IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. zyxwvutsrqpo 31. NO. zyxwvutsrqp 4, NOVEMBER 1990 259 Organizational Factors in Post-Acquisition Performance ALOK K. CHAKRABARTI Abstmct-Post acquisition success of firms depends not only on the strategic fit between the merging firms but zyxwvutsrqpo also on the organizational integration between them. Research in economics and finance has been focused on the stock market data and has neglected the impact of organizational variables on performance. The study reported here is based on 31 acquisitions for which data have been obtained from executives’ in the acquired divisions as well as the corporate officers by structured interviews and questionnaires. The study shows a lack of relationship between the professed motives of acquisition and post acquisition performance. It seems that the lure of quick profitable growth through acquisition does not often materialize regardless of motive. The level of integration between the acquired division and the its parent is related with performance measured in terms of sales, profit, return on investment, market share growth, innovation, and broadening of customer base. The post-acquisition performance is also dependent on a variety of factors and assistance accorded to the division by the corporate Organization. Intensive communication between the acquired division and the other organizational units on technology, joint projects, etc. are key elements in sharing the strategic capabilities. Increased level of formalization in resource allocation and other management decision areas adversely affects performance. Turnover of key technical and managerial personnel negatively affects performance. Prior understand- ing of the business of the acquired firm by the acquiring organization is helpful in post acquisition period. Our study point to the old saying that there is many a slip between the cup and the lip. Management of acquired units need more understanding and an attitude of investment in future. Many organizations have rushed into the game of acquisitions without proper organizational considerations and paid for their mis- takes. INTRODUCTION ERGERS and acquisitions have played a significant M role in corporate growth and development in the United States with a profound impact on our economy. Laws related to antitrust, and other federal and state regulations control acquisition behavior of corporations to prevent the adverse impact of certain types of acquisitions on the economic well being of the nation. The potential impact of mergers on corporate performance has remained a controversial topic. While the presumption of most economists, in line with the efficient market theory ([53], [42], [31]), is that mergers improve overall economic performance, this by no means, has been conclusively proved. Some economists have ques- tioned the post acquisition performance of firms ([9], [12], Manuscript received December 12, 1988; revised February 25, 1990. The review of this paper was processed by P. H. Birnbaurn More. This study was supported by grants from the National Science Foundation, Grants No. zyxwvuts IS1 82-12791 and IS1 83-101 16. The author is with the School of Industrial Management, New Jersey Institute of Technology, Newark, NJ 07102. IEEE Log Number 903902 1. [131-[151, [181, [211, W I , [361, W I , [471, [491, t501)- Certainly the business press has made people well aware of some conspicuous merger failures as well as some clear successes. The key question in this paper is not whether mergers are all good or bad but what factors lead to their success or failure. Two factors are generally taken to predict the success of an acquisition: strategic fit in terms of product, market, and technology between the acquirer and the target [42], [27], [44], [43] and organizational fit between the two entities [25], [30], [22], zyxwvu [ 171, [23]. In other words raising the performance level of the acquired unit will be dependent not just on the zyx a priori strategic fit between resources and product lines but also on the organizational integration of the acquired unit and the parent. The debate among economists and researchers focusing on market data as performance measures has tended to neglect the impact of organizational variables on perfor- mance. In contrast we have concentrated here on the organi- zational aspects of integrating the acquisition into the corpo- ration, i.e., on how well the partners to the match work with each other. Our approach is consistent with Lubatkm and Shreves [32] who have commented that “market based per- formance measures can provide researchers of strategic man- agement with a powerful test of corporate performance, though not the only test”. Rapid acquisition and divestiture of Frontier Airlines by People Express is a recent example of failure of acquisition as a strategic method for gaining economic vitality. Consider the case of Schlumberger. Schlumberger has been unable to derive any synergic advantages from acquiring Fairchild Semiconductor. This merger was hurt because their manage- ment process failed to understand the requirements of manag- ing a business in a rapidly changing technological environ- ment under great competitive pressure. Fairchild was in- volved in an extremely dynamic technological environment where the importance of R&D could not be overestimated. On the other hand, Schlumberger, primarily an oil service company, was in a more stable technological environment. When Schlumberger tried to manage Fairchild the same way it had managed its other business units, it created many difficulties. For example, resources were not made available to R&D with the consequence of loosing technical edge which Fairchild once had. Creative and talented technical personnel left the organization and the company was unable to put technical teams together to pursue new technological advancement. These factors seriously hurt Fairchild in the long run [16], [4]. 0018-9391/90/1100-0259$01.00 zyxwv 0 1990 IEEE