Is an acquisition or an alliance better for expanding firm knowledge?
Knowledge is one of the most strategically significant resources for any firm. Finding new sources of knowledge is critical for firms in fast-paced industries like technology. New learning can be developed internally or found externally through others. This research examines whether acquisitions or alliances are better sources for external knowledge.
What you need to know:
Technology firms exist in a fast-paced industry where knowledge is a key competitive resource. When considering external sources for new knowledge, firms should contemplate the value and complexity of the knowledge required – when either is high, acquisition should be the primary source for the information. Alliances are the preferred method when the required knowledge has already been shared with others or when the knowledge is very specific and short-term oriented.
What did the researchers do?
Sofy Caryannopoulos and Ellen Auster asked: is an acquisition or alliance better for a firm based on:
- attributes of the needed knowledge;
- the past experiences of the two firms; and
- knowledge similarity between the firms.
To answer this question, the team studied 209 pairs of firms in the biotechnology sector.
What did the researchers find?
Caryannopoulos and Auster found that firms should use acquisitions as a source for knowledge that is highly complex or is high in long-term value. In both situations, knowledge transfer is more effective and occurs faster via acquisition than via alliance. Acquisition is also the better choice when the knowledge required is competitively valuable and the source of the knowledge has not freely shared it with an extensive network of alliance partners. If such knowledge has been shared or is very specific, it is unlikely to be a long-term source of competitive advantage, so should be sourced through alliance.
The experience of both firms with respect to prior alliances and acquisitions also impacts which option firms should pursue. If both firms have rich alliance experience but little acquisition experience, then an alliance relationship is likely the better choice. However, firms should be cautious of the role of habit in making this choice – while experience can predict success, it should not be the default choice when all other factors suggest a different path to success.
How can you use this research?
Technology firms can use this research to create a list of criteria to consider when choosing between acquisitions or alliances. However, note that these results are specific to the quest for knowledge expansion.
Want to know more?
Article citation: Carayannopoulos, S. & Auster, E. (2010). External Knowledge Sourcing in Biotechnology Through Acquisition Versus Alliance: a KBV Approach. Research Policy, 39, 2 pp. 254-267.