Capability transformation through acquisitions : The interplay between interest alignment and knowledge leveraging mechanisms

Purpose Firms across many industries use acquisitions as a vehicle for renewing their capabilities. Many such acquisitions fail to achieve their goals, mainly because of the trade-offs involved in managing the post-acquisition integration process. The acquisition integration process not only is an important phenomenon by itself but also offers a unique opportunity to gain insight into how firms transform their capabilities more generally. Recent strategic management literature has begun to recognize the importance of incorporating individual-level cognitive, motivational and behavioral mechanisms into firm-level explanations, although empirical studies within this vein have been scarce. Design/methodology/approach This longitudinal inductive study traces the process of capability transformation in an acquisition of a medium-size entrepreneurial firm by a larger corporation. Findings The authors found that capability transformation involved a continuous interplay of knowledge leveraging and interest alignment mechanisms, converging around a set of practices that were considered critical for the capability. Only after firms achieved an agreement about this set of practices that knowledge leveraging efforts translated into actual performance. Originality/value The study contributes to the literature on competitive advantage by developing a better link between the potential advantage derived from the availability of knowledge-based resources and the translation of this availability into actual firm performance. This study also advances knowledge on managing post-acquisition integration process by demonstrating which managerial skills and actions contribute to the integration capability.