and Lengel1986), also known as information richness theory, posits that media can be ordered on a continuum from leanest to richest, based on four factors: (a) language variety – the ability to convey natural language rather than just numeric information; (b) multiplicity of cues – the number of ways in which the information could be communicated, such as vocal inflection and body gestures; (c) speed of feedback – the speed both of answers and of the questions to be asked; and (d) personalization – the use of personal feelings and emotions. Rich media, such as face-to-face communication, are capable of transmitting non-verbal cues or of providing immediate feedback, while lean media, such as written memos or reports, lack the personal approach and are unable to achieve it.
While some researchers have pointed out that communication performance is positively related to the information richness utilized (Purdy & Nye, Reference Purdy and Nye2000), others have posited that there is a positive relationship between communication performance and the information richness of the chosen communication medium fitting the requirements of the situation (Rice, Reference Rice1992).
The organizational context of an M&A is characterized by uncertainty and equivocality. In this situation, rich media, involving face-to-face contact between transmitter and receiver, facilitate the reduction of equivocality by enabling people to overcome differences between frames of reference and by providing the capacity to process subjective messages (Daft & Lengel, Reference Daft and Lengel1986). The studies by Grunig, Grunig, and Dozier (Reference Grunig, Grunig and Dozier2002) determined that face-to-face communication is the most productive way to build strong relationships based on mutual respect. As employees develop strong relationships within the firm, they are less likely to leave (Shaw, Duffy, Johnson, & Lockhart, Reference Shaw, Duffy, Johnson and Lockhart2005).
In addition, interpersonal media permit employees to clarify doubtful or confusing aspects, ensuring the transfer of information to the message receiver in a way that reduces potential conflicting interpretations or misunderstandings (Daft & Lengel, Reference Daft and Lengel1986; Kupritz & Cowell, Reference Kupritz and Cowell2011). Hence, we posit:
Hypothesis 4: The greater the frequency of use of rich media between the personnel of the acquired firm and the acquiring firm, the higher will be the level of retention of the acquired firm's HVHR.
High pay levels permit the firm to attract, motivate, and retain highly qualified employees (Werner & Ward, Reference Werner and Ward2004). An increase in the pay level and in financial incentives generates higher performance and satisfaction, and reduces the turnover of high performers and the intention to leave an organization (Werner & Ward, Reference Werner and Ward2004; Ou & Wang, Reference Ou and Wang2007). If the pay level is seen to be higher in the current job than in other jobs available in the labor market, voluntary turnover is reduced. However, it has to be pointed out that an increase in remuneration increases the costs associated with the M&A, which could disincentivize its use as a mechanism for retention of HVHR.
We assume that a higher salary level should decrease turnover through diminished desirability of movement. Chaudhuri (Reference Chaudhuri2005), in a case study of acquisitions, discovered that strong financial incentives encouraged acquired employees to stay. Stahl, Larsson, Kremershof, and Sitkin (Reference Stahl, Larsson, Kremershof and Sitkin2011) have suggested that providing financial incentives to the employees it has desired to retain helps to build trust and ensures commitment from acquired employees.
Therefore, if the acquiring firm is interested in retaining the top management or the key employees of the acquired firm, it can offer additional compensation to encourage them to stay. These incentives have to be available relatively quickly for them to have an immediate effect (Kumer, Reference Kumer2008). We therefore posit:
Hypothesis 5: The greater the financial incentives established, the higher will be the level of retention of the acquired firm's HVHR.
As well as managerial mechanisms for incentivizing HVHR retention, the acquired firm's pre-acquisition profitability could influence retention. In general it is presumed that firms that obtain high stable performance are managed by a competent team, while firms characterized by poor performance are managed by incompetent teams. On this basis it is argued that management turnover depends on the results obtained by the acquired firm before the M&A, such that the better they are, the lower will be the rate of departure. However, Walsh and Ellwood (Reference Walsh and Ellwood1991) did not succeed in demonstrating that the acquired firm's pre-acquisition performance influenced executive turnover, but did find significant effects with respect to the pre-acquisition performance of the acquiring firm. According to Hambrick and Cannella (Reference Hambrick and Cannella1993: 739) ‘the performance of an acquired firm may not be nearly as predictive of executive departure as its performance relative to that of the acquiring firm.’ They discovered that executive departure depends more on an acquired firm's performance relative to the acquiring firm's than on the acquired firm's performance alone. The greater the acquired firm's pre-acquisition performance relative to that of the acquiring firm, the lower was the departure rate of managers in the first year after the acquisition. In this situation, the acquired managers had a favorable relative standing, generating greater self-esteem and management discretionality, as well as better future prospects. On the other hand, when the performance of the acquiring firm exceeded that of the acquired firm, the managers of the acquiring firm thought that they could manage the acquired firm, or at least, impose their decisions. We therefore propose:
Hypothesis 6: The better the pre-acquisition profitability of the acquired firm relative to that of the acquirer, the higher will be the level of retention of the acquired firm's HVHR.
METHOD
Sample
The model is tested using empirical data obtained from a sample of 57 domestic, related, friendly M&As in Spain. We selected M&As that occurred between January 1995 and March 2000. While retrospective bias can influence survey data, the M&A event involves a major change, from both the organizational and personal viewpoints, which favors recall and would probably reduce the possibility of retrospective bias (Reus & Lamont, Reference Reus and Lamont2009).
The information was obtained from two sources: The firm Infotel, on the basis of the records of the Boletín Oficial del Registro Mercantil, lists the merger operations occurring during this period. Since the above information was not complete, an alternative source for the same period, Thomson Financial Securities Data, was consulted. The only condition established was that the size of the acquiring firm should exceed 50 employees. The information required for the sending of questionnaires was gathered from Dun & Bradstreet.
Three characteristics of M&As considered are relevant. First, by focusing on the transfer of knowledge, M&As of a purely financial character are excluded. Second, only friendly M&As were included. Third, only Spanish M&As were considered. These characteristics, in particular, the cultural environment, may influence the results obtained, so that the results cannot be extrapolated to other situations.
To date, the vast majority of M&A research has utilized quantitative archival data. Haleblian et al. (Reference Haleblian, Devers, McNamara, Carpenter and Davison2009) suggest that where appropriate (i.e., integration and process related), researchers should consider these and other alternative approaches, such as surveys. For this study we developed a questionnaire, which was sent to top managers of the acquiring firms or those resulting from merger for two reasons: (a) the strategic nature of its content requires an overall knowledge of the firms involved in the M&A and of the post-acquisition process (Cannella & Hambrick, Reference Cannella and Hambrick1993; Capron, Reference Capron1999; Ellis, Reus, & Lamont, Reference Ellis, Reus and Lamont2009; Reus & Lamont, Reference Reus and Lamont2009), and (b) they are the best able to forward the questionnaire to other persons who have more specialized knowledge of the subject. Although it would be interesting to have information on the top managers of the acquired firms, this information is very difficult to obtain because in many cases such firms do not remain as a separate entity (Capron, Reference Capron1999) or because due to the departure of the acquired managers it is often impossible to identify former executives from the target (Homburg & Bucerius, Reference Homburg and Bucerius2005).
Altogether 435 questionnaires were sent to top managers of the acquiring firms or those resulting from the merger, together with a cover letter explaining the purpose of the research and the type of operation on which the study was focused (M&As in which the acquirer had attempted to transfer some capability of the acquired firm). Despite the efforts made to refine the information, the bases contained some errors. Thus, five firms informed that they had no experience of merger or acquisition or that the operation had consisted of a collaboration agreement. On the other hand, 25 responses were received explaining the M&As in question did not fit the objective of the study.
The questionnaire included an item to verify whether the acquiring firm pursued the transfer of knowledge from the acquired firm to the acquirer. When a firm made various M&As in the interval of the study, the manager (key informant) was asked to choose one in which it had been attempted to transfer skills and capabilities of the acquired firm.
The cover letter contained the telephone and e-mail of the principal researcher so that the managers could clarify any doubt. In an attempt to minimize the social desirability bias, and to motivate more accurate responses, respondents were guaranteed confidentiality, were promised a summary report of the research findings, and were assured that the data would be processed in the aggregate. Also, a return envelope was attached for the questionnaire to be sent directly to the researcher and thus reduce the pressure to provide politically correct responses.
A week after posting, one of the researchers telephoned the top managers of the acquiring firms to explain to them, in greater detail, the purpose of the study and to encourage them to participate. After two attempts, she was able to speak directly with only 29% of them. Four weeks later, a second round of questionnaires was sent. Around 33 firms replied by telephone or by e-mail that the information requested was highly sensitive, that they had a policy of not taking part in surveys, or that they did not have time due to the large number of questionnaires they received, and refusing to participate in the study.
Of the 62 questionnaires received, five were eliminated: one because it corresponded to a hostile takeover; two because their aim was not to transfer the capability of the acquired firm to the acquirer; one because it was incomplete; and another because the operation had not been carried out within the period of analysis. In total, 57 usable surveys were received, representing a 14% response rate. This percentage, though modest, is satisfactory for three reasons. First, the majority of the indices documented in the studies of M&As (Lubatkin, Schweiger, & Weber, Reference Lubatkin, Schweiger and Weber1999; Colombo et al., Reference Colombo, Conca, Buongiorno and Gnan2007; Zaheer, Castañer, & Souder, Reference Zaheer, Castañer and Souder2013) and knowledge transfer (Bresman, Birkinshaw, & Nobel, Reference Bresman, Birkinshaw and Nobel1999) are very low. Second, the response rate is above the 10–12% rate often experienced when surveying top management (Geletkanycz, Reference Geletkanycz1997). Third, M&A operations are usually characterized by a highly restrictive information policy, making it difficult for the researchers to gather data. Therefore, although the sample is small, it is consistent with the sample sizes used in this area of research.
The final data set covered M&As in a wide range of industries. Among the acquiring firms, or dominant partners, the industries that stand out are construction (8.8%), telecommunications (8.8%), distribution (8.8%), chemicals (7%), food (5.3%), automobile (5.3%), and pharmaceutical (3.5%). The rest are distributed among a variety of industries (law, audit, mining, finance and insurance, etc.). For the acquired firms, the distribution follows practically the same pattern, except for the presence of internet firms (7%), which were the target, in general, of telecommunications firms. A total of 40.4% of the firms, both acquirers and targets, belonged to the service industry, and 59.6% to the manufacturing industry. The number of employees in the acquiring firms ranged from 150 to 11,000. The size of the acquired firms varied from 60 employees to 2,000. Therefore, the sample is formed by domestic, related, friendly M&As belonging to a wide variety of industries.
The sample includes both mergers (42.1% of the operations) and acquisitions (57.9%). To verify whether differences exist between the two types, a t-test was performed for each construct of the study. The results show that the means of the two groups (M&As) were not significantly different in any of the constructs analyzed.
Most of the managers who replied to the questionnaire belonged, before the operation, to the acquiring firm or the dominant partner (80.7%). To determine whether there was any bias in the responses depending on the previous affiliation of the respondent, a t-test was carried out for each of the study constructs. The results indicate that the means of two groups (acquiring firm/dominant partner managers vs. acquired firm managers) were not significantly different in any of the constructs analyzed. The informants held positions of president, CEO, CFO, or senior vice-president for acquisitions.
Furthermore, since it can be assumed that the last respondents are similar to the non-respondents (Schwab, Reference Schwab1999), we examined the non-response bias by comparing the mean responses between the first and the last respondents. The t-test for differences of means was not significant, indicating that the non-response bias did not endanger the validity of the findings.
Measurement of variables
Most of the data required to measure the constructs in this study is not available from archival sources. Therefore, data were gathered through a survey of key informants. Before sending the questionnaire, all scale items were pre-tested with a panel of top managers involved in five M&As to increase clarity and parsimony (Podsakoff, MacKenzie, Lee, & Podsakoff, Reference Podsakoff, MacKenzie, Lee and Podsakoff2003). These interviews permitted us to explore the degree of understanding of the various questions posed in the research, and to refine the measures used.
The first part of the definitive questionnaire captures data on: (a) the capability of the acquired firm that was considered most valuable by the acquiring firm, (b) the level of retention of top management and personnel of the acquired firm who possess knowledge and skills linked to the capability considered most valuable by the acquiring firm or dominant partner (HVHR), at the end of the first year from the signing of the M&A agreement, (c) the degree of embeddedness of the knowledge underlying the capability of the acquired firm considered most valuable by the acquiring firm or dominant partner, and (d) the knowledge transferred.
Different acquirers may try to acquire and transfer different capabilities, depending on the industry in which they operate, the characteristics of the firm, or the specific objectives of the operation. For this reason, managers were asked to select, from a list developed by Ranft (Reference Ranft1997), the capability of the acquired firm that was considered most valuable by the acquiring firm and that the latter therefore sought to transfer to itself. The capabilities considered were managerial capability, engineering capability, product innovation capability, process or production technology, relationships and customer knowledge, supplier relationships and knowledge research capability, product technology, marketing expertise, and low-cost manufacturing capability. Other studies of transference in acquisitions (e.g., Capron, Reference Capron1999; Junni, Reference Junni2011) have used similar lists of capabilities.
The data obtained showed that the capability of the acquired firm considered most valuable by the majority of the acquiring firms was sales relationships and customer knowledge (49%), followed by research capability (14%), product technology (12%), and process or production technology (10%). Other capabilities (engineering capability, managerial capability, product innovation capability, marketing expertise, and supplier relationships and knowledge) obtained small percentages. None of the firms in the sample attempted to transfer low-cost manufacturing capability.
HVHR retention
Following Ranft and Lord (Reference Ranft and Lord2000), HVHR retention was measured as the mean of the retention of top management and that of other key personnel weighted by their importance. First, we asked the respondents about the importance of retaining both the acquired firm's top management and employees of the areas linked to the capability previously indicated as most valuable (1 = ‘no importance,’ 7 = ‘extremely important’). Second, we asked the respondents the percentage effectively retained in these categories at the end of the first year after the deal was closed.
Embeddedness of knowledge
The degree of embeddedness of the knowledge underlying the capability of the acquired firm considered most valuable by the acquiring firm or dominant partner was valued by an item. This reflected the degree to which the fundamental capability of the acquired firm is the result of the interaction and collaboration of many people (Badaracco, Reference Badaracco1991; Brown & Duguid, Reference Brown and Duguid1991). The scale was a 7-point Likert-type scale (1 = ‘strongly disagree,’ 7 = ‘strongly agree’).
Knowledge transfer
To measure the transfer of knowledge, the managers were asked to indicate, with reference to the capability considered most valuable, what had been the level of transfer of knowledge from the acquired firm to the acquirer. The scale used was of the 7-point Likert type (1 = ‘nothing at all transferred,’ 7 = ‘totally transferred’).
Control variables
In addition, we included two control variables: the relative size of the merging firms and the industry. As in Kapoor and Lim (Reference Kapoor and Lim2007), the relative size was measured by dividing the number of employees in the acquired firm the year the M&A took place by the number of employees in the acquiring firm that year. The industry was measured by a dummy variable: a value 1 for service industry and 0 for manufacturing industry.
The second part of the questionnaire captured data about different antecedents of the retention. The variables autonomy, frequency of use of rich media, and financial incentives focus on the first year after the M&A. The first year after the acquisition is critical for the evolution of the relationship between the firms, and the transfer, for several reasons: (a) it is during this first stage when there is greatest danger of undesired resignations; (b) decisions on the level of autonomy granted to the acquired firm and on the mechanisms for retaining critical talent must be taken immediately after the transaction has been completed.
Autonomy
Following Datta and Grant (Reference Datta and Grant1990: 35), the managers were asked to indicate the ‘overall level of autonomy provided to the acquired firm’ during the first year following the M&A agreement (1 = ‘low autonomy,’ 5 = ‘high autonomy’). This measure is comparable to that used by Hambrick and Cannella (Reference Hambrick and Cannella1993).
Frequency of use of rich media
The frequency of use of rich media between the personnel of the acquired firm and the acquiring firm, during the first year after the M&A, was measured as follows. First, media were grouped into two types – written and personal (Daft & Lengel, Reference Daft and Lengel1986) and they were weighted according to their capability to facilitate insight and rapid understanding in interactions among the personnel of both firms for the managers interviewed (0.3 written; 0.7 personal). Second, we asked about the frequency of their use on a 7-point Likert scale (1 = ‘never,’ 7 = ‘very frequently’). Third, the weighted sum of the use of both types of media was calculated.
Financial incentives
The managers were asked to indicate to what extent the personnel of the acquired firm had been offered an increase in fixed remuneration and an increase in variable remuneration to encourage them to stay during the first year following the M&A agreement (1 = ‘never,’ 7 = ‘always’) differentiating between top management and other personnel linked to the most valuable capability. Next, the mean of the incentives provided to both groups was calculated.
Relative profitability
The acquired firm's profitability relative to that of the acquirer before the acquisition was measured on a 5-point Likert scale (1 = ‘much less profitable than the acquirer,’ 5 = ‘much more profitable than the acquirer’). This measure is comparable to that used by Ahammad and Glaister (Reference Ahammad and Glaister2011).
Statistical techniques
All the constructs were measured using Likert-type scales or composite measures with Likert-type scales, except relative size (ratio) and industry (dummy variable). Similarly, organizational studies of M&As (e.g., Ranft & Lord, Reference Ranft and Lord2000; Ellis, Reus, & Lamont, Reference Ellis, Reus and Lamont2009; Reus & Lamont, Reference Reus and Lamont2009; Ahammad & Glaister, Reference Ahammad and Glaister2011), we consider Likert-type scales as interval scales. As they meet the conditions of order and distance, they are appropriate for analysis by linear correlation and regression.
Hypotheses 1 and 2 were tested using a multiple linear regression with ‘transfer of knowledge from the acquired firm to the acquirer’ as dependent variable. This type of regression is suitable given the continuous nature of the variables, except industry, and the multivariate nature, with moderation, of the model posited (Aguinis & Gottfredson, Reference Aguinis and Gottfredson2010).
Multiple linear regression analysis was used to test Hypotheses 3–6 with ‘HVHR retention’ as the dependent variable. All analyses were done using SPSS 19.
Before the analysis, the variables were centered to reduce the problem of multicollinearity (Aiken & West, Reference Aiken and West1991) and to interpret the interactions between predictors. To examine the presence of multicollinearity, the variance inflation factor, which evaluates the extent to which the relationships among the independent variables inflate the standard error, was calculated. In the present study, the variance inflation factor values were below 2, far from the recommended threshold of 10 (Neter, Kutner, Nachtsheim, & Wasserman, Reference Neter, Kutner, Nachtsheim and Wasserman1996), suggesting that multicollinearity is unlikely to affect the estimated parameters.
RESULTS
Table 1 shows the means, standard deviations, and correlation matrix of the variables studied. The level of knowledge transfer is high (5.86), but this construct is not correlated with HVHR retention. The retention of acquired HVHR at the end of the first year of the M&A agreement is significantly positively correlated with the autonomy granted to the acquired firm (0.47, p < .001), with the relative profitability (0.34, p < .01) and with the frequency of use of rich media (0.30, p < .05).
Table 1 Means, standard deviations, and correlations
Note. HVHR = high-value human resources.
*p < .05; **p < .01; ***p < .001.
Table 2 reports the results of the hierarchical regression models that were used to test Hypotheses 1 and 2. Hierarchical regression adds controls, explanatory variables, and joint effect terms incrementally to gauge their relative contributions. In Model 1 the control variables were introduced. The model is not significant, indicating that the industry and the relative size do not influence knowledge transfer. Model 2 incorporates the two explanatory variables (HVHR retention and embeddedness of knowledge), and Model 3 includes the interaction variable ‘embeddedness of knowledge X HVHR retention.’ For it to be considered that the inclusion of the interaction variable increases the explanatory power of the model, it is necessary that the result of the model is significant, the interaction variable is significant and the change in F is significant.
Table 2 Results of regression analysis (dependent variable: knowledge transfer)
Note. Standardized regression coefficients (β coefficients) are shown.
HVHR = high-value human resources.
†p < .10; *p < .05; **p < .01; ***p < .001.
The results show that Model 3 fulfills the above conditions. Adjusted R 2 is 0.14 (p < .05). In Model 3, retention of the acquired firm's HVHR does not significantly influence knowledge transfer from the acquired firm to the acquirer. Thus, the results do not support Hypothesis 1. However, the interaction ‘embeddedness of knowledge × HVHR retention’ (β = 0.25; p < .10) is significant. Hypothesis 2 is therefore confirmed. Furthermore, though not put forward as a hypothesis, the results indicate that the degree of embeddedness of the knowledge positively and significantly (β = 0.34; p < .01) influences knowledge transfer.
To test Hypotheses 3–6 a two-step regression was carried out with ‘HVHR retention’ as the dependent variable (Table 3). In the first step (Model 1) the control variables were introduced. The model is not significant. In the second step (Model 2) the explanatory variables (autonomy, frequency of use of rich media, financial incentives, and relative profitability) were introduced. Model 2 is significant (adjusted R 2 = 0.35, p < .001) and has a notable explanatory capacity in view of its coefficient of determination. All the variables, except ‘financial incentives,’ are significantly related to retention of the acquired firm's HVHR and in the direction hypothesized. Hypotheses 3, 4, and 6 are therefore supported.
Table 3 Results of regression analysis (dependent variable: hvhr retention)
Note. Standardized regression coefficients (β coefficients) are shown.
HVHR = high-value human resources.
*p < .05; **p < .01; ***p < .001.
DISCUSSION AND CONCLUSIONS
We have explored the role of retention of the acquired firm's HVHR in the transfer of knowledge from the acquired firm to the acquiring firm. We hypothesized a model in which the retention of the acquired firm's HVHR improved knowledge transfer, this relationship being moderated by the degree of embeddedness of the knowledge to be transferred. Furthermore, we predicted that granting greater autonomy, using rich media, and offering financial incentives would improve the retention of the HVHR. We also hypothesized that better profitability of the acquired firm compared to the acquiring firm would contribute to greater retention of the acquired firm's HVHR.
Although it is generally affirmed that retention of the acquired firm's key personnel is a factor for the success of M&As, our study, focused on HVHR, has not been able to demonstrate that it independently influences knowledge transfer from the acquired firm to the acquiring firm. Several reasons may explain this result. First, the level of retention of top management and of other valuable personnel in our sample was fairly high during the year following the M&A, with only small variations. The high level of retention of the acquired firm's HVHR may be because, as indicated by Coff and Kryscynski (Reference Coff and Kryscynski2011: 1433): ‘individuals’ idiosyncratic contributions may be unobservable, making it unclear who should be retained.’ Thus, the acquiring firm may have retained the largest possible number of employees during this initial period, until it is able to evaluate more precisely which individuals hold the valuable knowledge of the acquired firm (Graebner, Reference Graebner2004).
The high level of HVRH retention may also be associated with the objective of the M&As. The retention of the acquired human resources may be more important or critical in M&As, whose objective is the transfer of knowledge and the accumulation of capabilities than in M&As motivated by the desire to reduce costs by means of economies of scale and rationalization. To achieve efficiency gains, the acquiring firm, or the new firm resulting from the combination, may consolidate activities, close production installations, rationalize product lines, and eliminate redundancies in the workforce. In these M&As the importance of retaining human resources diminishes.
Second, even though the employees have been retained, the challenge is to keep them motivated and affectively committed to the transfer of knowledge. Husted and Michailova (Reference Husted and Michailova2002) argue that the personnel may have a deeply rooted resistance to sharing the knowledge they possess and reusing knowledge from others. Paruchuri, Nerkar, and Hambrick (Reference Paruchuri, Nerkar and Hambrick2006) posit that the process of integration de-motivates the acquired personnel, disrupts their routines, and may negatively affect the transfer of capabilities. Kapoor and Lim (Reference Kapoor and Lim2007) show the negative impact of integration on the productivity of the acquired firm's inventors. Recently, Junni (Reference Junni2011) has underlined the importance of motivation of individuals in the firms for the transfer of knowledge from the target to the acquirer. According to the author, the transfer of knowledge and capabilities from one firm to another depends largely on the willingness of individuals to share their knowledge. If the employees of the acquired firm fear being exploited by the receiving unit without getting anything in exchange, they may be reluctant to share their knowledge.
Third, given that the study is about Spanish M&As, the results could be due to their specific cultural context. Spanish culture is characterized by a higher degree of power distance and uncertainty avoidance than US culture (Hofstede, Reference Hofstede2001), the framework in which most earlier studies of knowledge transfer in M&As have been carried out. Spanish culture is also characterized by a lower degree of masculinity and individualism (Hofstede, Reference Hofstede2001), which could favor the collaboration and sharing of knowledge necessary to achieve a high level of knowledge transfer even if HVRH retention is lower. However, given that the level of HVRH retention is quite high, it cannot be argued that the specific cultural context of this study influences the results.
The reasons given to explain the lack of a significant effect on knowledge transfer of the retention of the high value personnel indicate that the influence of retention on transfer must not, however, be ruled out. Consequently, more studies are needed in order to test this hypothesis in broader samples and in different contexts.
Our study confirms that HVHR retention contributes to the transfer when it interacts with the degree of embeddedness of the knowledge to be transferred. The more embedded the knowledge, the more continuity of the acquired firm's HVHR favors knowledge transfer from the acquired firm to the acquirer. Highly embedded knowledge can only be transferred through the contribution of the people in whom it is rooted, requiring close personal contact between possessor and receiver. The results of the study also show that the embeddedness of the knowledge positively and directly affects the transfer. From the strategic point of view, the knowledge residing in socially complex interactions between individuals and groups is more valuable (Brown & Duguid, 1991), as it is more difficult for competitors to imitate. Being more valuable, firms will be motivated to make a greater effort to encourage its transfer.
Since the model only explains 14% of the variance in knowledge transfer, we must acknowledge that other potential antecedents influence knowledge transfer in M&As. The difference between the organizational cultures of the participating firms, and prior experience of acquisition, among others, are factors that can significantly affect knowledge transfer.
The difference between the organizational cultures may hinder transfer insofar as they may negatively affect the employees’ attitudes and behaviors, reducing trust between the parties during the post-acquisition process (Stahl & Voigt, Reference Stahl and Voigt2008; Sarala, Reference Sarala2010; Stahl et al., Reference Stahl, Larsson, Kremershof and Sitkin2011) and making difficult the cooperation and interaction necessary for transfer (Junni, Reference Junni2011; Stahl et al., Reference Stahl, Larsson, Kremershof and Sitkin2011). However, different but complementary organizational cultures can provide potential for learning (Sarala & Vaara, Reference Sarala and Vaara2010) and value creation (Teerikangas & Very, Reference Teerikangas and Very2006). According to Sarala and Vaara (Reference Sarala and Vaara2010), the effect of organizational cultural differences on knowledge transfer depend more on how organizational relationships develop over time and on how the cultural integration process is managed. Future research should analyze how the management of cultural differences affects transfer.
In relation to the acquiring firm's prior experience in M&As, firms with significant acquisition experience may be able to discriminate adequately the particular requirements of each acquisition, while the less-experienced ones may apply inappropriately the lessons derived from past experiences in different contexts (Haleblian & Finkelstein, Reference Haleblian and Finkelstein1999). According to Al-Laham, Schweiger, and Amburguey (Reference Al-Laham, Schweiger and Amburguey2010), acquisition experience permits one to gain insights into the most suitable way of managing the integration process, and improves the capability of transferring and integrating knowledge. Also, experience of a pre-acquisition alliance between the firms implicated favors learning and improves the absorption capacity of the receiver of the knowledge (Al-Laham, Schweiger, & Amburguey, Reference Al-Laham, Schweiger and Amburguey2010), facilitating the transfer of tacit knowledge.
With respect to the antecedents of retention, the results of our study show that autonomy, the frequency of the use of rich media and relative profitability are the principal factors encouraging the personnel of the acquired firm to stay on during the year following the signing of the M&A agreement.
The influence of autonomy on retention is especially important, supporting the arguments set out in previous studies (Hambrick & Cannella, Reference Hambrick and Cannella1993; Lubatkin, Schweiger, & Weber, Reference Lubatkin, Schweiger and Weber1999; Ranft & Lord, Reference Ranft and Lord2000). Autonomy contributes to greater motivation, morale, and initiative, as well as a lower level of anxiety among the personnel (Datta & Grant, Reference Datta and Grant1990). Although, in the sample, the acquired firms enjoyed on average a moderate degree of autonomy, as this increases so does retention. The reduction of autonomy, implying greater changes in the acquired firm, accentuates the perception of domination exercised by the acquiring firm, creates a sense of loss and failure, diminishing the relative standing of the personnel of the acquired firm (Hambrick & Cannella, Reference Hambrick and Cannella1993; Lubatkin, Schweiger, & Weber, Reference Lubatkin, Schweiger and Weber1999; Paruchuri, Nerkar, & Hambrick, Reference Paruchuri, Nerkar and Hambrick2006), and generates lower commitment in the acquired personnel. All this precipitates a higher turnover.
Autonomy is related with the depth and speed of integration, which in turn have been linked with the realization of potential value of the M&As (Homburg & Bucerius, Reference Homburg and Bucerius2005; Cording, Christmann, & King, Reference Cording, Christmann and King2008). Integrating too much, too fast, may lead to the destruction of resources based on tacit and embedded knowledge (Graebner, Reference Graebner2004; Puranam, Singh, & Zollo, Reference Puranam, Singh and Zollo2006). In a case study of technology acquisitions, Ranft and Lord (Reference Ranft and Lord2002) showed the importance of slow gradual integration so as not to damage the technological capabilities of the acquired firm; Paruchuri, Nerkar, and Hambrick (Reference Paruchuri, Nerkar and Hambrick2006) confirmed that integration was very harmful for the inventors who were most socially embedded in collaborative relationships with their pre-acquisition colleagues; and Puranam and Srikanth (Reference Puranam and Srikanth2007) discovered that structural integration was negatively associated with the acquirer's success at leveraging the innovative capabilities of acquired firms in technology acquisitions, due to the disruptive effects of reducing the autonomy of the acquired firm. The change implied by integration disrupts established routines and alters the identity of the acquired firm, increasing the likelihood of employee attrition (Björkman, Stahl, & Vaara, Reference Björkman, Stahl and Vaara2007), which negatively influences their willingness to participate in the teaching–learning process required for the transfer of tacit knowledge (Paruchuri, Nerkar, & Hambrick, Reference Paruchuri, Nerkar and Hambrick2006).
Although the autonomy granted to the acquired firm facilitates the preservation of capabilities and tacit and embedded knowledge through the retention of the HVHR, it may also be an obstacle for the transfer as it hinders access to the knowledge possessed by the acquired firm (Ranft & Lord, Reference Ranft and Lord2002; Castro & Neira, Reference Castro and Neira2005). Nevertheless, if the acquiring firm wishes to retain the high value personnel of the acquired firm, the results suggest that it must take a preservation approach to begin with even if the longer-term objective is to fully integrate the firms (Haspeslagh & Jemison, Reference Haspeslagh and Jemison1991). New studies are needed to analyze how firms balance the need for integration to transfer the capabilities with the need to preserve them, especially when they are based on embedded or socially complex knowledge.
Our study also supports the importance of using rich media during the first year after the M&A as an antecedent of retention. The existing literature indicates that communication is one of the factors most influencing the successful implementation of an M&A (Marks, Reference Marks2007; Meyer, Reference Meyer2008). As well as helping to reduce uncertainty and ambiguity, communication can help to prevent or to lessen cultural conflicts, to mitigate the stress experienced by the employees and to maintain the commitment of the HVHR to the change and to the new entity after the acquisition. Ellis, Reus, and Lamont (Reference Ellis, Reus and Lamont2009) confirm that informational justice affects the creation of value during integration efforts in related acquisitions. Dedicating time to communication, fundamentally to that of an interpersonal nature, encourages the acquired firm's personnel to stay on.
As relative profitability increases, the acquiring organization strives to retain more people, supporting the results of previous studies (e.g., Hambrick & Cannella, Reference Hambrick and Cannella1993).
Finally, this study, like that of Ranft and Lord (Reference Ranft and Lord2000), has found no relationship between financial incentives and retention of the acquired firm's HVHR. This result may be due to various reasons. First, the data show that almost no firms in the sample offer financial incentives to encourage the HVHR to remain. Considerations of an economic character may have limited their application, as the costs associated with the deal have increased and negatively influenced the profitability of the operation. Second, the motivation for staying in the new organization is not so much economic, especially when the employees are highly qualified, so that even if the firms have established attractive financial incentives, these may not be enough to retain the HVHR (Wickramasinghe & Karunaratne, Reference Wickramasinghe and Karunaratne2009). The opportunities for promotion in the firm, for training and development or participation in new projects, may be stronger incentives to stay than monetary ones. The intrinsic motivation and the ambitiousness of a new project may stimulate retention in the context of acquisitions. In a recent survey by McKinsey of 1,049 executives, managers and employees around the world (Dewhurst, Guthridge, & Mohr, Reference Dewhurst, Guthridge and Mohr2010), the respondents considered three non-cash motivators – praise from immediate managers, leadership attention (e.g., one-on-one conversations), and a chance to lead projects or task forces – to be motivators as effective as, or more effective than, financial incentives: cash bonuses, increased base pay, and stock or stock options.
Third, the scale used, though similar to that used in other studies (e.g., Ranft & Lord, Reference Ranft and Lord2000), may be unable to capture adequately the financial incentives provided.
The results should be interpreted with caution due to the size of the sample, the measurement of the constructs, and the use of a single informant. In particular, a larger sample size could have increased the power to find a significant relationship between retention of the acquired firm's HVHR and knowledge transfer.
Given that the constructs cannot be measured directly using archival data, similar to other acquisition studies (e.g., Capron, Reference Capron1999; Ellis, Reus, & Lamont, Reference Ellis, Reus and Lamont2009) we used data from a single respondent. Although the respondents had detailed knowledge of the process of integration and transfer, the use of multiple informants would improve the validity of the findings and reduce the potential response bias. Further studies, with multiple informants from the acquired firm and from the acquirer, are required in order to corroborate the results and to explore these relationships.
Despite the limitations, we believe that the study helps to understand better the role of the acquired firm's HVHR in knowledge transfer in M&As, demonstrating that the importance of retention must take into consideration the nature of the knowledge to be transferred. Also, if the aim is to retain the acquired firm's HVHR, management must pay careful attention to the level of autonomy provided, and dedicate time to communication, especially that of an interpersonal nature.
Acknowledgements
The authors would like to thank the editor and two anonymous reviewers for their insightful comments on an earlier version of this article.
