Experience and Learning in Corporate Acquisitions

Ilaria Galavotti

Experience and Learning in Corporate Acquisitions Theoretical Approaches, Research Themes and Implications

Experience and Learning in Corporate Acquisitions

Ilaria Galavotti

Experience and Learning in Corporate Acquisitions Theoretical Approaches, Research Themes and Implications

Ilaria Galavotti Università Cattolica del Sacro Cuore Piacenza, Italy

ISBN 978-3-319-94979-6    ISBN 978-3-319-94980-2 (eBook) https://doi.org/10.1007/978-3-319-94980-2 Library of Congress Control Number: 2018953327 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG, part of Springer Nature 2019 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Acknowledgments

My deep and affectionate gratitude goes to Prof. Daniele Cerrato, my guide in academia, for his precious suggestions, his motivating dedication, and his ability to nurture my intellectual curiosity. Special thanks for the two anonymous reviewers, for their constructive feedback, and to Prof. Franca Cantoni, for the valuable brainstormings on organizational theories. Gratitude goes to Liz Barlow and Lucy Kidwell and to the entire editorial staff, for their essential and patient assistance throughout the whole process. This book would not have been such a pleasant experience without Paolo, who has been my stable pillar, my primary and empathetic supporter, patiently taking care of me when a great part of my energy was in this book. And without my family, the constant team of my life.

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Contents

1 Strategic Decisions: Theoretical Foundations of Organizational Decision-Making   1 1.1 Introduction to Strategic Decision-­Making: Definitions and Traits  1 1.2 Theoretical Foundations of Strategic Decisions   4 1.2.1 Functionalist Social Theory   5 1.2.2 Decision-Making and Bounded Rationality   7 1.2.3 The Behavioral Theory of the Firm   9 1.2.4 The Political Perspective and the Garbage Can  12 1.2.5 Contingency Theory and Strategic Choice Perspective 13 1.2.6 Population Ecology and Evolutionary Theories  17 1.2.7 Resource Dependence Theory  20 1.2.8 Transaction Cost Economic Theory  22 1.2.9 Neo-Institutional Theory  24 1.3 The Theoretical Evolution of the Decision-Making Actor and Its Rationality  27 1.4 A Procedural Perspective on Strategic Decision-Making  31 1.4.1 Phases and Relevant Routines  31 1.4.2 The Information System: Role and Symbolism  34 References 35 vii

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2 Experience and Learning: Theoretical Perspectives and Effects on Strategic Decision-Making  41 2.1 The Organizational Learning Perspective: An Introduction 41 2.2 Heritage from Epistemological Orientations on Learning  43 2.2.1 Behaviorism  44 2.2.2 Cognitivism  48 2.2.3 Constructivism  49 2.3 Definitions of Learning: Individualand Organizational-­Level Implications  50 2.4 Epistemological and Ontological Dimensions of Knowledge 54 2.5 Critical Issues in Organizational Learning: The Problem of Organizational Anthropomorphization  57 2.5.1 Knowledge Acquisition  58 2.5.2 Organizational Memory  59 2.5.3 Unlearning  60 2.5.4 Integrative Efforts  61 2.6 Strategic Decision-Making and Organizational Learning Systems  62 2.6.1 Organizational Learning: The Institutionalization of Organizational Learning  63 2.6.2 Organizational Learning Systems: Types and Decision-Making Models  64 2.7 Experience as a Form of Adaptive Rationality  66 2.8 Experience as Source of Path Dependence  67 2.9 Experience as a Form of “Intelligent Adaptation”: Experiential Learning Theory  70 2.10 Experience as Analogical Reasoning for Reduction of Perceived Uncertainty  73 2.11 Experience and Judgment  75 2.11.1 Causal Attribution  75 2.11.2 Attribution and Hubristic Effects  79 2.11.3 Cognitive Simplification Processes and Learning Disorders  80 References 83

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3 Mergers and Acquisitions as Strategic Decisions  91 3.1 Mergers and Acquisitions Among Strategic Decisions: Distinctive Characteristics  91 3.2 Value Creation in Acquisitions  92 3.2.1 Sources of Synergy  93 3.2.2 Value Creation vs. Value Appropriation  98 3.2.3 Value Creation vs. Value Destruction  99 3.2.4 Perspectives on Value Creation: Strategic Fit, Organizational Fit, and the Process Perspective 102 3.3 Linking Mergers and Acquisitions to Corporate Strategy: An Integrative Perspective 112 3.3.1 Strategic Continuity vs. Renewal 114 3.3.2 Implementing Strategic Renewal 114 3.3.3 From Corporate Renewal Objectives to Acquisition-Type Selection 117 3.4 Toward a Role of Experience and Learning in Mergers and Acquisitions118 References119 4 Systematic Literature Review on Experience and Learning in Acquisitions: Search Strategy and Data Synthesis 125 4.1 Introduction to Systematic Literature Review 125 4.1.1 Definition and Relevance of Conducting a Systematic Literature Review Process 125 4.1.2 General Rules for a Systematic Review Process 126 4.2 Planning the Review 127 4.2.1 Identification of the Need for a Review and Review Proposal 127 4.2.2 Review Protocol: Search Strategy and Criteria 129 4.3 Conducting the Review 130 4.3.1 Article Selection and Data Extraction 130 4.3.2 Data Synthesis: Descriptive Analysis of the Selected Articles 131 References135

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5 Conceptualization of Experience and Learning in Acquisitions: A Thematic Evolution 139 5.1 Evolution of the Conceptualization of Experience and Learning in Research on Acquisitions 139 5.1.1 The Point of Departure: The Learning Curve Perspective139 5.1.2 Evolutionary Trends in the Conceptualization of Experience141 5.2 Firm-Nested Experience 145 5.2.1 Acquisition-Related Experience 146 5.2.2 Fungible Nonacquisition-Related Experiences 156 5.3 Interorganizational Experience 162 5.3.1 Observational Experience 162 5.3.2 Relational Experience 164 5.4 Qualitative Attributes of Experience and Experiential Processes166 5.4.1 The Time Dimension of Experience 167 5.4.2 The Degree of Experience Heterogeneity 168 5.4.3 Deliberate Learning Through Experience Codification169 5.4.4 The Interaction Between Experience and Performance Feedback 170 References173 6 Thematic Analysis of Experience and Learning Effects in Acquisitions 183 6.1 Identification of the Macro-Thematic Areas 183 6.2 Acquisition-Related Strategy: Governance Decisions, Corporate Scope Growth, Ownership, and Acquisition Behavior184 6.2.1 Choice of Acquisitions as a Governance Decision 185 6.2.2 Choice of Acquisition Types for Corporate Scope Growth189 6.2.3 Ownership Decisions: Equity Participation 191 6.2.4 Acquisition Behavior: Acquisition Propensity and Acquisition Activity 193

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6.3 Acquisition Process Choices 198 6.3.1 Selection Stage Decisions 199 6.3.2 Negotiation Stage Decisions 201 6.3.3 Post-Acquisition Phase: Integration Design and Task-Specific Integration 206 6.4 Post-Acquisition Outcomes 207 6.4.1 Economic Performance Outcomes 208 6.4.2 Payment-Related Outcomes 210 6.4.3 Knowledge and Capabilities Development 212 6.4.4 Subsidiary-Level Effects: Survival and Evolution 213 6.4.5 Integration-Level Performance 215 6.4.6 Managerial Effects and Directors’ Role 218 6.5 Cross-Thematic Effects of Interorganizational Experience 220 6.5.1 Transversal Effects of Mimetic Processes from Observational Experience 220 6.5.2 Effects of Interorganizational Relational Experience223 6.6 A Specific Research Context: Serial Acquirers and Acquisition Programs 224 References228 7 Methodological Approaches to the Empirical Examination of Experience and Learning in Acquisitions 239 7.1 Research Methodologies on Experience Constructs in Acquisitions239 7.2 Operationalization Approaches to Experience and Conceptual Implications 242 7.2.1 Methods for the Operationalization of Focal Firm Experience: Dichotomous and Discrete Measures242 7.2.2 Methods for the Operationalization of Interorganizational Experience 246 7.2.3 Time Horizon of Experience 257 7.2.4 Measures of Qualitative Aspects of Experience 263 7.2.5 Measures of Experiential Dimensions in Acquisition Programs and Methodological Implications of the Definition of Serial Acquirers 269

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7.3 Insights from Qualitative Studies 270 7.4 Locus of Experience: Individual, Group, Firm, Interorganizational271 7.5 Concluding Remarks on Methodological Maneuvers for the Measurement of Experience 274 Appendix278 References287 8 Implications for Research and Conclusions 299 8.1 A Proposed Conceptualization of the Organizational Learning Process 299 8.2 Future Research Avenues 301 8.2.1 Experience Loci and Knowledge Sources 302 8.2.2 Theory Development: Potential Intersections Among Path Dependence, Institutional Theory, and Transfer Theory 307 8.2.3 Research Avenues on Qualitative Attributes of Experience and Experiential Processes 309 8.2.4 Research Avenues on Empirical Approaches and Implications of Methodological Choices 315 8.2.5 Dyadic Approach to Experience: Exploration of Experience Asymmetries 317 8.2.6 Research Avenues on the Specific Context of Serial Acquirers and Acquisition Programs 318 8.3 Conclusions 319 References321 Index 327

List of Figures

Fig. 3.1 A process perspective: Acquisition decision-making and integration processes. Source: Based on Haspeslagh and Jemison (1991) and Jemison and Sitkin (1986) 107 Fig. 3.2 Integration approaches matrix. Source: Adapted from Haspeslagh and Jemison (1991) 112 Fig. 3.3 An integrative perspective on the relationship between acquisitions and corporate strategy. Source: Adapted from Ansoff (1957) and Haspeslagh and Jemison (1991) 113 Fig. 4.1 Phases of the systematic literature review process. Source: Adapted from Tranfield et al. (2003) 127 Fig. 4.2 Distribution of papers by year of publication 132 Fig. 4.3 Distribution of papers by journal 132 Fig. 4.4 Distribution of papers by discipline 133 Fig. 4.5 Most cited papers 134 Fig. 5.1 Thematic evolution of the notion of experience in acquisitions 146 Fig. 5.2 Thematic areas on firm-nested experience 148 Fig. 5.3 Thematic map of nonacquisition-related experiences 157 Fig. 5.4 Thematic map of sources and types of observational experience 164 Fig. 6.1 Thematic map of experience effects in acquisitions 184 Fig. 6.2 Thematic areas related to the effect of experience on acquisition strategy186 Fig. 6.3 Thematic map of post-acquisition outcomes 209

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Fig. 6.4 Effects of interorganizational experience 221 Fig. 6.5 Experience-related dimensions analyzed in studies on serial acquirers and acquisition programs 225 Fig. 7.1 Measures of experience 242 Fig. 7.2 Conceptual representation of discount factors for experience depreciation264 Fig. 7.3 Conceptual representation of experience loci 273 Fig. 8.1 A proposed conceptual model of learning in the organization 300

List of Tables

Table 7.1 Positioning of quantitative studies as a function of the experience variables’ role in modeling Table 7.2 Role and measures of experience and learning in empirical research on interorganizational experience Table 7.3 Time horizons selected by studies adopting dichotomous measures of experience Table 7.4 Time horizons selected by studies adopting discrete measures of experience Table 7.5 Positioning of studies based on experience locus and macrothematic area of experience outcomes Table 7.6 Representative empirical studies on organizational experience in acquisitions Table 7.7 Representative empirical studies on individual and group experiences in acquisitions Table 7.8 Representative empirical studies on interorganizational experience in acquisitions

241 249 260 261 275 278 283 286

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Context and Aims of the Book In virtue of its longevity and its crucial relevance in shaping the competitive arenas, the phenomenon of mergers and acquisitions has unceasingly continued to pique the interest of academics, practitioners, and policy-makers. The intense acquisition activity throughout the decades has resulted in a steady scholarly effort to develop fertile conversations upon different aspects of this corporate strategic move with the aim of identifying a set of unambiguous factors that trigger value creation. Specifically, acquisition scholars have long tried to understand the circumstances that may be held responsible for value creation or value destruction following acquisition moves. At the core of most published articles lies the argument that firms substantially differ in terms of their ability to perform acquisitions. Because acquisitions, although mostly considered as infrequent events (e.g., Zollo 2009), may repeatedly occur during a firm’s life, scholars have started to wonder whether, if compared to first-time acquisitions, performance improvements may be obtained over time thanks to experiential learning effects (Barkema and Schijven 2008). Acquisition scholars have thus approached the role played by experience and learning with the intuitive expectation that they should have a positive effect on acquisition performance. xvii

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More and more, it has been acknowledged that acquisitions require an impressively high set of dynamic capabilities (Winter 2003), among which learning from experience is presented as a key determinant both in a choice and in a process perspective, as capabilities are embedded in activities and routines and accumulate incrementally through experience (Anand and Khanna 2000). Within this corpus of literature, which started to emerge during the 1980s borrowing notions from the long tradition of psychology, attention has been devoted to experience as both a potential driver of acquisition choices and activity and as an intervening force that may contingently play a role in affecting post-acquisition performance. The extensive effects potentially associated with experience and learning have set in motion manifold queries in various domains, making the topic inherently interdisciplinary. At the same time, its intrinsically multifaceted and contingent quintessence has engendered evanescent findings, from which numerous intricate and unsolved puzzles seem to emanate. The profoundly inconsistent empirical results obtained have increasingly challenged the idea that experience automatically translates into learning and has provided a fertile territory of inquiry, upon which an entire branch of studies has proliferated. The field of strategic management has a long history of contributions, whereby the words “finally, knowledge of the source of takeover gains still eludes us” (Jensen and Ruback 1983, 47) seem to be true more than ever. Indeed, after more than three decades of literature on what still represents a hot topic in acquisition research, we are still quite far from reaching consonant conclusions. Indeed, not only are empirical results profoundly discordant, but also the varied theoretical perspectives used have collectively resulted in an increasing need to clarify the theoretical foundations upon which the investigation of experience and learning in acquisitions rests. The aim of this book is therefore to systematize the body of knowledge that has been built by the different scientific communities working on this topic and to identify regions of controversy and potential areas of cross-fertilizing conversations.

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Structure of the Book A schematic representation of the structure of the book is offered in Fig. 1. Understanding the role of learning in mergers and acquisitions implies, at first, the need to contextualize such moves within the broader framework of strategic decisions. Chapter 1 therefore provides an introductory overview of strategic decision-making and directs attention to the examination of those perspectives that over the decades have laid the foundations for the development of our understanding of both organizational decision-making processes and contents and the role of the human agent. The theoretical perspectives proposed in this chapter not only represent an excursus along the evolutionary path of thinking on the topic of organizational decision-making but also provide an overview of the most salient theories upon which studies on experience and learning in acquisitions have built. The chapter then proceeds with an examination of the conceptual evolution of the decision-making actor and of its rationality and concludes with a section dedicated to unveiling the procedural dimension of strategic decisions. Particularly, the strategic decision-­making process is Experience and learning (Chapter 2)

Strategic decision-making (Chapter 1)

Mergers and acquisitions (Chapter 3)

Systematic literature review 1985-2017 (Chapter 4)

Thematic evolution of the conceptualization of experience and learning in acquisitions (Chapter 5)

Thematic analysis of experience and learning effects in acquisitions (Chapter 6)

Implications and avenues for future research (Chapter 8)

Fig. 1  Structure of the book

Methodological approaches to the examination of experience and learning in acquisitions (Chapter 7)

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disentangled into its constituent phases, and for each of them the relevant supporting routines are identified and described. As a concluding focus, this chapter recalls the symbolic function of the information system and introduces the role of experience and learning processes as an intervening force that has challenged the view of a clear and direct link between information and decisions. Chapter 2 contextualizes the long-established tradition of organizational learning within the broader framework of psychological theories of learning. The chapter starts by navigating the waters of three epistemological trajectories, that is, the behavioral, the cognitive, and the constructivist schools, that have provided different heritages to organizational learning. Secondly, critical issues underlying learning are uncovered: starting from the examination of some of the most influential definitions of learning, the chapter covers the long-lasting debate upon the anthropomorphization of organizations. The second part of the chapter delves into the diverse roles that experience plays in strategic decision-making: after describing the dynamics through which organizational learning is institutionalized, implications of experience in strategic decisions are discussed in terms of adaptation, path dependence, experiential learning, analogical reasoning, and attribution inferences, with a concluding focus on cognitive heuristics and learning disorders. Chapter 3 provides an overview of mergers and acquisitions as strategic moves that allow corporate renewal. After identifying the distinctive features of mergers and acquisitions as compared to other strategic resource allocation decisions, the sources of value creation are analyzed and the concept of value creation is distinguished across four main schools of thought: the capital markets school, the strategic school, the organization behavior school, and the process perspective. The chapter further examines the notion of value in mergers and acquisitions by including two additional phenomena: value appropriation and value destruction. The analysis then moves to establishing a linkage between acquisitions and the firm’s broader corporate strategy. Finally, the chapter concludes with the inclusion of the role of experience and learning in mergers and acquisitions as a pervasive force driving both decision-making and integration aspects.

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Chapters 4, 5, 6, and 7 offer the thematic and methodological analysis of experience and learning in acquisitions, based on a systematic literature review, whose protocol is explained in details in Chap. 4. In particular, the systematic review includes more than 140 papers published in the period 1985–2017 on 54 journals covering 11 disciplines. Chapter 5 represents the first of two closely interrelated chapters dedicated to a thematic analysis of research on the topic of experience and learning in acquisitions. This chapter directs attention to the diverse conceptualizations of experience and learning within the systematized literature and, starting from the learning curve perspective as point of departure, it disentangles four different evolutionary trends that have characterized the conceptual progression of these notions. Specifically, this chapter provides an analysis of existing contributions on and implications of four conceptual evolutionary trends: (1) the evolution from a notion of experience as an undifferentiated, monolithic stock of ­acquisition experience toward the appreciation of the role played by specific types of experience; (2) the progression from a more focused approach that directs attention only to experiences deriving from prior acquisitions to experiences that, although not gathered from acquisitions, may still be fungible in an acquisition context; (3) the enlargement of perspective brought about by an increasing interest toward experiences of an interorganizational nature if compared to the more established route of focusing solely on the focal firm’s experience; and (4) the evolution toward the exploration of qualitative traits of experience and learning, that is, depreciation, heterogeneity, codification of experience, and the interaction mechanisms between experience and performance feedback. Chapter 6 offers a thematic analysis of the effects of experience and learning in acquisitions. Throughout the chapter, three macro-thematic areas are identified: acquisition-related strategy, acquisition process choices, and post-acquisition outcomes. For each macro-thematic area, themes and subthemes are examined and schematic maps will help the reader to clearly identify both the backbone of existing research and the interconnections among the different thematic areas. The chapter also includes a separate examination of the specific research context of serial acquirers and acquisition programs and a transversal analysis of the effects

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played by interorganizational experience across the different thematic areas. Chapter 7 is focused on the analysis of the empirical and the methodological approaches used over the decades to examine the constructs of experience and learning in the context of acquisitions. After highlighting the diverse research methodologies used, the chapter scrutinizes the different methodological approaches to the operationalization of experience variables and of experiential qualitative traits. In addition, the time window for the operationalization of experience variables is discussed and a positioning of studies on the basis of the locus of experience, that is, individual, group, organizational, interorganizational, is proposed. The chapter also provides an examination of operationalization approaches adopted in research on serial acquirers and their implications on both sample selection and construct validity. Throughout the chapter, the different sections are enriched with tables that summarize and position the diverse studies along the multiple methodological issues covered. Chapter 8 dedicates attention to research implications derived from the overall systematic analysis conducted in the previous chapters. Specifically, starting from some unresolved controversial areas, the chapter proposes an integrative perspective on the phenomenon of organizational learning, with the intent not only to bridge together the diverse theorizations proposed throughout the decades but also to highlight areas of potential development. The chapter then proceeds with the identification of several research avenues in terms of research gaps and potential evolutions at both the theoretical and the methodological levels.

References Anand, Bharat N., and Tarun Khanna. 2000. Do Firms Learn to Create Value? The Case of Alliances. Strategic Management Journal 21: 295–315. Barkema, Harry G., and Mario Schijven. 2008. How Do Firms Learn to Make Acquisitions? A Review of Past Research and an Agenda for the Future. Journal of Management 34: 594–634. Jensen, Michael C., and Richard S. Ruback. 1983. The Market for Corporate Control: The Scientific Evidence. Journal of Financial Economics 11: 5–50.

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Winter, Sidney G. 2003. Understanding Dynamic Capabilities. Strategic Management Journal 24: 991–995. Zollo, Maurizio. 2009. Superstitious Learning with Rare Strategic Decisions: Theory and Evidence from Corporate Acquisitions. Organization Science 20: 894–908.

1 Strategic Decisions: Theoretical Foundations of Organizational Decision-Making

1.1 Introduction to Strategic Decision-­ Making: Definitions and Traits Historically, strategic management has been conceived by its founding fathers as a holistic and integrative area. Chandler (1962) defined strategy as “the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals” (13). A more detailed elaboration of the contents of strategy is found in the definition proposed by Andrews (1980), who defines strategy as “the pattern of decisions in a company that determines and reveals its objective, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of businesses the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities” (18). In this definition, strategy is acknowledged to encompass both the growth strategy for domain-definition and the

© The Author(s) 2019 I. Galavotti, Experience and Learning in Corporate Acquisitions, https://doi.org/10.1007/978-3-319-94980-2_1

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competitive, or domain-navigation, strategy for positioning at business level (Zollo et al. 2018). Hofer (1975) was the first to propose this hierarchical classification of strategy, distinguishing between the following: • Domain-definition strategy, which “refers to the organization’s choice of domain or change of domain” (Bourgeois 1980, 27), and • Domain-navigation strategy, defined as the set of “competitive decisions made within a particular product-market (e.g., industry), or task environment” (Bourgeois 1980, 27). Strategic decision-making may be outlined as a peculiar type of the more general concept of organizational decision-making. An organizational decision is defined as “a specific commitment to action (usually a commitment of resources)” (Mintzberg et al. 1976, 246) and is the result of a decision process, described as the “set of actions and dynamic factors that begins with the identification of a stimulus for action and ends with the specific commitment to action” (Mintzberg et al. 1976, 246). Broadly speaking, organizational decisions are characterized by different degrees of complexity and uncertainty and may be distinguished into programmed and unprogrammed decisions. • Programmed decisions are repetitive in nature and, typically, problem-­ solving is based on existing procedures that provide clear criteria for performance valuation. Information on organizational conditions is available and alternative courses of action can be easily identified. • Unprogrammed decisions are new and hence not based on any existing procedure: the lack of any previous experience with the “focal problem” makes it difficult for the organization to identify both criteria and alternatives, which leads to a greater degree of uncertainty. The most frequently occurring category of unprogrammed decisions is strategic decisions. According to Mintzberg et al. (1976), it is possible to single out three main types of strategic decisions as a function of the nature of the conditions that elicit the decision problem:

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• Opportunity decisions, that is, decisions that are voluntarily initiated to improve a situation that is already secure; • Problem decisions, that is, decisions that are evoked by pressures; and • Crisis decisions, that is, decisions that are evoked by a severe situation that demands immediate actions. Strategic decisions may be distinguished from other organizational decisions for a number of characteristics. First, they are extremely relevant choices that build the backbone of a firm path and courses of action and are inherently ambiguous due to their lack of structure (Mintzberg et al. 1976). Being unstructured, strategic decisions imply unstructured decision processes, that is, “decision processes that have not been encountered in quite the same form and for which no predetermined and explicit set of ordered responses exists in the organization” (Mintzberg et al. 1976, 246). The “unstructured” attribute implies that strategic decisions are characterized by novelty, complexity, and open-endedness. Second, strategic decisions involve the commitment of a huge volume of resources (Chandler 1962; Shrivastava and Grant 1985) and have pervasive organizational effects: strategic decision-making lies at the core of the alignment between the firm and the environment (Bourgeois 1980) and is strongly interconnected with structure (Burgelman 1983). Strategic decisions therefore have a major influence on organizational direction and structure (Shrivastava and Grant 1985), thus affecting a firm’s health and survival (Eisenhardt and Zbaracki 1992), and setting important precedents (Fredrickson and Iaquinto 1989). An additional peculiarity of strategic decisions relates to their temporal nature in terms of both frequency of occurrence and time orientation: these decisions, indeed, do not represent routinary decisions and are rather infrequent (Eisenhardt and Zbaracki 1992) and have a long-term orientation (Chandler 1962). Broadly speaking, two dimensions play an essential role in decision-­ making: beliefs about cause-effect relations, that is, guesses about future consequences of current actions, and preferences/desirability of possible outcomes, that is, guesses for future preferences for those future consequences (Thompson 1967; March 1978). March (1978) suggested that the

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complexity of guessing future possible outcomes lies at the core of theories of choice under uncertainty, while complications in terms of anticipating future preferences are emphasized in theories of choice under ambiguity. The problem with strategic decisions is that they are characterized by both uncertainty about future outcomes and ambiguity about future preferences. Indeed, faced with a strategic decision, the firm has little knowledge and understanding of the decision situation, which leads to the difficulty of identifying an unambiguous list of factors that may produce a given outcome. In addition, strategic decisions are characterized by ambiguity, because preferences may change over time and new emerging preferences may replace the currently anticipated ones, for instance as a consequence of the outcomes from actions taken (March 1978). General models of decision-making suggest that in framing decisions, two dimensions are usually taken into account, more or less consciously: the desirability of potential outcomes and the probability of such outcomes, both of which are connected with risk evaluations. In their proposed integrated model of decision-making in risky organizational contexts, Sitkin and Pablo (1992) argue that risk propensity and risk perception have critical mediating influences on risk behavior. In particular, while risk propensity, that is, the cumulative tendency to take or avoid risks, affects considerations of risk acceptability, risk perception— that is, an individual’s assessment of the risk implied in a situation—affects the estimates of risk extensiveness and controllability as well as the degree of confidence about estimates (Sitkin and Pablo 1992). Strategic decisions are therefore characterized by the risk of not attaining the expected outcomes, which, though inherent in any decision, is particularly relevant in the context of strategic decision-making, due to its peculiar characteristics in terms of resource requirements, organizational effects, and temporal dimension.

1.2 T  heoretical Foundations of Strategic Decisions Over the decades, the interdisciplinary interest in organizational decision-­ making has nurtured a long history of discourse on the topic, resulting in the development of diverse theoretical frameworks.

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In the subsequent sections, the theoretical paradigms that have in different, yet significant ways contributed to the conceptual evolution of the contents and dynamics of decision-making within organizations will be presented. The aim of the sections that follow is far from being an exhaustive compendium of theories on decision-making: the attention is rather directed to those perspectives that have laid the foundations for the development of our understanding of both organizational decision-making processes and contents and the role of the human agent. The narration begins during the 1940s with functionalist social theory, or structural functionalism, as a theoretical amphitheater from which both an epistemological and a conceptual evolution may be best appreciated.

1.2.1 Functionalist Social Theory During the 1940s, the prevailing theoretical paradigm in organizational studies was functional social theory, with Durkheim, Spencer, Parsons, and Merton as its founding fathers. Functionalism adopts an organicistic view: society is envisioned as an organism, where institutions—intended as formal organizations—play the role of organs. The existence of the “formal” attribute is justified as long as institutions fulfill a specific function that contributes to the stability of the whole system. Organizational studies in the functionalist tradition were concerned with two main assumptions related to the survival of collectivities: • Assumption 1: The survival of the system depends on the integration of its interrelated structural components. As an implication, change in one structural component requires adaptive changes in other components for the system to survive. This assumption led to a first line of research that during the 1950s rapidly started to dominate sociological studies on organizations, concerned with examining the covariation among different structural elements.

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• Assumption 2: Existing structures contribute to the functioning of the system. As an implication, the likelihood of change depends on whether dysfunctional consequences of a given structural arrangement exceed the functional ones. Upon this notion, a second stream of research developed with the aim of assessing the dynamic balance between functional and dysfunctional outcomes of structural arrangements, for instance by examining the relationship between formal and informal structures. The organicistic approach to society is particularly evident in the work of Talcott Parsons (1902–1979). Parsons elaborated the Adaptation– Goals–Integration–Latency (AGIL) paradigm as a universal heuristic model that can be applied to analyze any social system and subsystem. His notion of formal organizations is rooted in two assumptions related to legitimacy and power. In particular, the goal of an organization is legitimate as long as it is instrumental for the maintenance of the higher-order system and if it is not in conflict with the other values and interests in the organization. Parsons’s second basic assumption relates to power: it reflects the ability of the organization to mobilize those resources needed to achieve the system’s goals. According to Parsons, human action, being the reflection of human decisions, is to be regarded in social interactions and is guided by the ontological imperative of voluntarism. In the functionalist tradition, organizations are hence conceptually treated as “societies in microcosm” (Tolbert and Zucker 1996), endowed with some strong properties: • Functional unity, according to which each institution performs a homogeneous function that is interconnected with all the other functions; • Universal functionality, on the basis of which each institution fulfills a function as a necessary precondition for its own existence; and • Necessary and bi-univocal correspondence between institutions and functions, which implies that a given institution is always, necessarily associated with one, single function.

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This position of “strong” functionalism embraced by Talcott Parsons was mostly rejected by Robert K. Merton (1910–2003), whose orientation has been rather considered as a “weak” functionalism by subsequent scholars (Bonazzi 2002). In contrast with the prior consolidated sociological view of organizations as mere aspects of more general social problems, just after the pioneering work by Merton, organizations have started to be regarded as independent, distinctive social actors in modern societal processes. Indeed, Merton proposed a revision of the unitary, universal, and bi-­ univocal institutions-functions relationship in light of the consideration that: • the same function may be fulfilled by different institutions; • the same institution may fulfill more than one function; and • functions are not immutable over time. A key argument in the analysis of Merton is that a distinction should be made between the conscious and deliberate intent underlying a given action and the objective consequences of that action. Because consequences may not reflect the initial intent, Merton suggests that depending on whether such consequences are desired or unexpected, it is possible to distinguish between manifest and latent functions. Within the functionalist paradigm, the epistemological approach to decision-making is profoundly objectivistic and rooted in a neoclassic perspective of perfect rationality.

1.2.2 Decision-Making and Bounded Rationality In the orthodox, neoclassical theory, the homo oeconomicus is endowed with three main properties: complete information, infinite sensitivity, and rationality (Edwards 1954). According to this perspective, decision-makers are guided by known objectives: each individual objective is directly associated with a hierarchy of ends that are causally interconnected, that is, the achievement of each

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goal is functional to the incremental achievement of subsequent, sequentially connected goals. In this view, the organization represents the psychological environment in which individual decisions are perfectly harmonized with organizational ends. Given a certain, known goal, decision-­makers collect information and develop a set of alternatives out of which they choose the optimal one following the principle of utility maximization. Two essential assumptions in the neoclassical orientation therefore appear evident. First is that of identicalness between the real object and the perceived object: no distinction is assumed to exist between the external world and the human perception of it (Gergen 1985). Second is that of accuracy in the processing of objective, external data. Collectively, these two assumptions provide the decision-maker with an attribute of perfect rationality. As a reaction to the cognitive assumption that decision-makers are perfectly and uniformly rational, the classical paradigm has been challenged by the revolutionary notion that actors’ rationality is actually imperfect (Simon 1947). The theorization of bounded rationality by Herbert Simon controverted the then-dominant orthodoxy of the homo oeconomicus in favor of an “administrative man,” whose decision-making process is characterized by complexity, risk and uncertainty, and incomplete information about alternatives. Recalling March’s (1978) distinction between theories of choice under uncertainty and theories of choice under ambiguity, Simon’s elaboration of the notion of limited rationality may be ascribed to the first group of theories. For Simon, investigating organizational behavior and decision-making is conceptually equivalent. Decision-making is considered as a process that flows on the basis of a means–ends continuum, in which certain means are selected to achieve certain ends. By examining the nature of the means–ends continuum fully, Simon identifies five main causes of bounded rationality. First, the means–ends continuum tends to be incomplete: because connections in the means–ends chain are not unambiguous, it is impossible for the decision-maker to reach a total, absolute state of awareness of the continuum.

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The second condition relates to the fact that the choice of means is intrinsically affected by the limited nature of human information-­ processing capacity, which delimits the actual choice prospects to a circumscribed shortlist of potential alternatives. Third, a clear-cut distinction between means and ends is actually impossible because the choice of means is not neutral to the ends as they may even overlap or be interchanged. The fourth cause is that an aprioristic knowledge of all potential consequences of a choice is outside the realm of human cognition possibility, and hence it is impossible to build any absolute and complete hierarchy of preferences. Lastly, Simon also suggests that decisions in organizations are actually not individually taken, but rather they reflect group dynamics. Collectively, these causes explaining why human rationality is bounded rather than perfect led Simon to a dual conclusion. First, decisions should not be conceived as momentary acts but as processes in which a means– ends duality is continuously selected on an ongoing basis. Second, because preferences are relative, decision-making is not directed to optimization: the maximization principle subsumed in neoclassical theory is therefore substituted by the principle of satisficing. The replacement of the homo oeconomicus with the administrative man elicited a reorientation of research focus from the formal organization regarded through the traditional lenses of functionalism to the decision-­ maker and to the decision-making process.

1.2.3 The Behavioral Theory of the Firm Taking its lead from the work of Simon, The Behavioral Theory of the Firm by Cyert and March (1963) provided a crucial contribution to the examination of decision-making processes within organizations. Building on the notion of bounded rationality, Cyert and March (1963) argue that firms are not omnisciently rational systems; rather, they are adaptively rational institutions. The property of rational adaptation derives from the fact that a firm’s behavior does not result from the pursuit of one single dominant interest. Indeed, extending Simon’s argument that decisions in an organizational context are a reflection of group-­level

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behaviors and, as a reaction to the social assumption about groups implicit in the classical model of rational choice that decision-makers are unitedly guided by a shared purpose, Cyert and March claim that a theory of organizational choice should not take for granted that an internal consistency of goals exists. March argued that the organization is “most properly viewed as a political system” (1962, 663) composed of collectives of people who may have, at least partially, conflicting interests and goals. This implies that, while people can be individually rational, rationality may no longer hold in a collective context, and thus a general preference function would more realistically describe a firm’s decisions if compared to the utility-­ maximization function. Cyert and March hence elaborate the notion of dominant coalition, that is, the organizational group of people who ultimately make the choice, which does not necessarily coincide with the formal holders of a hierarchy-based authority, but rather represents the group holding the most power at a given time. Although other members of the organization besides the dominant coalition may also have some power in interpreting information as well as in modifying and implementing decisions, the notion of dominant coalition carries significant conceptual implications. First, the firm is guided by a sort of “confederation” (Bonazzi 2002, 65) of interests that may potentially be in conflict. As a natural consequence, at any point in time, a firm’s goals are always the result of a negotiation process that produces temporary compromises. The provisional nature of compromises generates decision rules of acceptability that lead to a sequential, “parcellized” attention to subsequent intermediate goals. This translates into a “quasi-resolution” of conflicts and implies that, because goals ultimately mirror the equilibrium achieved in a given moment within the coalition, goals may change as a function of changes in the power relations within the coalition or in its composition. These considerations lay the groundwork for the basic pillar in the behavioral theory of the firm that a general theory of decision-making is strongly linked with a theory of search. Indeed, organizational decision-­ making is affected by organizational goals and expectations, on the basis

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of which problems and slack represent two key stimuli activating organizational search. Problems evoke goals, which arise as a result of a continuous bargaining process among coalitions. Any particular goal dimension is influenced by aspiration levels, viewed as a sort of weighted function of past goals and past performance of both the firm itself and of comparable firms. The concept of aspiration level refers to the smallest acceptable outcome for the decision-maker (Cyert and March 1963; Greve 2003). The difference between the aspiration level and actual organizational performance is called “attainment discrepancy” (Lant 1992): when ­ actual performance is below aspiration levels, firms are encouraged to undertake a “problemistic” search, which, in turn, leads to organizational change. Search is therefore both problem-motivated and problem-oriented and is activated either when the firm fails to achieve one or more of its goals or when a failure in satisfying goals is anticipated in the immediate future. As a direct consequence, firms performing above aspirations are not typically motivated to change. Within this view, firms’ persistence occurs in the form of a “quasi-­ resolution of conflicts” and of sequential attention to goals, which may be defined as a “series of independent aspiration-level constraints imposed on the organization by the members of the organizational coalition” (Cyert and March 1963, 164). The second stimulus to organizational search and change is organizational slack, defined by Cyert and March (1963) as “payments to members of the coalition in excess of what is required to maintain the organization” (42). In other words, slack captures resource expenditures—for example, financial and managerial—that are excessive with respect to those needed for current operations. Not only do these resources help the firm to survive when environmental conditions become unfavorable, but they also allow it to search for new opportunities. Indeed, because the allocation of slack resources is not exposed to scarcity conditions, they are not subject to bargaining and hence stimulate an explorative approach and increase the propensity toward risk-taking.

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1.2.4 The Political Perspective and the Garbage Can As a result of the metamorphosis of the decision-making problem from a mechanical process of individual information processing and elaboration to a complex process having a sociopolitical connotation, strategic decision-­making has been increasingly regarded as having a political dimension. In the political perspective of strategic decision-making, the final choice reflects the preferences of the most powerful and influential people inside the organization and, to enhance the influence exercised over a decision, people engage in politics, that is, observable, but not necessarily overt, moves, such as coalition formation, lobbying, manipulation, and control of critical information (Pettigrew 1973; Quinn 1980). Within the view of organizations as political systems, however, a division lies related to whether politics is conflict-driven (Pfeffer 1981) and hence carries a positive value because the effective use of—assumed— fluid politics allows effective change and adaptation, or is power-driven (Pettigrew 1973) and hence triggered by power imbalances, which would signal dysfunctional decision-making. The fact that organizational decision-making is intrinsically collective raises complications related to the anticipation of future preferences. If Simon’s notion of bounded rationality may be seen as a theory of choice under uncertainty, the political perspective implied in the behavioral theory of the firm may be regarded as a theory of choice under ambiguity. Greater emphasis on the ambiguous aspect of decision-making is found in the garbage can perspective elaborated by Cohen et al. (1972). Cohen et al. (1972) propose a view of organizations as organized anarchies, that is, afflicted by the utmost ambiguity. Such ambiguity comes into view in three main ways: problematic and inconsistent preferences of decision-makers; “unclear technology” in terms of limited understanding of cause-effect linkages; and “fluid participation,” that is, intermittent, unstable involvement of decision-making participants. The final outcome of the decision-making process is described through the metaphor of the garbage can, where chance intersections make decisions the result of “a random confluence of events” (Eisenhardt and Zbaracki 1992, 28) rather than of boundedly rational individuals or of political coalitions.

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The validity of the garbage can model is actually controversial. On the one hand, it has been claimed that the organized anarchies view is a better explanation of decision-making vis-à-vis the rational and political perspectives because it accounts for the existence of multiple, equally possible outcomes under slightly different circumstances (Olsen 1976). On the other hand, the meager empirically validated robustness of this framework has raised concerns in terms of whether the garbage can model is actually an extreme form of bounded rationality that captures the ­unexplained variance of the other perspectives on strategic decision-making (Eisenhardt and Zbaracki 1992). According to Eisenhardt and Zbaracki (1992), if compared to the garbage can perspective which tends to ignore the cognitive dimensions of decision-makers, the bounded rationality theory and the political perspectives best describe strategic decision-making, with the former highlighting the cognitive limitations of the human decision-making agent and the latter shaping the social context in which decisions are taken. However, the political orientation is implicitly based on the assumption that decision-makers are endowed with a superior cognition that enables them to integrate fruitfully and effectively the conflicting desires and goals of all participants in the decision-making process.

1.2.5 C  ontingency Theory and Strategic Choice Perspective Between the 1950s and the 1970s, a huge research trajectory emerged with the purpose of investigating variations of organizational structures and the contingent conditions determining them. This research focus finds a direct antecedent in the notion of organizations as sociotechnical systems, which is based on three principles (e.g., Trist and Bamforth 1951; Emery and Trist 1965): 1. Two different but equally important classes of variables, that is, technical and social, contribute to the definition of the system. 2. The organization is an open system whose equilibrium results from its interchanges with the external context.

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3. The reconciliation between technical and social requirements is not based on one single organizational model, but rather there is a potential for choice among alternatives. The conception of the organization as an open system represented a major reversal from the previously dominant view adopting a closed-­ systems approach, and signals an evolution from a static to a homeostatic organizational equilibrium. Building on the assumption that contingent factors impose constraints of an economic nature that are responsible for determining structural variables, the construction of models of structural determination became a primary research mission. The identification of these structural variables led to the emergence of two research trajectories: one concerned with internal factors, that is, technology and size (Woodward 1965; Pugh et al. 1968), and one concerned with the external environment (Lawrence and Lorsch 1967). The focus on the environment as a relevant force constraining organizations builds on the assumption that different environmental conditions require different organizational structures for the organization to survive. Specifically, three environmental properties have been singled out: • Environmental variability: The variability of the environment represents the degree of change of those environmental activities that are relevant to the organization. The extent of variability is a function of the frequency with which changes occur, the degree of difference in each change, and the level of (ir-) regularity in the overall pattern of change. Environmental variability is a major factor determining uncertainty, which imposes the adaptive adoption of a certain organizational structure and the continual redefinition of roles and coordination. Much of a firm’s environmental variability, however, is actually absorbed by organizational slack. • Environmental complexity: Complexity refers to both the heterogeneity and the range of environmental activities relevant for the organization. At increasing environmental complexity, there is a greater profusion of environmental information. Complexity, however, does not necessarily contribute to augmenting uncertainty in case variability is low and

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in case sufficient organizational resources are devoted to monitoring the environment. • Environmental illiberality: The concept of environmental illiberality, also referred to as “environmental stress” (Khandwalla 1972), captures the degree to which the achievement of organizational goals is threatened by external factors, such as competition, hostility, and indifference. When environmental illiberality increases, organizational slack tends to decrease, thus leading to the tendency to centralize ­decision-­making and to the convergence of pluralistic goals into one accentuated, compelling goal, that is, survival. In contingency theories, universalistic prescriptions are abandoned: there is no one best way to do things, as different organizations can be equally effective in diverse ways. Although providing an important contribution in the development of organization theory, the contingency perspective has been criticized for its systematic relegation of human choice to the background, with environmental turbulence, technological processes, and size dictating superordinate, deterministic imperatives (Bourgeois 1984). The problem of management powerlessness in contingency theories has been partly unraveled by the perspective of strategic choice (Child 1972; Bourgeois 1984). Child (1972) indeed proposes that the interpretation of organizational behavior anchored in the functionalist theory and concerned with those conditions for a system’s persistence in response to contextual contingencies should be supplemented with a political interpretation emphasizing the role of choice. This shift of emphasis is grounded in Silverman’s (1970) critique of most organization theories that organizational variation should be considered in light of its sources rather than of its observable consequences. If compared to more deterministic views that downplay the role of the human agent, the perspective of strategic choice recognizes that the organizational actor has some discretion to choose courses of action (Bourgeois 1984) and to enact its environment (Weick 1969). Indeed, accepting that survival may be an outcome of different potential actions and structures implies that the manifestation of strategic choice becomes possible, as

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“there is some freedom of maneuver with respect to contextual factors” (Child 1972, 14). The initial seeds for this perspective can be found in Thompson’s Organizations in Action (1967), where he argued that the coalignment between resources and external opportunities results from the identification of available strategic variables that can be manipulated. The potential for strategic choice represents a major antithesis to a purely deterministic perspective, as the organization is not a passive receptor of environmental constraints and contingencies but, rather, plays an active role in affecting and enacting the environment. Child elaborated three main arguments in support of this view: • Environmental selection: Organizational decision-makers have discretion in the selection of the environment in terms of which niche to enter and occupy. • Environmental manipulation: In addition to selecting the niche in which to operate, decision-makers also have the power to potentially (re-)shape and influence the prevailing conditions in the environment, for instance, through moves that generate processes of industry concentration, such as mergers and acquisitions. • Environmental perception: Any exercise of choice requires a preliminary evaluation of the decision situation. The act of evaluating implies that a distinction exists between the objective characteristics of the environment and the subjective interpretations and perceptions of those characteristics. As a consequence, in different organizations, decision-­ makers will perceive the environment in different ways. These three arguments, although conceptually creating the foundations upon which the theoretical infrastructure of strategic decision-­ making has gradually developed and prospered, actually entail several limitations. First, the possibility for selecting the environment is not infinite, as it is rather limited by the existence of barriers to entry—for example, economy of scale, absolute cost, and product differentiation barriers, among others—that basically circumscribe the range of possible variations and simultaneously act as a negative selective force against the entrance of

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new organizations. Second, the power to manipulate the environment is strongly dependent upon the size of the organization, as it is unlikely that small organizations will be able to significantly shape the environment. Finally, although differences in subjective perceptions of the environment exist, a variety of social processes actually contribute to homogenize perceptions within a subpopulation of organizations.

1.2.6 Population Ecology and Evolutionary Theories In the mid-1960s, Arthur Stinchcombe proposed a shift in the object of analysis from the single firm to a population of organizations. Building upon and extending this idea, Hannan and Freeman (1977) developed the ecological perspective on organizations. Their view encourages the exploration of environmental effects on organizational populations through the lens of the theory of species. This approach embodies the theoretical legacy of the British functionalist philosopher Herbert Spencer (1820–1903) of applying the Darwinian theory of natural selection of species to societies. Spencer, in fact, created a conceptual analogy between society and the human organism, whereby social structures contribute to the persistence of society just as the single anatomical parts contribute to the survival of the human body. Retracing this orientation, the natural selection model in population ecology posits that the environment operates a selection of those organizational structures and activities that fit the environment, with the purest form of environmental selection being the selective survival or elimination of organizations. In this sense, the natural selection model is mainly concerned with the birth and mortality of organizational forms and types within a population of organizations. The focus of this approach is hence far from being directed to temporary changes, and rather is given to long-­ run transformations that determine the achievement at a certain point in time of a deterministic coherence between the environment and organizational forms. According to this perspective, the process of natural selection occurs through three stages:

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1. The occurrence of variations: Variations are considered as the “raw materials” from which the selection process starts, by culling the most suitable organizational features. While the occurrence of a variation represents the very initial step of a selection process, the source of variation, whether planned or unplanned, is totally indifferent. 2. The operation of selection criteria: This second step occurs through either the selection of some variations over others or the selective elimination of some variations. 3. Retention: Those variations that were positively selected during the step in which selection criteria are operated are then selectively retained and preserved for being duplicated and reproduced in the future. The retention phase brings preservation of organizational forms over time and stability of structure and decision rules. The population ecology perspective has been subject to a number of criticisms. First, because it devotes attention to how fitness to the environment is distributed across a population of organizations rather than at the micro level of a single organizational entity, the focus is on the “selective propagation of changes” within a population (Aldrich and Pfeffer 1976, 82). As a consequence, the potential for adaptation of single organizations is de-emphasized due to the existence of both internal and external inertial pressures (Hannan and Freeman 1977). Second, in its search for a perfect analogy between organizations and species, the proper application of the model would require the adoption of a classification system analogous to the one used for species in biology, which however does not exist in the context of organizational forms. Third, the management is seen once again as a sort of powerless victim of deterministic, exogenous forces, and the role of the “human element” is actually nothing more than the mere facilitation of an adaptive response to external stimuli (Papadakis et al. 1998). Supporters of the view that organizations are not defenselessly bound to fatalistic external events suggest that population ecology, just like contingency theories, adopts a predestinarian imperative that relegates the management “to a reactive-adaptive prison of deterministic circumstances” (Bourgeois 1984, 586).

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An additional criticism relates to the fact that population ecology fails to consider interorganizational relations that may potentially be established either as collective adaptive responses to the environment or as attempts to exercise some sort of environmental manipulation. If Hannan and Freeman’s population ecology recalls the Darwinian thesis that survival is a function of isomorphism with external conditions, a more Lamarckian position is found in the evolutionary theory developed by Nelson and Winter (1982). Nelson and Winter’s An Evolutionary Theory of Economic Change absorbs the behavioral orientation proposed by Cyert and March (1963) and bases its critique of orthodoxy on the bounded rationality argument (Simon 1947), while also bridging with Schumpeter’s Theory of Economic Development (Schumpeter 1934). Nelson and Winter (1982) propose the notion of “organizational genetics” (9) as processes determining a firm’s self-maintenance and change in the long run. According to Nelson and Winter, the genetic inheritance of firms is transmitted over time through routines, which play the role of genes. Routines constitute the organization’s genetic makeup and, hence, are endowed with the following characteristics: • Persistency: Routines are persistent features of the firm and determine its possible behavior. • Heritability: Routines are heritable because “tomorrow’s organisms generated from today’s have many of the same characteristics” (14). • Selection: Routines are selectable, as firms with certain routines may perform better than others, thus increasing their relative importance in the industry. More or less explicitly, the notion of routine embodies the idea of a regular and predictable behavior, with the irregular and unpredictable patterns of behavior being explained by the existence of stochastic elements in both decision-making and decision outcomes. According to this perspective, at any point in time, firms possess a certain stock of capabilities, decision rules, and operating procedures that, in face of external conditions, determine their decisions. As a function of decision rules, there is a relationship between profit and the

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expansion or contraction of some specific firms: evolution in a given market environment depends on the extent to which decision rules are profitable, while unprofitable firms, on the contrary, contract. Nelson and Winter also embrace Cyert and March’s position and suggest that firms engage in search operations aimed at identifying possible changes in their behavior. Therefore, differently from the population ecology view in which evolutionary adaptation is unlikely, Nelson and Winter endorse the idea that a sort of intergenerational adaptation is possible.

1.2.7 Resource Dependence Theory In 1967, the scenario of organizational studies was substantially moved forward by James Thompson and his Organizations in Action, which, in addition to providing fertile notions for the strategic choice perspective, also represented an important point of departure for another theoretical paradigm, that is, the resource dependence theory. In Thompson’s view, the environment is the main source of uncertainty, the exposure to which is actually dishomogeneous across the firm’s different structural components. Embracing this view, resource dependence theory suggests that taking control of external sources of uncertainty is both the core of organizational logic and the ultimate end of decision-making, because the search for certainty in the procurement of resources serves as an antecedent condition to organizational survival (Pfeffer and Salancik 1978). This perspective, theorized in Pfeffer and Salancik’s (1978) The External Control of Organizations: A Resource Dependence Perspective, proposes that organizational behavior cannot be understood unless the context of that behavior is taken into account. As opposed to other theoretical paradigms emphasizing production efficiency concerns, Pfeffer and Salancik draw attention to the difference between efficiency, measured on the basis of an internal performance standard, and effectiveness, which, on the contrary, is an external standard endowed with a sociopolitical connotation. The fundamental premise of this approach is that organizations are not able to generate internally all the resources needed—financial, physical,

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information—and therefore become embedded in networks of interdependences that become manifest in the form of transactions with external sources of resources. The focal organization is regarded through the same political lenses adopted by Cyert and March and, hence, considered as a group coalition. Unlike with the behavioral theory of the firm, however, Pfeffer and Salancik devote attention to the system of interactions with third parties in which the focal firm becomes embedded. The environment is envisioned in terms of organization set, that is, as the stock of available resources, and dependence is a function of the bargaining position of a focal organization with respect to its interacting/transacting organizations (Mindlin and Aldrich 1975). According to resource dependence theory, two main types of interdependence may be established: • Outcome interdependence, which comes in the form of a mutual dependence of results that derive from either competitive or exchange/symbiotic interdependences; and • Behavior interdependence, which refers to the extent to which the behavior of the focal firm is influenced by the actions taken by other interacting organizations in the organization set. This conception of the environment carries significant conceptual implications. The first implication is a theoretical derivative of the radical subjectivism of Karl Weick and lies in the notion of the “enacted environment.” Indeed, Pfeffer and Salancik claim that the environment is not a given, predetermined reality, but rather is created through interpretation. The notion that the environment can be creatively enacted by the manager or the top management coalition had actually already been embraced in the strategic choice perspective (Child 1972; Bourgeois 1980, 1984) as a fundamental premise allowing an “autonomous strategic behavior” (Burgelman 1983). “One of the most important influences on an organization’s response to its environment is the organization itself” (Pfeffer and Salancik 1978, 13): the mere existence of systems for information collection and processing indeed assumes that the environment is mostly selected and molded by the firm.

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A second important implication relates to the dual effect of interdependencies. While, on the one hand, increasing interdependencies create the conditions for coordinated actions that result in greater overall power over the environment, on the other they also impose additional constraints that prevent the achievement of a perfect overlap between goals and results. Within this framework, the management has three roles: • A symbolic role: The manager personifies the firm and is held responsible for its activities and results. • A responsive role: Managers are responsible for understanding the social context and its constraints, on the basis of which there is the potential for a choice of adjustments to the external reality. • A discretionary role: The management can act to influence those individuals and groups having the greatest power to shape environmental constraints. Constraints indeed are not predetermined or irreversible, and managers have discretion in taking actions for their manipulation. A parallel with Child’s (1972) arguments of environmental manipulation and environmental perception appears evident here.

1.2.8 Transaction Cost Economic Theory The transaction cost economic (TCE) theory (Coase 1937; Williamson 1979), born within the field of macroeconomics, has generated deep consequences in the successive evolution of thinking. By conceiving the firm in terms of governance rather than structure, it shifts attention to a new unit of analysis: the transaction, which becomes the core of strategic decision-making. The transaction is intended in TCE as any type of contract that has an economic relevance for the firm, which as a consequence adopts different internal governance structures for the management and the execution of each transaction following an efficiency maximization principle.

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The key legacy of TCE is that this deviation in focus from structure to transaction has profoundly reshaped the traditional conversations by introducing a fertile ground for common inquiry between organizational sociologists and economics scholars (Bonazzi 2002). Furthermore, with this perspective, the traditional Weberian approach that equated the organization with hierarchy was definitely overcome in favor of the possibility to adopt different governance forms for different transactions. In particular, the two forms of market and hierarchy represent the two extremes of a continuum along which the firm’s decision-makers can structure each transaction, leading to the possibility that multiple governance forms coexist within the same organization. The key assumptions about the “human factor” in this view are Simon’s notion of bounded rationality and the potential for opportunistic behavior, defined as “a variety of self-interest seeking but (that) extends simple self-interest seeking to include self-interest seeking with guile” (Williamson 1979, 234). The combination of these two attributes of the decision-maker implies that contracts cannot encompass any possible event and that compliance with them cannot be achieved without incurring costs. Virtually, hierarchy will be preferred over the market to manage those transactions characterized by the greatest uncertainty, those that occur frequently, and those that require specific investments. In addition to bounded rationality and opportunism, Jones and Hill (1988) identified four additional factors that may produce difficulties at transaction level: environmental uncertainty and complexity; small numbers trading relationships; information impactedness, that is, asymmetric distribution of information across the parties in an exchange; and asset specificity, that is, investments in assets that are specific to a particular transaction. Overall, TCE has also redefined the boundaries of the firm: the fact that the firm flexibly adopts the governance structure along the market– hierarchy continuum that best fits a given transaction makes the distinction between internal and external environment blurry. Williamson’s theorization has, however, received several criticisms: in particular, the efficiency principle is regarded as the sole driving force leading the choice

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for a given form of governance, thus ignoring alternative logics, such as those which would put forth power maximization, as in resource dependence theory.

1.2.9 Neo-Institutional Theory Another radical departure from the dominant macrostructural approach occurred with institutional theory (Meyer and Rowan 1977; Zucker 1977; DiMaggio and Powell 1983), in which formal structure, besides its objective function implied in traditional organizational theory, entails both symbolic and action-generating functions. This new approach, which endows structures with socially shared meanings (Meyer and Rowan 1977), considers organizations as institutions, broadly defined as comprising “regulative, normative, and cultural-­ cognitive elements that, together with associated activities and resources, provide stability and meaning to social life” (Scott 2014, 56). The legitimacy1 of the institution derives from three interdependent and mutually reinforcing pillars: the regulative system, which constrains and regularizes behavior; the normative system, which defines goals and objectives; and the cultural-cognitive pillar, which refers to the internal interpretive processes. An important contribution in institutional theory derives from DiMaggio and Powell’s (1983) elaboration of institutional isomorphism. The concept of isomorphism is actually not new at this point, as it already appeared in population ecology (Hannan and Freeman 1977), but in institutional theory it is regarded from a different angle. Two types of isomorphism indeed exist: competitive and institutional. The population ecology perspective focuses on competitive isomorphism: because competition selects out from the environment those organizations that are not able to compete for the necessary resources, those that are retained are logically isomorphic.  Legitimacy is “a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (Suchman 1995, 574). 1

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The concept of institutional isomorphism adopted by DiMaggio and Powell (1983), on the contrary, provides an interpretation of isomorphism that is not generated by the competition for resources, but rather stems from pressures to obtain political power and institutional legitimacy. The result of institutional isomorphism is a process of homogenization “that forces one unit in a population to resemble other units that face the same set of environmental conditions” (DiMaggio and Powell 1983, 149). In particular, three main types of institutional isomorphism have been identified: mimetic, normative, and coercive. • Coercive isomorphism: Isomorphic changes of a coercive nature result from pressures, either formal or informal, exerted on an organization by other dependent-upon organizations and by cultural expectations of the larger society. • Mimetic isomorphism: In addition to coercive authority, institutional isomorphism may come in response to uncertainty. Under uncertain circumstances indeed, organizations may be pushed toward the imitation of other organizations, and this modeling process especially occurs with those organizations perceived as more legitimate or successful. • Normative isomorphism: A third source of institutional isomorphic change is normative in nature and derives from professionalization, interpreted by DiMaggio and Powell (1983) as “the collective struggle of members of an occupation to define the conditions and methods of their work, to control the production of producers and to establish a cognitive base and legitimation for their occupational autonomy” (152). Because professions are subject to the same isomorphic pressures that affect organizations, formal education and the growth of professional networks contribute to create a pool of interchangeable professionals occupying similar positions and characterized by similar orientations and similar perceptions that may neutralize variations in organizational behavior. As to this last point, a connection with Child’s notion of environmental perception may be established. Child embraced a subjectivistic epistemology based on an endogenic perspective and argued that the

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environment is perceived and interpreted in different ways by different decision-makers. As opposite, DiMaggio and Powell, while not denying the role played by subjective human interpretation of the external world, suggest that normative isomorphic forces actually create the conditions for a homogenization of perceptions. It is worth noting that DiMaggio and Powell (1983) are far from suggesting that isomorphic institutional change is necessarily the result of conscious strategic decision-making: for instance, mimetic and normative isomorphic forces elicit behaviors based on taken-for-granted assumptions. Consistent with Selznick’s view, organizations adaptively incorporate environmental structure through a history-dependent, mostly unplanned process. In contrast with the population approach, which focuses on competitors (Hannan and Freeman 1977), and with the interorganizational networks approach of Laumann et al. (1978), DiMaggio and Powell (1983) identify as a relevant unit of analysis the organizational field, consisting of “those organizations that, in the aggregate, constitute a recognized area of institutional life” (148). Indeed, it directs attention to all relevant actors, thus subsuming the role of both connectedness, that is, the existence of transactions, either formal or informal, between organizations that tie them to one another and structural equivalence, that is, the similarity of position in a network whereby organizations having the same ties to the same set of organizations become structurally equivalent. DiMaggio and Powell’s institutional isomorphism, together with the subjectivistic approach to organizations by Zucker (1977) and the institutional myths and ceremonies by Meyer and Rowan (1977), provide the institutional theory with several implications. First, the adoption of formal structures occurs independently of specific problems of coordination and control, which means that the traditionally examined organizational characteristics of size and technology lose their explanatory power as determinants of formal structure. Second, and as a natural consequence of the previous consideration, the survival of organizational structures and types ceases to depend on productive efficiency in terms of coordination and control, and, rather, becomes a function of the ability of the organization to become isomorphic with the environment. This actually comes in sharp contradiction

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with that performance-oriented assumption implied in population ecology that interorganizational competition selects out from the environment those organizations that prove to be inefficient and rather allows the possibility that “permanently failing” organizations persist (Tolbert and Zucker 1996). This conception actually enlarges the framework of institutional theory by acknowledging that compliance with the external environment is crucial for firms to obtain the resources needed for survival, thus leading to a lack of theoretical distinctiveness between institutional and resource dependence theories (Tolbert and Zucker 1996). A third implication is that formal structure and the behavior of organizational members may actually be only loosely coupled. This implication further challenges the traditional notion that formal structures serve as means of coordination and control, because changes in structures may not automatically result in modifications of actions. The possibility of decoupling structures and behaviors creates an ambiguity: some scholars have underlined that, because a prerequisite for structures to become institutionalized is for their effectiveness and necessity to be recognized by members, the possibility of decoupling structures and behaviors implies that structures may actually lack “normative and cognitive legitimacy” (Tolbert and Zucker 1996, 179). This ambiguity, however, does not automatically mean that decoupling implies loss of legitimacy: although each pillar provides a basis for legitimacy, still, legitimated structures are not necessarily uncontested structures.

1.3 T  he Theoretical Evolution of the Decision-Making Actor and Its Rationality From a broad perspective, organizational studies have either been explicitly concerned with the organizational actor as the basic unit of analysis or have regarded the organization as an autonomous subject taking decisions and performing actions. Even in this latter case, it has been suggested that the reification of organizations should still be logically connected to the behavior of their members (Moschera 2000).

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The concept of “organizational actor” captures the subject, individual or collective, who takes organizational actions or influences the decision-­ making process thanks to his/her decision-making power. Over the decades the role and the nature of the decision-making agent have witnessed a dynamic conceptual evolution along multiple dimensions. In particular, two revolutionary processes related to the organizational actor have occurred: introspection and redefinition (Moschera 2000). The introspection process is the result of that radical departure from the objectivistic epistemology typical of the neoclassical approach to a greater centrality given to the individual. Indeed, with Simon’s theorization of bounded rationality, the decision-making process starts to be seen as a nonmechanical, complex process in which individual subjective factors, including individual learning dynamics and hyper-subjective factors such as intuition, come into play. Early research concentrated either on the process through which strategic problem formulation occurs (e.g., Pounds 1969; Mintzberg et al. 1976; Lyles and Mitroff 1980; Lyles 1981) or on the influence of individuals’ perceptions on problem formulation (e.g., Newell and Simon 1972; Wright 1974). In particular, focusing on the role played by individual perceptions, the individual’s attitudes, values, and cognition affect the definition of the problem’s nature, as the terms in which the problem is understood are a consequence of how the individual perceives the problem environment. Indeed, rejecting the exogenic orientation of the rational-economic model in favor of an endogenic view in which a role is acknowledged for perceptions (Gergen 1985), a cognitivistic approach has increasingly come into vogue. Given that the endogenic approach relies on the assumption that a distinction exists between objective characteristics of the external environment and the subjective interpretation of those characteristics, the noncoincidence between the real object and the perceived object allows the manifestation of cognitive biases in human judgment (Farjoun and Lai 1997). These biases represent a source of unintentional wrong action, where the error results from the human limitations in information processing (Harung 1993). According to Maitland and Sammartino (2015), however, the recognition of cognitive limitations in human judgment

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may actually lead to an overly pessimistic view that minimizes and depreciates the effective adaptiveness of human cognition. In contrast with the long-standing perspective treating rationality as a monolithic construct and explicitly comparing perfect rationality versus bounded rationality as either a dichotomy or a continuum, a different view grounded in a heuristic perspective argues that rationality is actually multidimensional (Eisenhardt and Zbaracki 1992). This implies that in the context of complex, uncertain situations, the rationality of decision-­ makers is not uniform, but rather results from adjustments that make their behavior rational in some ways but not in others. An additional step within the introspection process on the organizational actor relates to the exploration of intuition as a hyper-subjective factor. Despite the implicit assumption among many organization and management scholars that intuitive processes fall outside the realm of scientific inquiry, intuitive processes have attracted increasing scholarly attention in the field of decision-making, especially where decisions of a strategic nature are concerned (Khatri and Ng 2000). Indeed, recalling the Swiss psychiatrist and psychoanalyst Carl Jung, who suggested that intuition does not represent the opposite of reason and rationality, nor does it imply a random process of making serendipitous conjectures, scholars have gradually recognized that intuition actually evolves from experience and learning (Simon 1987; Khatri and Ng 2000). Within this picture, that intuition represents a relevant property of decision-making becomes evident when considering that, along the continuum of consciousness–subconsciousness, only some fragments of experience are crystallized as facts (Khatri and Ng 2000). Those lessons of experience that do not become accessible to the conscious are still stored at the subconscious level and perform a synthetic function that transcends rational knowledge. Intuition therefore refers to incremental adaptations based on a profound knowledge of the situation, which is subconsciously rooted in past experience (Eisenhardt and Zbaracki 1992; Khatri and Ng 2000). Eisenhardt and Zbaracki (1992) argue that the study of the role played by intuition in strategic decision-making may provide more realistic insights because decision-making, especially when related to infrequent,

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unstructured decisions, such as strategic decisions, is subject to an intuitive synthesis, of which reliance on judgment represents a key facet. The second process within the conceptual evolution of the organizational actor relates to the redefinition of the organizational actor. The main catalyzer of this process has been the recognition that the preference function, which per se has represented a revolution from the previous utility-maximization function, is actually not just one. The gradual acknowledgment that the decision-making process has a social connotation has led to a shift from a purely individual dimension to a collective dimension of decision-making. This carries important implications in terms both of interpretation of reality and of goals definition. For what concerns the interpretative dimension, the social aspect of decision-making flows into a constructivist epistemology: the individual perception of reality is not just an individual sense-making but also a derivative of social interaction. Therefore, the significance of what is experienced is not an individual crystallization but rather a negotiated understanding that results from social interchanges. Collectively, that individual perceptions may not simplistically mirror reality and that reality is a socially constructed artifact both raise the possibility that a reality may even be created (Farjoun and Lai 1997). A second implication relates to the definition of goals, which represents the basis for action and for assessing organizational effectiveness. The focus on the dominant coalition (Cyert and March 1963) has paved the way to an increasing consideration given to the political dynamics that may affect that which, among the multiple preference functions, will prevail. Indeed, Lyles and Mitroff (1980) argue that using a micro-­ approach based on the individual’s perception may not be adequate when studying problem formulation in an organizational context, as this is inherently characterized by political dynamics and social aspects. Focusing on the organizational processes activated in the definition of strategic problems, Lyles (1981) suggests that problems whose nature is ill-defined, such as strategic problems, tend to evoke political problem formulation processes. The inclusion of the role of power in decision-making has resulted in a further shift from bounded rationality to a contextual rationality (March 1978) in which actions are the result of a number of sociopolitical pressures.

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Within the redefinition process, an additional conceptual evolution has occurred as a logical consequence of considering firms as open rather than closed systems (Thompson 1967). This theoretical reconceptualization of the organization, which finds in the notion of sociotechnical systems a direct precursor, implies an increasing dematerialization of rigidly defined organizational boundaries. This, evidently, brings about additional complexities in the decision-making process in terms of external sources of requests for conformity. If the shift in focus toward the dominant coalition is translated in an evolution of rationality from bounded to contextual, the conceptual enlargement of organizational boundaries may be regarded as the source of a further shift from contextual to a legitimacy-seeking rationality.

1.4 A  Procedural Perspective on Strategic Decision-Making Bourgeois (1980) argued that, while the content of strategy—that is, the substantive dimension—may be unique, the process of strategic decision-­ making is an organizational phenomenon that recursively reiterates. For this reason, several scholars have urged the need to gain more knowledge about the procedural dimension of strategy, in addition to the substantive dimension (Simon 1978; Bourgeois 1980).

1.4.1 Phases and Relevant Routines Decisions in an organizational context involve a process that consists of sequential and interrelated phases, which may be broadly ascribed to two macro-activities: problem formulation and problem-solving. 1. Problem formulation is the phase in which information about both environmental and firm-level conditions are monitored in order to identify the extent to which performance is satisfactory and, if it is not, to diagnose the potential causes of deviations from expectations. Formulating the nature of a strategic decision represents a key aspect in the strategic problem-solving activity (Lyles 1981).

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2. Problem-solving represents the phase in which possible alternative courses of actions are singled out and evaluated until one alternative is chosen (Shrivastava and Grant 1985). Mintzberg et al. (1976) proposed a general model of strategic decision-­ making consisting of three phases: the identification phase, which basically involves problem formulation, and the two subsequent phases of development and selection that in the aggregate correspond to the macro-­ activity of problem-solving.

1.4.1.1  Th  e Identification or Discovery Phase: Recognition and Diagnosis The starting point of the process is the identification phase, in which decision recognition and diagnosis represent two essential routines. Because most strategic decisions do not manifest in a clear and accessible way, recognizing problems and opportunities within the vast and ambiguous sets of information and data represents a key routine for identifying that a decision is needed. It is, however, worth noting that the same stimulus may be interpreted differently by different firms or even by different people within the same firm and that subsequent responses are shaped by how a stimulus is initially perceived in the early stages of the decision-­ making process (Mintzberg et al. 1976; Fredrickson 1985). Following the decision recognition, a diagnosis phase is initiated in which resources get mobilized to tap information that may clarify the focal issue. In this phase, the formulation of potential expectations–reality gaps implies not just the recognition of gaps by themselves but also a diagnosis in terms of decisions upon which additional information is needed (Pounds 1969; Mintzberg et al. 1976).

1.4.1.2  Th  e Development or Invention Phase: Search and Design In the development phase, one or more solutions to a problem or one or more alternative elaborations of an opportunity are elaborated. This phase is supported by two routines: search and design. Search implies

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finding ready solutions through memory search, that is, the scanning of existing memory; passive search, that is, waiting for spontaneous ­alternatives to appear; trap search, which involves the activation of “search generators” that produce alternatives; and active search, that is, the direct seeking of alternatives. In their behavioral theory of the firm, Cyert and March (1963) suggest that problemistic search is biased, as it may reflect the experience of various parts in the organization, may derive from the interaction between hopes and expectations, may be related to communication within the organization, and typically reflects unsolved conflicts. The design routine helps either to develop a custom-made solution, especially in case no ready-to-use solution is identified during the search, or to adapt an existing solution to the situation at hand. The development phase is an expensive and time-consuming activity based on a complex, iterative procedure that typically leads to only one fully developed alternative, with the identification of a confirmation candidate being a function of the cost of search and of the amount of design required (Soelberg 1967). Theories of search indeed suggest that search entails costs: the allocation of resources for information-securing activities not only determines the speed with which a confirmation candidate is identified, but also makes search a decision by itself (Cyert and March 1963).

1.4.1.3  Th  e Selection Phase: Screening and Evaluation–Choice The third step in the strategic decision process is the selection phase, in which criteria for choice are defined, potential consequences of alternatives are evaluated, and the final choice is made. The number of ready alternatives identified during search is increasingly reduced through the progressive elimination of all alternatives that appear as infeasible. The routine supporting the activity of alternatives’ elimination is known as screening. This represents a superficial routine (Cyert and March 1963) aimed at evaluating the appropriateness of alternatives and, given this objective, it may also occur during the search phase. After screening, an evaluation–choice routine comes into play and the process ends with an

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authorization routine, that is, a binary process of acceptance or rejection of the chosen solution. Such routine is typical of strategic decisions as individual decision-makers cannot commit the organization to any course of action unless it is approved throughout the organizational hierarchy.

1.4.2 The Information System: Role and Symbolism Across the different phases, the process of strategic decision-making is supported by an information process that is headed for the collection, elaboration, and use of information. The value of information depends upon a series of factors, including its relevance to the decision, its precision and reliability, and a marginal expected return exceeding its marginal cost (March 1978). The relationship between information and the decision is, however, everything but linear and simple. The departure from the somehow comforting rational view of decision-­ making to a more unfortunate situation of uncertainty and ambiguity has translated into an evolution of the role of information in the decision-­ making process from a mere functional support to a knowledge generator. Indeed, because lack of information is typically considered as a constitutive dimension of uncertainty (Duncan 1972; Downey and Slocum 1975), information plays a fundamental role for generating knowledge that, in turn, may potentially reduce uncertainty. Uncertainty, however, is more than the mere lack of knowledge (Anderson and Paine 1975): uncertainty can also be present in situations in which a great amount of information is available, as new information, although providing new knowledge, can reveal the presence of additional underlying uncertainties that were previously not known, thus amplifying the complexity of the situation (Walker et al. 2003). For this reason, some authors have considered uncertainty through the lens of a very general definition, that is, “any departure from the unachievable idea of complete determinism” (Walker et al. 2003, 8). In addition, the incapability of processing available information, the analytical and coordination limitations that lead to the collection of unuseful, and possibly wrong, information,

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the underestimation of the costs and the potential misrepresentation collectively contribute to an instrumental use of information that deviates from standard decision theory (Feldman and March 1981). The relationship between the information system and decision-making has become more and more confused, leading to a scenario in which information is actually endowed with a symbolic role and decision-­ making transforms into a ceremony (Feldman and March 1981). Further complicating this intricate relationship, individual learning processes within the social context of organizations have started to challenge the idea of a clear link between information and decisions as the decision-making process may be rather affected by experiential and cognitive dynamics (Lant 1992). The theoretical evolution of arguments explaining organizational decision-­making has in fact gradually recognized that experience plays a crucial role in determining the knowledge basis supporting strategic decisions and, consequently, a firm’s course of actions. Over time, indeed, archival knowledge derived from experience and the potential for learning have been incrementally acknowledged as key factors determining a firm’s competitive advantage (Stata 1989).

References Aldrich, Howard E., and Jeffrey Pfeffer. 1976. Environments of Organizations. Annual Review of Sociology 2: 79–105. Anderson, Carl R., and Frank T.  Paine. 1975. Managerial Perceptions and Strategic Behavior. Academy of Management Journal 18: 811–823. Andrews, Kenneth R. 1980. The Concept of Corporate Strategy. Richard D. Irwin. Bonazzi, Giuseppe. 2002. Storia del pensiero organizzativo – La questione organizzativa. Vol. 3. Milano: Franco Angeli. Bourgeois, Leonard Jay, III. 1980. Strategy and Environment: A Conceptual Integration. Academy of Management Review 5: 25–39. ———. 1984. Strategic Management and Determinism. Academy of Management Review 9: 586–596. Burgelman, Robert A. 1983. A Model of the Interaction of Strategic Behavior, Corporate Context, and the Concept of Strategy. Academy of Management Review 8: 61–70.

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Chandler, Alfred. 1962. Strategy and Structure: Chapters in the History of the Industrial Enterprise. Cambridge: M.I.T. Press. Child, John. 1972. Organizational Structure, Environment and Performance: The Role of Strategic Choice. Sociology 6: 1–22. Coase, Ronald H. 1937. The Nature of the Firm. Economica 4: 386–405. Cohen, Michael D., James G. March, and Johan P. Olsen. 1972. A Garbage Can Model of Organizational Choice. Administrative Science Quarterly 17: 1–25. Cyert, Richard M., and James G. March. 1963. A Behavioral Theory of the Firm. Englewood Cliffs, NJ: Prentice-Hall Inc. DiMaggio, Paul, and Walter W.  Powell. 1983. The Iron Cage Revisited: Collective Rationality and Institutional Isomorphism in Organizational Fields. American Sociological Review 48: 147–160. Downey, H. Kirk, and John W. Slocum. 1975. Uncertainty: Measures, Research, and Sources of Variation. Academy of Management Journal 18: 562–578. Duncan, Robert B. 1972. Characteristics of Organizational Environments and Perceived Environmental Uncertainty. Administrative Science Quarterly 17: 313–327. Edwards, Ward. 1954. The Theory of Decision Making. Psychological Bulletin 51: 380–417. Eisenhardt, Kathleen M., and Mark J.  Zbaracki. 1992. Strategic Decision Making. Strategic Management Journal 13: 17–37. Emery, Fred E., and Eric Trist. 1965. The Causal Texture of Organizational Environments. Human Relations 18: 21–32. Farjoun, Moshe, and Linda Lai. 1997. Similarity Judgments in Strategy Formulation: Role, Process and Implications. Strategic Management Journal 18: 255–273. Feldman, Martha S., and James G. March. 1981. Information in Organizations as Signal and Symbol. Administrative Science Quarterly 26: 171–186. Fredrickson, James W. 1985. Effects of Decision Motive and Organizational Performance Level on Strategic Decision Processes. Academy of Management Journal 28: 821–843. Fredrickson, James W., and Anthony L. Iaquinto. 1989. Inertia and Creeping Rationality in Strategic Decision Processes. Academy of Management Journal 32: 516–542. Gergen, Kenneth J.  1985. The Social Constructionist Movement in Modern Psychology. American Psychologist 40: 266–275. Greve, Henrich R. 2003. Organizational Learning from Performance Feedback: A Behavioral Perspective on Innovation and Change. Cambridge: Cambridge University Press.

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Hannan, Michael T., and John Freeman. 1977. The Population Ecology of Organizations. American Journal of Sociology 82: 929–964. Harung, Harald S. 1993. More Effective Decisions through Synergy of Objective and Subjective Approaches. Management Decision 31: 38–45. Hofer, Charles W. 1975. Toward a Contingency Theory of Business Strategy. Academy of Management Journal 18: 784–810. Jones, Gareth R., and Charles W.L.  Hill. 1988. Transaction Cost Analysis of Strategy-Structure Choice. Strategic Management Journal 9: 159–172. Khandwalla, Pradip N. 1972. Environment and Its Impact on the Organization. International Studies of Management and Organizations 2: 297–313. Khatri, Naresh, and H.  Alvin Ng. 2000. The Role of Intuition in Strategic Decision Making. Human Relations 53: 57–86. Lant, Theresa K. 1992. Aspiration Level Adaptation: An Empirical Exploration. Management Science 38: 623–644. Laumann, Edward O., Joseph Galaskiewicz, and Peter V.  Marsden. 1978. Community Structure as Interorganizational Linkages. Annual Review of Sociology 4: 455–484. Lawrence, Paul R., and Jay W. Lorsch. 1967. Organizations and Environment. Boston: Harvard Business School. Lyles, Marjorie A. 1981. Formulating Strategic Problems: Empirical Analysis and Model Development. Strategic Management Journal 2: 61–75. Lyles, Marjorie A., and Ian I.  Mitroff. 1980. Organizational Problem Formulation: An Empirical Study. Administrative Science Quarterly 25: 102–119. Maitland, Elizabeth, and André Sammartino. 2015. Decision Making and Uncertainty: The Role of Heuristics and Experience in Assessing a Politically Hazardous Environment. Strategic Management Journal 36: 1554–1578. March, James G. 1962. The Business Firm as a Political Coalition. The Journal of Politics 24: 662–678. ———. 1978. Bounded Rationality, Ambiguity, and the Engineering of Choice. The Bell Journal of Economics 9: 587–608. Meyer, John W., and Brian Rowan. 1977. Institutionalized Organizations: Formal Structure as Myth and Ceremony. American Journal of Sociology 83: 340–363. Mindlin, Sergio E., and Howard Aldrich. 1975. Interorganizational Dependence: A Review of the Concept and a Reexamination of the Findings of the Aston Group. Administrative Science Quarterly 20: 382–392.

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Mintzberg, Henry, Duru Raisinghani, and Andre Theoret. 1976. The Structure of ‘Unstructured’ Decision Processes. Administrative Science Quarterly 21: 246–275. Moschera, Luigi. 2000. Analisi Di Teorie Dell’organizzazione. Logiche E Modelli Per Un Confronto. Vol. 55. Francoangeli. Nelson, Richard, and Sidney Winter. 1982. An Evolutionary Theory of the Firm. Cambridge, MA: Belknap, Harvard. Newell, Allen, and Herbert A. Simon. 1972. Human Problem Solving. Englewood Cliffs, NJ: Prentice-Hall. Olsen, Johan P. 1976. Choice in an Organized Anarchy. In Ambiguity and Choice in Organizations, ed. James G. March and Johan P. Olsen, 82–139. Bergen: Universitetsforlaget. Papadakis, Vassilis M., Spyros Lioukas, and David Chambers. 1998. Strategic Decision-Making Processes: The Role of Management and Context. Strategic Management Journal 19: 115–147. Pettigrew, Andrew M. 1973. Politics of Organizational Decision-Making. London: Tavistock. Pfeffer, Jeffrey. 1981. Power in Organizations. Marshfield, MA: Pitman Publishing. Pfeffer, Jeffrey, and Gerald R.  Salancik. 1978. The External Control of Organizations: A Resource Dependence Perspective. Stanford: Stanford University Press. Pounds, William F. 1969. The Process of Problem Finding. Industrial Management Review (Pre-1986) 11: 1. Pugh, Derek S., David J. Hickson, Christopher R. Hinings, and Christopher Turner. 1968. Dimensions of Organization Structure. Administrative Science Quarterly 13: 65–105. Quinn, James Brian. 1980. Strategies for Change: Logical Incrementalism. Homewood, IL: Irwin Professional Publishing. Schumpeter, Joseph A. 1934. The Theory of Economic Growth. Warsaw: PWN. Scott, Richard W., ed. 2014. Institutions and Organizations: Ideas, Interests, and Identities. SAGE Publications Inc. Shrivastava, Paul, and John H.  Grant. 1985. Empirically Derived Models of Strategic Decision-Making Processes. Strategic Management Journal 6: 97–113. Silverman, David. 1970. The Theory of Organizations. London: Heinemann. Simon, Herbert A. 1947. Administrative Behavior. New York: Macmillan. ———. 1978. On How to Decide What to Do. Bell Journal of Economics 9: 494–507.

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———. 1987. Making Management Decisions: The Role of Intuition and Emotion. The Academy of Management Executive (1987–1989) 1: 57–64. Sitkin, Sim B., and Amy L. Pablo. 1992. Reconceptualizing the Determinants of Risk Behavior. Academy of Management Review 17: 9–38. Soelberg, Peer Olav. 1967. A Study of Decision-Making: Job Choice. PhD diss., Alfred P. Sloan School of Management, MIT. Stata, Ray. 1989. Organizational Learning: The Key to Management Innovation. Sloan Management Review 30: 63–74. Suchman, Mark C. 1995. Managing Legitimacy: Strategic and Institutional Approaches. Academy of Management Review 20: 571–610. Thompson, James D. 1967. Organizations in Action: Social Science Bases of Administrative Theory. New Brunswick, NJ: Transaction Publishers. Tolbert, Pamela S., and Lynn G.  Zucker. 1996. The Institutionalization of Institutional Theory. In Handbook of Organizational Studies, ed. Stewart Clegg, Cynthia Hardy, and Walter R. Nord, 175–190. London: SAGE. Trist, Eric L., and Ken W.  Bamforth. 1951. Some Social and Psychological Consequences of the Longwall Method of Coal-Getting: An Examination of the Psychological Situation and Defences of a Work Group in Relation to the Social Structure and Technological Content of the Work System. Human Relations 4: 3–38. Walker, Warren E., Peter Harremoës, Jan Rotmans, Jeroen P.  Van Der Sluijs, Marjolein B.A.  Van Asselt, P.  Janssen, and Martin P.  Krayer Von Krauss. 2003. Defining Uncertainty: A Conceptual Basis for Uncertainty Management in Model-Based Decision Support. Integrated Assessment 4: 5–17. Weick, Karl. 1969. The Social Psychology of Organizing. Reading: Addison-Wesley. Williamson, Oliver E. 1979. Transaction-Cost Economics: The Governance of Contractual Relations. The Journal of Law and Economics 22: 233–261. Woodward, Joan. 1965. Industrial Organization: Theory and Practice. London: Oxford University Press. Wright, Peter. 1974. The Harassed Decision Maker: Time Pressures, Distractions, and the Use of Evidence. Journal of Applied Psychology 59: 555–561. Zollo, Maurizio, Mario Minoja, and Vittorio Coda. 2018. Toward an Integrated Theory of Strategy. Strategic Management Journal 39: 1753–1778. Zucker, Lynne G. 1977. The Role of Institutionalization in Cultural Persistence. American Sociological Review 42: 726–743.

2 Experience and Learning: Theoretical Perspectives and Effects on Strategic Decision-Making

2.1 T  he Organizational Learning Perspective: An Introduction Theories on organizational decision-making have been enriched by an increasing awareness that experience and learning mechanisms may play a role in the decision-making process. This growing realization, indeed, has urged scholars to explore the psychological dimensions of learning, knowledge, and cognition to understand how they interact with decision-making. Organizational learning, acknowledged to be a direct descendant of Cyert and March’s (1963) behavioral theory of the firm (Argote and Greve 2007), has incrementally and gradually prospered within academic conversations since the late 1980s. In this period, although it was warned that the notion of learning was being embraced by organizational learning scholars in conjunction with psychologists’ discarding it (Weick 1991), the importance of learning as a major source of sustainable competitive advantage was becoming more and more evident (Stata 1989). In this context, the time-honored tradition of psychological studies on learning had provided a thriving port of departure from which organizational learning as a field could eventually flourish, but had also left the burdensome legacy of deeply rooted controversial perspectives. © The Author(s) 2019 I. Galavotti, Experience and Learning in Corporate Acquisitions, https://doi.org/10.1007/978-3-319-94980-2_2

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The first legacy from psychological studies on learning is represented by the antithetical approaches of behaviorism and cognitivism. While according to behavioral theorists, learning is a function of environmental events for it occurs as a response to external stimuli coming from the environment and results in noticeable changes in behavior (Skinner 1953; Crossan et al. 1995), cognitive theories emphasize that learning is an internal mental process that does not necessarily imply a change in observable behavior. The relative emphasis given to the environment or to the learning subject has substantial implications on how learning is regarded and defined. Assumptions, definitions, and conceptualizations of organizational learning have accurately stuck to and preserved this dichotomy of thought, thus transposing in organizational learning a first profound element of theoretical fracture. Organizational learning theorists have massively borrowed from psychology a multitude of concepts but, reflecting the theoretical fractures among schools of thought in the psychology field as to how learning should be conceived, organizational learning has developed through the fragmentary elaboration of heterogeneous notions, which has resulted in a confused set of paradigms based upon restrictive interpretations (Nicolini and Meznar 1995). The vagueness surrounding organizational learning is clearly visible in the lack of both a unique definition and an accepted view of the underlying mechanisms, to such an extent that even talking of one organizational learning theory may seem questionable (Nicolini and Meznar 1995). Surprisingly, there has been a paradoxical misalignment between the conceptual development of organizational learning and its empirical investigation. The absence of a unifying framework has inspired recursive efforts to identify areas of conceptual divergences on the basis of which more integrative and less narrow perspectives on organizational learning have been proposed (e.g., Huber 1991; Crossan et  al. 1995; Fiol and Lyles 1985; Nicolini and Meznar 1995; Spender 1996). These efforts to elaborate an integrative framework, however, have all of a sudden dwindled since the late 1990s. Simultaneously, an increasing number of empirical studies have been produced in a wide variety of management disciplines that, while probably expected to inductively shed light on theoretical discrepancies, has actually been fumbling around in this obscure frame of reference.

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2.2 Heritage from Epistemological Orientations on Learning From a philosophical perspective, the epistemological roots of learning theories lie in two opposite positions: rationalism, which identifies reason as the only source of knowledge, and empiricism, according to which knowledge originates from experience. These two doctrines have had a powerful influence on the diverse connotations given to learning. In particular, two profoundly different schools of thought surfaced: behaviorism and cognitivism, which are echoed back in most theorizations of organizational learning (Fiol and Lyles 1985). These two competing intellectual traditions are based on opposite epistemological orientations or models of knowledge that may be ascribed to the exogenic-endogenic antinomy (Gergen 1985). According to the exogenic perspective, knowledge mirrors the real world. In contrast, the endogenic perspective traces the sources of knowledge endemically to the individual. Because the endogenic perspective, with behaviorism as its natural descendant, basically forms the meta-­ theoretical basis of science itself, an epistemological reversal toward a cognitive revolution has been initially controversial. The relative emphasis given to the environment or to the learning subject has substantial implications on how learning is believed to occur (Ertmer and Newby 2013). An additional, and perhaps even more substantial, distinction relates to the opposite assumptions made about the learner, which carry important implications in terms of knowledge acquisition mechanisms. While behaviorists tend to accept that the mind begins as a tabula rasa and learning is a function of environmental events, cognitivists reject the idea that the mind is a blank slate and emphasize that learning is an internal mental process that does not necessarily imply a change in observable behavior (Hergenhahn and Olson 1993). More recently, a third, contemporary, theoretical perspective known as constructivism has emerged that has substantially challenged both behavioral and cognitive theories by providing a more subjectivistic approach in which personal interpretation is seen as a key mechanism in the learning process (Ertmer and Newby 2013).

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2.2.1 Behaviorism Behaviorism, with connectionism and conditioning theories representing major theoretical contributions, began its rise with John B.  Watson (1878–1958) as its founding father. The basic premise of behaviorism is that learning occurs as a response to environmental stimuli and results in noticeable changes in behavior (Skinner 1953; Crossan et al. 1995).

2.2.1.1  Connectionism The theory of connectionism, elaborated by Thorndike (1874–1949), suggests the existence of a neural association (connection) between sense impressions (perceptions of stimuli) and impulses to action (responses). In this view, the most basic form of learning is a trial-and-error process, which occurs gradually and incrementally, rather than insightfully, following small systematic, successive steps where the time to solution— that is, Thorndike’s measure of the extent of learning—decreases as a function of successive trials. The stimulus-response framework elaborated by Thorndike is based on the argument that the associations between stimulus and response depend on the nature and frequency of their pairings. In particular, he argued that the strength of a stimulus-response association is affected by the consequences of the response, a notion that he defined under his Law of Effect.1 According to the Law of Effect, when the connection is followed by a “satisficing state of affairs” (rewarding consequence or satisfier), its strength is increased, while when followed by an “annoying state of affairs” (unrewarding consequence or annoyer), its strength is decreased (Thorndike 1913). Contrarily to this initial conceptualization of rewards and punishments as having opposite but comparable effects, in later studies  Thorndike elaborated “The Law of Exercise and Effect.” The Law of Exercise includes the Law of Use, according to which a response to a stimulus strengthens the connection, and the Law of Disuse, according to which when a response is not made to a stimulus, the connection between them is weakened. The Law of Effect focuses on the consequences of a behavior. It is worth noting that the Law of Use and the Law of Disuse, which, after subsequent experiments, were actually discarded by Thorndike himself, were initially a core element of the evolutionary theory of Lamarck. 1

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Thorndike revised the Law of Effect as he realized that, while rewards have the power to strengthen connections, punishments do not necessarily and automatically weaken them, as responses might be temporarily suppressed but not forgotten (Schunk 1991). The extent to which an association produces similar changes in another connection represents the transfer or generalization of the association. According to connectionism, transfer occurs on the basis of the identical elements principle, according to which two situations elicit similar responses depending on the number of elements they have in common.

2.2.1.2  Conditioning Theories A second contribution to the development of behaviorism comes from conditioning theories, according to which learning is a manifestation of neurological functioning. Classical (respondent) conditioning: Ivan Pavlov (1849–1936), a Russian psychologist awarded the Nobel Prize in 1904, elaborated the concept of classical conditioning, that is, a multistep procedure in which, starting from the association of an unconditioned response with an unconditioned stimulus, the successive association of an unconditioned stimulus with a conditioned stimulus for a repeated number of times generates a conditioned response that is similar to or the same as the original unconditioned response. Classical conditioning theory has been further extended by contiguous conditioning and operant, or instrumental, conditioning theories. Contiguous conditioning: Contiguous conditioning is based on the concept of contiguity learning, that is, continuity between stimuli and responses. According to contiguous conditioning, behavior in a given situation tends to be repeated when the situation recurs. The pairing of stimulus and response is hence the key to learning which, differently from the connectionism perspective, may result from a response regardless of whether this response has generated satisficing (rewarding) or punishing (unrewarding) consequences—especially if considering that, because satisfiers and annoyers are consequences of actions, they cannot influence first connections but only subsequent ones.

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Operant conditioning: Operant conditioning, elaborated by Skinner (1904–1990), is concerned with operant behavior, that is, behavior that is not elicited by a known stimulus, as opposed to the respondent behavior of classical conditioning. By defining learning as “the reassortment of responses in a complex situation” (Skinner 1953, 65), Skinner proposes that the basic process underlying learning is a three-term contingency:

SD → R → SR ,

where: SD is a discriminative stimulus that creates the condition for a response (R); and SR is a reinforcing stimulus that increases the likelihood that the same response (R) will be elicited after the same discriminative stimulus SD is presented. As an alternative, the three-term contingency may also be formulated as follows:

A → B → C,

where: A is the antecedent; B is the behavior; and C is the consequence. Three key mechanisms come into play in operant conditioning: reinforcement, extinction, and punishment.

Reinforcement The mechanism of reinforcement acts on the basis of a reinforcing stimulus, or reinforcer, that is, a stimulus that occurs after the response and that is responsible for strengthening it, where strength captures the rate of occurrence of the (operant) response.

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Reinforcement can be either positive or negative: a positive reinforcement occurs when a positive stimulus following a response increases the likelihood that the same response will be elicited in the future; similarly, a negative reinforcement occurs when the likelihood of a response is strengthened by a negative stimulus, that is, a stimulus that is removed after the response. Both positive and negative reinforcement ultimately act in the same direction, as they both serve to strengthen a response in a given situation. For this reason, reinforcers are typically considered as situation-specific.

Extinction The second mechanism is extinction, which represents the weakening of a response due to the absence of reinforcement, either positive or negative. Extinction should not be confused with forgetting, as forgetting implies a loss of conditioning over time. This distinction is particularly relevant because in the context of organizational learning the concept of forgetting has laid the first stone toward developing the notion of unlearning (Bettis and Prahalad 1995).

Punishment The third mechanism is punishment, which works as an opposite force with respect to reinforcement in that it decreases the likelihood that a response to a certain stimulus will occur in the future. Basically, because positive reinforcement occurs when a positive stimulus is present, while negative reinforcement occurs when a negative stimulus is withdrawn, punishment may involve either removing a positive reinforcer or adding a negative reinforcer. It is important to note that punishment, while suppressing a response, does not eliminate the potential for that response in future situations once it is removed. Despite some differences among these theories, especially for what concerns the role played by reinforcement, behavioral theories share the view that learning can be generated only by direct experience, for it occurs as a consequence of interactions with the environment.

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2.2.2 Cognitivism Diametrically opposed to behaviorism, cognitive theories de-emphasize the role of observable behavior and instead stress the process of knowledge acquisition (Schunk 1991; Ertmer and Newby 2013). According to this perspective, learning is viewed as mental information processing based on a triadic interrelationship among behavior, environment, and personal factors (e.g., cognitions) and may result not just from direct experience but also from vicarious experience, that is, from the observation of the consequences of another’s behavior (Bandura 2001). In this perspective, the result of learning is information that is cognitively processed. Observational learning2 is the process by which the observation of a modeled behavior generates new behaviors that would not have occurred if the observer had not been exposed to the model (Bandura 1969‚ 1977). The process through which observational learning occurs entails four key components: 1. attention, which determines whether events are meaningfully perceived; 2. retention, which is the cognitive organization and codification of modeled information; 3. production, which involves the translation of conceptions about observed events into overt behavior; and 4. motivation, which influences anticipated expectations about outcomes. The observation of models does not necessarily imply that learning actually occurs and that learned patterns of behavior will be performed successively, these being a function of a number of factors, including: the  Bandura (1986) identified two key elements in addition to observation: response facilitation and inhibition/disinhibition. Response facilitation refers to social prompts that induce the observer to behave, more or less consciously, accordingly. Inhibition and disinhibition generate expectations in terms of similarity of consequences: while inhibition stems from punishment to a given behavior, disinhibition occurs when a certain behavior that should produce punishment does not actually lead to negative consequences, and the absence of negative consequences elicits the same behavior. 2

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developmental status of the learner; model prestige, since with an increase in the prestige of the model both the attention paid by the observer and the perceived usefulness of the modeled behavior increase as well; vicarious consequences, in terms of both information and motivation; outcome expectations, that is, cognitive anticipated beliefs about possible consequences of actions based on both experience and observation of the model; goal setting, which recalls Tolman’s theory of purposive behaviorism3 and involves the identification of objectives that guide actions; value, in terms of the perceived usefulness of learning; and self-efficacy, which may be viewed as the perception/belief of one’s own capability to perform a given action. Observational learning has paved the way to a number of studies that, building on institutional theory, have directed attention to interorganizational isomorphism/homogenization (see Sect. 1.2.9).

2.2.3 Constructivism Both the behavioral and the cognitive approaches, despite the several differences in how the learning process is considered to occur, actually share a common objectivistic assumption. A number of cognitive theorists have started to question this basic assumption, leading to the appearance of a different approach to learning, known as constructivism, which has sprung as a branch from cognitive theory and more as an epistemology than a theory. In constructivism, a less objectivistic approach is used, and knowledge is considered to depend upon the interpretation of one’s own experiences through a process of personal meaning-making (Fenwick 2000). The implication is that knowledge is not exogenously acquired but rather is built based on the personal interpretation of the external world, which in turn implies that knowledge cannot be univocal. The constructivist approach is based on several assumptions that collectively contribute to challenge the objectivistic orientations to knowledge (Gergen 1985):  Purposive behaviorism is a theory developed by Tolman (1886–1959) that revised traditional behaviorism by suggesting that behavior is purposive, that is, goal-oriented. 3

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• Experience of the world does not cause the terms by which the world is understood. • The process of understanding is the result of active, historically situated interchanges among people, which implies that the terms by which the world is understood are social artifacts. • The extent to which one form of understanding prevails or persists is a function of social vicissitudes (e.g., communication and negotiation) rather than of empirical validation. • Forms of negotiated understanding are integrally intertwined with other human activities. One significant contribution to the constructivist theory of learning comes from Ausubel (1962), who proposed the concept of meaningful learning, as opposed to mechanical learning. Meaningful learning implies that new information interrelates with preexisting concepts in the cognitive structure through an interactive association process that leads to learning by assimilation. The interactive association mechanism generates a process of progressive differentiation in which meaningful concepts are gradually reelaborated and existing segments of the cognitive structure are reorganized (Ausubel 1962; Novak 1998). The new conceptual interrelationships created allow the establishment of transversal linkages, known as integrative reconciliations (Ausubel et al. 1978). Mechanical learning, on the contrary, does not contribute to the development of the cognitive structure and is useful to retrieve knowledge in the exact form in which it was originally acquired. This distinction appears particularly relevant in the context of organizational learning because the type of learning process, that is, meaningful versus mechanical, may carry implications on the mechanisms underlying the process itself.

2.3 D  efinitions of Learning: Individualand Organizational-Level Implications The fertile debate on the mechanisms underlying learning has resulted in a highly fragmented and inherently inconsistent set of conceptualizations, of which the absence of a unique and universally accepted

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definition is both emblematic and symptomatic. In the labyrinth of apparently subtle terminological discrepancies that actually hide substantial conceptual idiosyncrasies, theories on learning processes within organizations have long suffered from the lack of clarity and consensus inherited from psychological theorists, which has led to an unrelenting proliferation of definitions reminiscent of either the behavioral or the cognitive approach to learning. Because “the development of clear definitions for concepts is important to improving organizational research and theory building” (Osigweh 1989, 580), it seems fundamental to investigate the conceptual implications of the different definitions. The rationale behind this section is far from being merely a semantic exercise, and is rather motivated by the need to highlight the theoretical assumptions and the conceptual implications of some of the most influential definitions of organizational learning provided through the decades. The analysis of definitions reveals that three elements are, individually or collectively, seen as key substantiations of learning: a change in actual behavior, a change in potential behavior, and a change in cognition (Tsang 1997). As an inheritance from Darwin’s theory of biological evolution, behavioral psychologists and behaviorally oriented organizational learning scholars have long considered learning in terms of adaptation. Building on Cyert and March’s (1963) view of the firm as an “adaptively rational system” (117) in which goals, attention rules, and search rules are adapted as a function of experience, organizational learning has been defined as “a series of interactions between adaptation at the individual or subgroup level and adaptation at the organizational level” (Cangelosi and Dill 1965, 200). Assimilating learning with adaptation may, however, be misleading (Hedberg 1981), because adaptation, that is, “the ability to make incremental adjustments as a result of environmental changes, goal structure changes, or other changes” (Fiol and Lyles 1985, 811), is a sort of re-­ calibration that does not necessarily imply the understanding of causal relationships, while learning is more “the process of improving actions through better knowledge and understanding” (Fiol and Lyles 1985, 811). In this conceptual distinction proposed by Fiol and Lyles (1985),

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learning and adaptation capture the two different aspects of cognition and behavior, respectively. An alternative behavioral approach has equated learning with a change in behavior (Hull 1943) “to a given situation brought about by repeated experience in that situation” (Hilgard and Bower 1975, 17). Learning, however, may actually “result in new and significant insights and awareness that dictate no behavioral change” (Friedlander 1983, 194). Equating learning with a change in observable behavior is clearly not reconcilable with cognitive theory in which learning is assumed to occur whenever there is a change in mental processes, which are by definition unobservable, even in the absence of any change in observable behavior. Because “change resulting from learning need not be visibly behavioral” (Friedlander 1983, 194), an important step has been made with the concept of behavior potentiality. As a consequence, learning and learning outcomes come to represent two distinct constructs, with the former referring to a change in behavioral potentiality and the latter representing the translation of this potentiality into behavior (Hergenhahn and Olson 1993). Within this view, an influential definition has been proposed by Kimble (1961), who defined learning as a “relatively permanent change in behavioral potentiality that occurs as a result of reinforced practice” (Kimble 1961, 6). Although overcoming both the problem of equating learning only with observable behavioral change, as behavioral potentiality rather than actual behavior is considered, and that of assimilating learning with learning outcomes, this definition involves critical issues stemming from the “relatively permanent” attribute and the concept of reinforcement. First, that the change should be relatively permanent, while clearly implying that a reasonable distinction exists between changes brought about by learning vis-à-vis changes generated by temporary conditions, seems to predict that short-term memory does not generate any type of learning and, on the other hand, that sensitization, that is, an increase in responsiveness to a stimulus due to a prolonged exposure to it, and habituation, that is, a decrease in responsiveness to the environment, should instead be accepted as learning phenomena. Second, postulating that learning occurs as a result of reinforced practice implies that only reinforced experience is learned and leaves room for

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confusion in terms of whether reinforcement also implicitly includes reward, which would create hardly reconcilable inconsistencies with conditioning theories. A third issue comes from considering practice as a unique source of learning, thus excluding other forms of experience besides learning-by-doing, for example, modeling/observation as suggested in social cognitive theories. In the attempt to frame a definition of learning in a way that (1) distinguishes learning from other phenomena such as adaptation, (2) avoids vague terms in favor of a more objective language, and (3) clearly distinguishes the learning process from its outcome, Lachman (1997) proposes that learning is “the process by which a relatively stable modification in stimulus-response relations is developed as a consequence of functional environmental interaction via the senses” (479). In his review of learning theories, Schunk (1991) provides a definition of learning that seems to reconcile several aspects: “Learning is an enduring change in behavior, or in the capacity to behave in a given fashion, which results from practice or other forms of experience” (Schunk 1991, 3). This definition has some major merits in terms of theoretical compromise among the different perspectives. First, the terminological choice of “enduring” instead of “relatively permanent” conveys a slightly more nuanced connotation in that it evokes continuity over time rather than the more radical facet of invariability implied by “relatively permanent.” Second, both a change in observable (actual behavior) and unobservable behavior (capacity to behave or potential behavior) are acknowledged as manifestations of learning. Third, the source of learning is extended to include not just practice but also “other forms of experience,” thereby also embracing experience collected from observation. Moving toward a cognitive orientation, Huber (1991) defined organizational learning by stating that “an entity learns if, through its processing of information, the range of its potential behaviors is changed” (Huber 1991, 89). Similarly, “organizations are seen as learning by encoding inferences from history into routines that guide behavior” (Levitt and March 1988, 320). Organizational learning has been regarded as the process through which organizations understand and manage their experiences, which involves both the acquisition of diverse information as well as the ability to share common understanding so that this knowledge can be exploited (Fiol 1994).

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According to Nicolini and Meznar (1995), adopting the behavioral versus cognitive perspectives to define organizational learning does not prove to be adequate because it restricts the boundaries of organizational learning by excluding the fundamental aspect of its social construction while also obfuscating the relationships between the individual and the organizational levels. Indeed, starting from the premise that for an organizational process to be considered as a learning process, a discontinuity needs to be introduced in the course of organizational functioning (Nicolini and Meznar 1995), it has been argued that such discontinuity implies a self-observation through which knowledge is rationally manipulated and processed before being consolidated and then abstracted in order to be stored in an organizational memory. The social construction attribute recalls the constructivist approach in that acquired cognition in a concrete situation metamorphoses into an abstract, formal knowledge thanks to a mechanism of rational manipulation. In this sense, Holmqvist (2003) defines organizational learning as “the social production of organizational rules based on experience that leads to a changed organizational behavior” (Holmqvist 2003, 98). Here, while accounting for the social construction attribute, it remains unclear whether experience includes only direct or also vicarious experience and, again, learning is equated with a change in behavior without considering that the “visibility” is not a condition sine qua non. Within this mare magnum of definitions, the mixed terminology used hides latent conceptual inconsistencies, which has represented a primary source of impediment in the elaboration of a unifying framework of organizational learning.

2.4 Epistemological and Ontological Dimensions of Knowledge Any effort to reason on experience and learning requires an understanding of their content, that is, knowledge. The Oxford English Dictionary defines knowledge as the information, understanding, and skills that are gained through education or experience. Although this definition captures the meaning commonly associated with the notion of knowledge,

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attention should actually be given to the question of whether knowledge can be equated with information. Indeed, according to Nonaka and Takeuchi (1995), knowledge should not be confused with information because only the former is a function of a particular individual perspective or intent, deals with action, is context-specific, and is inherently relational. In addition, if compared to information, knowledge includes interpretations and has a greater degree of validity than beliefs. A fundamental consideration when examining knowledge in an organizational context is that, because organizations are socially constituted, knowledge in the organization is socially embedded (Lam 2000). Knowledge can be regarded along two dimensions: the epistemological dimension, which refers to the modes of knowledge expression, that is, tacit versus explicit, and the ontological dimension, which refers to the locus where knowledge resides, that is, individual versus collective (Lam 2000). The Epistemological Dimension of Knowledge The epistemological dimension of knowledge reflects Polanyi’s (1962) distinction between implicit (knowing how), intuition-based knowledge and knowledge that is explicitly articulated and potentially codifiable (knowing about). The resulting key difference among the two lies in their potential for transferability, this being contingent upon the explicitness of knowledge (Grant 1996). Although the implicit-explicit dichotomy holds from a conceptual point of view, in practice tacit and explicit knowledge are not clearly disjoined, and, indeed, it has been argued that new knowledge is created from the dynamic combination of these two types of knowledge (Nonaka and Takeuchi 1995). The Ontological Dimension of Knowledge The ontological dimension of knowledge relates to whether it resides at the individual or at the collective level, whereby individual knowledge is specialized, domain-specific and autonomously applicable, while collective knowledge results from the distribution and sharing among organizational members and subunits. An interesting perspective on the relationship between individual and collective knowledge comes from Glynn (1996), who argued that whether collective knowledge becomes more than the sum of individuals’ knowledge is a function of the mechanisms underlying the process of translation of knowledge from the individual to the collective level.

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Relationship Between Epistemological and Ontological Dimensions of Knowledge The epistemological and ontological dimensions of knowledge are strongly interrelated. Considering organizational knowledge as the knowledge that is held by and shared within an organization (Huber 1991), knowledge flows play an essential role in determining the degree to which individual knowledge may become organizational (Szulanski 1996). Because the degree to which knowledge can be transferred and disseminated in the organization is a function of whether it is tacit or explicit, whereby the former is “sticky” (Szulanski 1996) and therefore more difficult to transfer vis-à-vis codified knowledge, the codification of tacit knowledge into explicit forms represents a key precondition for knowledge to become organizational. Explicitness is associated with better and more fluid transfer of knowledge, which implies that it has an inherent collective nature. However, as pointed out by several authors, tacitness could also be an attribute of collective knowledge (Kogut and Zander 1993; Szulanski 1996). It is worth noting that although most research uses knowledge creation and knowledge transfer as distinct constructs, their distinction is actually elusive (Grandstrand 1982). The assumption that explicitness is key to the creation of organizational-­ level knowledge should not disregard the consideration derived from the resource-based view that explicit knowledge is subject to greater risk of expropriation if compared to tacit knowledge. Indeed, transferability, which is a critical property of codified knowledge, is also directly associated with appropriability issues (Grant 1996). In a resource-based view approach, the dilemma with explicit knowledge therefore becomes the other side of the coin from that which characterizes implicit knowledge. If, on the one hand, the issue with implicit knowledge is that “for the same reasons that competitors cannot replicate the firm’s knowledge, so the firm itself may not understand it well enough to exploit it effectively” (Spender and Grant 1996, 8), then, on the other, for the same reasons that explicit knowledge may be better understood and more effectively exploited, so it may lose its value as a source of inimitable competitive advantage.

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2.5 C  ritical Issues in Organizational Learning: The Problem of Organizational Anthropomorphization The critical issue intrinsic to the adoption of a knowledge-oriented approach to the firm is its inevitable anthropomorphization, whereby terms like organizational knowledge, organizational learning, and organizational memory have been long debated. Yet, the highly controversial discussion on whether these typically human cognitive phenomena may become organizational when occurring within a firm context intrinsically reveals the even more fundamental issue of whether any speculation on these constructs is the mere result of an anthropomorphizing process whereby individual-level concepts have been functionally extended to the organizational context.4 According to Grant (1996), considering knowledge as an organizational phenomenon entails the danger that those processes through which individuals engage in knowledge creation and deployment may actually be obscured. Nonaka and Takeuchi (1995) define knowledge creation as a process in which tacit and explicit knowledge interact and, from this dialogue, new ideas are formed. In this sense, assuming that the firm is an institution for knowledge creation (Spender 1992) or for knowledge application (Grant 1996) carries significant implications in terms of whether learning should be conceived as an organizational or an individual-­level phenomenon. While, on the one hand, it has been argued that the existence of numerous studies on organizational learning may in itself be considered an implicit recognition that organizational learning represents a distinct phenomenon from individual learning (Fiol and Lyles 1985), on the other some researchers have contended that organizational learning represents a “live metaphor” (Tsoukas 1991; Tsang 1997) in which assumptions and  The notion of functional extension, that is, of establishing that two entities share similar functions, is less stringent than homomorphic extension, which assumes that two entities are similar and share common properties (Walsh and Ungson 1991). According to Walsh and Ungson (1991), the approach of functional extension, vis-à-vis homomorphic extension, has the main advantage of avoiding the errors of generalization identified by Krippendorff (1975), that is, errors of commission and errors of omission.

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concepts about learning mechanisms at the individual level have been merely transferred to the organizational realm (Tsang 1997). The debate over whether organizational learning is an organization-level versus an individual-level phenomenon actually obscures the even more alarming issue of whether organizational learning really exists as a phenomenon distinct from individual learning, of which the “implicit recognition” argument proposed by Fiol and Lyles (1985) actually seems quite a meager evidence. Supporters of the view that organizational learning is an organization-­ level phenomenon suggest that although organizational learning is directly or indirectly affected by the individual learning of its members, it should not be considered as a mere “sublimation” of individual learning (Duncan and Weiss 1979; Shrivastava 1983; Fiol and Lyles 1985; Stata 1989). Indeed, Hedberg (1981) argued that “although organizational learning occurs through individuals, it would be a mistake to conclude that organizational learning is nothing but the cumulative result of their members’ learning” (Hedberg 1981, 6). Several researchers have suggested that the organization is an active agent throughout the learning process in terms of knowledge acquisition (e.g., Huber 1991), codification (Fiol and Lyles 1985; Zollo and Winter 2002), and encoding in an organizational memory (e.g., Cohen and Bacdayan  1994;  Levitt and March 1988; Walsh and Ungson 1991). This attribute of activeness has been used as a key “legitimizer” of organizational learning as an organizational-, rather than an individual-level, phenomenon.

2.5.1 Knowledge Acquisition Following the cognitive tradition, Huber (1991) argues that “organizations do not begin their lives with clean slates” (91) but rather with a congenital knowledge that results from the combination between the initial stock of knowledge inherited from their “creators” and the “institutionalized knowledge.” Additional knowledge is then acquired through experimental learning, that is, through direct experience. According to Huber (1991), experimental learning may either result from intentional and systematic efforts or be unintentional. Experimental learning may

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occur in different forms: organizational experiments, organizational self-­ appraisal, experimenting, unintentional or unsystematic learning, and experience-based learning curves. Several researchers, on the contrary, have acknowledged the individual as the sole meaningful level for examining knowledge and learning (March and Olsen 1975; Simon 1991; Grant 1996). Simon (1991) suggested that “all learning takes place inside individual human heads; an organization learns in only two ways: (a) by the learning of its members, or (b) by ingesting new members who have knowledge the organization didn’t previously have” (125). Under this approach, organizational learning is seen as the aggregate of individual learning processes that occur within an organization context (Argyris and Schon 1978; Senge 1990).

2.5.2 Organizational Memory Because knowledge is a key resource for organizations, its preservation over time represents a strategic element in knowledge management, as it allows knowledge to be retrieved for future uses. The notion of memory has been highly debated, for it is a faculty that is primarily associated with individuals (Walsh and Ungson 1991) but has been functionally extended to organizations. The idea that organizations remember was first proposed by Nelson and Winter (1982), who suggested that activities that are routinized form a firm’s operational knowledge and are stored in the organizational mnemonic archive for future uses (see Sect. 1.2.6). According to Levitt and March (1988) and Cohen and Bacdayan (1994), systems of socialization and control allow for maintaining and accumulating knowledge within routines and recording it within documents and procedures that can be stored and retrieved. The existence of an organizational memory implies that knowledge from past events may be preserved inside the organization and survive the turnover of those organizational members who personally experienced those events (Weick and Gilfillan 1971; Walsh and Ungson 1991). One key argument proposed by Walsh and Ungson (1991) is that storage may involve different loci and may be spread and distributed both within and outside organizational boundaries. In fact, they suggest that five “retention facilities” exist: individuals, organizational culture, organizational structure, workplace ecology, and external archives.

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Researchers rejecting the anthropomorphic view discard both the presupposition that organizations and individuals are functionally equivalent, as organizations cannot remember in the word’s literal sense (Argyris and Schon 1978; Spender 1996), as well as the assumption that an abstracted notion of knowledge can really be separated from both the process with which that knowledge has been acquired and that of its subsequent implementation (Spender 1996). In addition, organizational memory’s key function of making knowledge survive may be hampered by one of the learning disorders in the process of generalization/transfer identified by Snyder and Cummings (1998), that is, amnesia (see Sect. 2.11.3).

2.5.3 Unlearning An additional element, one that may invalidate the view of organizational learning as an organization-level phenomenon, lies in the concept of unlearning, that is, the process through which obsolete or misleading knowledge is intentionally discarded (Huber 1991). As a consequence of unlearning, not only is knowledge that is no longer valid abandoned, but room for new knowledge is created, leading to the potential for relearning (Huber 1991; Nicolini and Meznar 1995). If it is assumed that organizational learning is an organization-level phenomenon, then organizational unlearning should also be regarded as such. Actually, however, factors explaining why unlearning is problematic, as well as possible solutions, are all ascribed to the individual, for example, the self-confirming nature of cognitive structures (Argyris and Schon 1978) and the reluctance to leave established cognitive frameworks as a sort of defensive attitude against the uncertainty brought about by change (Nicolini and Meznar 1995). It has also been suggested that an extreme solution to unlearning, although potentially counterproductive as it engenders rigidity and demoralization (Klein 1989), is the removal of employees and managers—that is, individuals—who appear unable to deviate from their self-­ reproducing cognitive frameworks when needed (Nystrom and Starbuck 1984; Huber 1991; Nicolini and Meznar 1995). Therefore, if we accept

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that organizational learning is an organization-level phenomenon different from individual learning, then it would seem quite paradoxical that organizational unlearning is not based on any organization-level rather than individual-level explanation.

2.5.4 Integrative Efforts Diverse integrative efforts have been made to connect the individual and the organizational levels (Crossan et al. 1995). A shared view is that individual learning inside the organization may not necessarily contribute to organizational learning unless it occurs to achieve organizational purposes, it is shared among members in the organization, and learning outcomes are embedded in the organizational systems and structure. A key constituent element of these integrative efforts is that knowledge must be shared among organizational members. The displacement of knowledge from its original source, that is, the individual, to the group is a necessary intermediate step for that knowledge to become organizational. This, in turn, brings the debate from a two- to a threefold unit of analysis in which, in addition to the systemic organization and the individual as its smallest atom, there is an intermediate level of aggregation, that is, the group (Cangelosi and Dill 1965; Crossan et al. 1995). Considering organizational learning as a group-level phenomenon implies that, while not denying that learning occurs within the individual, emphasis is placed on the importance of information processing and sharing for knowledge to spread in the organization and to become a “social construction of reality” (Weick 1979) instead of tacitly residing inside the individual (Daft and Weick 1984). The group is a complex, interpersonal, and goal-oriented system of which each individual member represents a subsystem. The group is characterized by • a surface structure, aimed at pursuing a goal and in which the needs for achievement of individual members reside, and • a subinstitutional structure, representing the emotional-relational sphere among group members (McClelland 1958).

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Group dynamics are guided by the difficult need to find a delicate balance between conformity to the group rules and goals and the differentiation of the individual within the group. Groups, therefore, are not the mere sum of their individual members, as the subinstitutional structure adds complexity to the surface structure. This, in turn, implies that if organizational learning is to be regarded as a group-level phenomenon (e.g., Weick 1979; Argote and Epple 1990), then a broader perspective encompassing the emotional and relational dynamics among group members should also be taken into account. An additional consideration is that single organizational groups and departments may have different experience bases and may hence learn in different ways from the same experience (Crossan et al. 1995; Holmqvist 2003). In addition to the individual, group, and organizational levels, a fourth level, which actually falls outside organizational boundaries, is interorganizational learning (Cangelosi and Dill 1965), which refers to learning stemming from formal collaborations between organizations “where there is (initially) a low degree of interdependency” (Holmqvist 2003, 102), for example from strategic alliances or joint ventures. Although a hierarchy among levels has been recognized (Crossan et al. 1995), as each level is incorporated in the upper one, the tendency to give emphasis to single levels, often without accounting for the others, has profoundly contributed to the lack of an integrated framework of organizational learning.

2.6 Strategic Decision-Making and Organizational Learning Systems Organizational learning, which rests upon experience as its raw material, has been linked to strategic decision-making, for it represents the repository of knowledge that guides the decision-making process. Organizational learning has been broadly intended as the capacity of organizations to autonomously create, interpret, and share strategic information about both the organization itself and the external environment and to use such information for decision-making purposes (Argyris and

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Schon 1978; Shrivastava and Grant 1985). It is formed on the basis of a process in which a firm’s experience generates inferences that are encoded into routines (Levitt and March 1988), that is, repetitive patterns of interdependent actions (Feldman and Pentland 2003; Howard-Grenville 2005), that guide subsequent behavior. Organizational learning has therefore been acknowledged as a critical process supporting strategic decision-making, for it shapes the knowledge base upon which strategic decisions are taken. According to Zollo et al. (2018), indeed, learning, together with adaptive change and relational capabilities, is a capability that is leveraged in strategic choices.

2.6.1 Organizational Learning: The Institutionalization of Organizational Learning Learning processes within organizations are institutionalized in the form of organizational learning systems that are responsible for objectifying the personal knowledge of individuals into an organizational knowledge through the provision of general rules and heuristics for information legitimization and use (Shrivastava and Grant 1985). The characteristics of organizational learning systems also determine decision communication and control routines (Mintzberg et al. 1976). The institutionalization of learning in organizational learning systems may be seen through the lenses of the traditional institutionalization processes, as described by neo-institutional scholars. Starting from the work by Berger and Luckmann (1967), who directed attention to the institutionalization processes among individuals, Zucker (1977) extended their approach to the organizational context, although still at the micro level, and defined an institution as the “reciprocal typification of habitualized actions by types of actors” (54). Habitualized actions are behaviors that can be evoked in response to a given stimulus without requiring great decision-making effort. Meanings attached to habitualized actions are hence generalized and made independent from individuals through a process of objectification. With objectification, acts are generalized and become potentially repeatable by other actors, without

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changing their meaning (Zucker 1977). Objectification, however, must be supplemented with an attribute of exteriority, intended as the degree to which the individual, subjective understanding of an act is reconstructed as an intersubjective understanding. The process through which acts gain exteriority is known as sedimentation. Taken together, habitualization, objectification, and exteriority represent key elements in the overall process of institutionalization and determine the variability in the degree of institutionalization, in its stability, and in its power to determine behavior.

2.6.2 O  rganizational Learning Systems: Types and Decision-Making Models In their study on the relationship between strategic decision-making and organizational learning, Shrivastava and Grant (1985) suggest that the way in which an organizational learning system supports strategic decision-­ making depends upon the strategic decision-making model adopted by the firm. Shrivastava and Grant (1985) single out four main types of models and identify ideal matches with learning systems: 1. Managerial autocracy model In the managerial autocracy model, the key decision-maker is a single key individual whose decision, uniquely based on his/her personal preferences, is uncritically accepted by organizational members who may eventually participate in the development and implementation of the problem-solving phase. This model has a frequent match with a one-person institutional learning system. In this system, the key information source is one single person, knowledgeable of all business-related aspects, who evaluates and disseminates information, usually through memos or verbally. 2. Systemic bureaucracy model In the systemic bureaucracy model, activities and information flows are determined by official rules and regulations, and decision-making is carried out by several groups of people willing to satisfy procedural knowledge and guided by formal, bureaucratic learning systems. This

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strategic decision-making model best fits a participatory learning system, where formal networks of organizational working groups filter the acquisition and dissemination of knowledge on the basis of norms guiding the group decision-making and of individuals’ knowledge bases. Knowledge is problem-oriented and hence specific, and is communicated through official memos and group discussions. 3. Adaptive planning model In the adaptive planning model, formal learning systems are usually employed and decision-making is guided by a willingness to fulfill strategic plans, these being assumed to have already incorporated the entire set of problem formulation activities. The ideal match of an adaptive planning model is with a formal management learning system, although a good fit also exists with a participatory learning system and an information-seeking culture, a learning system based on shared values and cultural norms, which filter information recipients. Knowledge is a tacit understanding, either general or specific, shared orally or through organizational policies. 4. Political expediency model In the political expediency model, there are coalitions of organizational members trying to maximize their respective interests in the ­decision-­making process through continual bargaining and negotiation attempts. This strategic decision-making model is the one that most recalls Cyert and March’s (1963) notion of dominant coalition and mostly fits all learning systems except the information-seeking culture and the formal management system, for it would not allow for use of the learning system in an effective way. This learning system is based on formal organizational divisions and departments where analytical rules are applied to select and disseminate information. Knowledge has an objective nature, either problem-specific or general, and is communicated through reports. The multifaceted and pervasive effects of experience have led scholars to explore a number of dynamics, at both the behavioral and the cognitive levels, that ultimately affect interpretations of experience and the consequent behavioral responses.

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2.7 E  xperience as a Form of Adaptive Rationality One of the first efforts to include the role of experience in decision-­ making may be traced back to Cyert and March’s (1963) behavioral theory of the firm, in which experience is considered as a form of adaptive rationality because the storage of past experiences allows for managing considerable experiential information (March 1978). The argument behind adaptive rationality is that, assuming that preferences do not change—which is actually a questionable assumption, given the inherently ambiguous nature of strategic decisions—then “behavior will approach the behavior that would be chosen rationally on the basis of perfect knowledge” (March 1978, 592). Recalling the expectancy-value theory, in which behavior is a function of the value attached to a given outcome and of the expectation of obtaining that outcome as a result of performing that behavior, the general model of decision-making processes in the behavioral theory of the firm suggests that firms adapt goals, attention rules, and search rules on the basis of their experience (Cyert and March 1963). Indeed, Cyert and March argue that firms are not omnisciently rational systems; rather they are adaptively rational institutions (see Chap. 1). Fully retracing the then-­ dominant orientation in behavioral psychology of equating learning with adaptive behavior, in this view learning is implied in the concept of adaptation. Adaptation of Goals Organizational goals may change at any given moment as a function of three elements: the goal in the previous time period, the experience with that goal in the previous period, and the experience of comparable organizations with that goal in the previous time period, thus following a linear function (Equation 2.1): Equation 2.1 Linear function of organizational goals adaptation Gt = a1 Gt −1 + a2 Et −1 + a3 Ct −1



where:



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G is the organizational goal; E is the experience of the focal organization; C is the aggregate experience of comparable organizations; a1 and a2 capture the speed at which the firm is able to revise goals following experience; a3 captures the firm’s sensitivity to the performance of comparable organizations; and a1 + a2 + a3 = 1. Adaptation of Attention Rules According to Cyert and March (1963), firms learn in a selective way: when evaluating performance on the basis of objective criteria, firms learn, at least in the long term, which evaluation criteria to attend and which to ignore. Similarly, the sensitivity to their comparative environment is based on attention to some parts, while others are ignored. Adaptation of Search Rules Because search is problem-oriented, search rules change as a function of the experience of success and failure with the various alternative solutions. In the same vein, adaptation occurs in the language code used for the communication of information about alternatives: the code partitions the environment into a small number of classes, and learning occurs when that code is changed. Modifications of the information code should be consistent with modifications of the decision-making rule, whereby a change in a decision rule generates a change in the information code, and the time lag between the two changes reflects the time for learning.

2.8 E  xperience as Source of Path Dependence A recurrent leitmotif in theories on organizational adaptation is that firms are subject to inertial forces that make them lethargically resistant to adaptive change, even when threatened with extinction. Hannan and Freeman’s (1977) theorization of population ecology indeed excludes the notion that organizational adaptation is likely to represent a frequent occurrence, due to both internal and external inertial pressures that create a structural disinclination to adaptive changes.

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Resistance to change may be due to a number of factors, including avoidance of uncertainty (Carter 1971), reluctance to deviate from formerly programmed activities and modus operandi (March and Simon 1958), as well as economies of stability (Perrow 1972). Among the different sources of inertia, a firm’s own history is considered to seriously preclude the possibility that existing arrangements will be put into question (Hannan and Freeman 1977). In contrast with this view, Miller and Friesen (1980) suggest that patterns of change and evolution actually do exist but are generally biased as they “extrapolate past trends” (592). For this reason, they claim that the notion of resistance to change should be better studied in terms of “reversals in the direction of change” (592). This argument is strongly consistent with the Lamarckian position of Nelson and Winter (1982) in their evolutionary theory. In fact, unlike the population ecology perspective in which natural selection does not contemplate adaptation, they argue that evolutionary adaptation of ­organizations is possible thanks to routines acting as persistent and heritable genetic makeup. That organizational actions tend to be history-dependent (Steinbruner 1974) is subsumed in both the behavioral (Cyert and March 1963; Nelson and Winter 1982) and the cognitive (Levitt and March 1988) approaches, in which it is contended that patterns of behavior are strongly dependent on the firm’s own historical path: firms are considered as routine-­based, history-dependent systems in which inferences from previous actions are encoded into routines that guide organizational behavior following a path-dependent trajectory (Levitt and March 1988). The model of organizational adaptation proposed by Miller and Friesen (1980) is based on the argument that a momentum will be associated with any organizational tendency, as momentum pervasively determines the emergence of “common configurations of mutually reinforcing elements of strategy, structure and environment” (Miller and Friesen 1980, 593). Their model is based on three tenets: • Momentum is the prevailing feature of organizational evolution, and hence reversals in the direction of change at both the strategic and the structural levels are extremely unlikely.

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• Momentum pervasively embraces both strategy and structure simultaneously to maintain a stable configuration of mutually reinforcing elements. • Reversals in the direction of change represent dramatic, ubiquitous revolutions that allow organizational adaptation. Such reversals may occur either when a major event destroys the previously established “gestalt” or when a realignment between the organization and the environment is necessary in view of problems generated by momentum. The concept of momentum has also been referred to as path dependence, a notion that has been of interest in a variety of research fields including historical sociology (Mahoney 2000), political science (Wilsford 1994), organization theory (Levitt and March 1988), and management (Amburgey and Miner 1992; Greener 2002). Path dependence may be considered as a more comprehensive concept than ­momentum because, while momentum represents the antithesis of reversals in the direction of change, path dependence may involve two different types of sequence (Mahoney 2000): • Self-reinforcing sequence, in which the direction taken in the past induces persistent movements in the same direction, which conceptually mirrors the notion of momentum; and • Reactive sequence, that is, a chain of “temporally ordered and causally connected events” (Mahoney 2000, 526). These two types of sequence actually rest upon two different logics: while in self-reinforcing sequences, early events generate a pattern that is reinforced, that is, reproduced, over time, in reactive sequences, the influence does not appear in the form of reproduction of a given pattern but rather in the form of a chain of reactions and counterreactions that are temporally subsequent and causally connected with previous events. We may virtually consider reactive sequences as a relatively analogous phenomenon to reversals in the direction of change. In the strategic management literature, the concept of momentum has been further elaborated in terms of strategic momentum, defined as “the tendency to maintain or expand the emphasis and direction of prior

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s­trategic actions in current strategic behavior” (Amburgey and Miner 1992, 335). Amburgey and Miner (1992) identify three types of strategic momentum: repetitive, positional, and contextual. Repetitive momentum occurs when a specific previous action is repeated in current behavior; positional momentum takes place whenever the firm engages in strategic actions that extend the existing strategic position; and contextual momentum originates when some specific organizational feature shapes strategic actions. Although path dependence has provided a comfortable theoretical framework for explaining consistency over time between prior experience and current strategic decisions, it should still be interpreted carefully. Indeed, path dependence, especially when understood as a self-­reinforcing sequence, seems to entail a sort of historical determinism, which actually raises the question of whether the focal choice is only an automatic ­replication mechanism in virtue of the supremacy of inheritance or is a deliberate and conscious decision to replicate that is not caused by resistance to change.

2.9 E  xperience as a Form of “Intelligent Adaptation”: Experiential Learning Theory That a linkage between learning and experience does exist appears evident from most definitions given to learning, in which experience is considered, more or less explicitly, as a source from which learning is activated. Many scholars indeed consider experience as the foundation of and the stimulus for learning, even arguing that any form of learning that is not generated from experience would actually be barely conceivable (e.g., Fenwick 2000). The relationship between learning and experience finds its central position in experiential learning theory, an expression that has been coined to offer a distinct perspective from both the cognitive and the

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behavioral theories of learning. Specifically, while the former is based on a rational idealist epistemology in which emphasis is given to acquisition and manipulation of abstract knowledge, the latter rests on an empirical epistemology that denies any cognitivism and subjectivity. The experiential perspective of learning gives prominence to the role of experience and attempts to provide a holistic approach in which experience, cognition, behavior, and perceptions are in an integrative dynamic combination (Kolb 1984). The initial seeds for experiential learning theory are rooted in the social psychology of Kurt Lewin (1890–1947) and John Dewey (1859–1952) and in the theory of cognitive development elaborated by Jean Piaget (1896–1980). In Lewin’s learning model, two pillars are conceived as key for learning: the concrete experience, which serves for validating abstract concepts, and feedback, which stimulates the evaluation of the consequences of goal-directed actions and generates information on their deviations from the desired goals. Sharing this view of learning as a dialectic process in which experience, concepts, observations, and actions are integrated, Dewey gives even more emphasis to the role of feedback, which is key to developing learning through the transformation of knowledge derived from experience into purposeful actions. According to Piaget, learning takes place through a mechanism of continuous mutual interaction between the individual and the environment and between two interrelated processes: accommodation, in which concepts and schemata are applied to experience, and assimilation, in which experiences are incorporated into existing conceptual structures. The balanced tension between these two processes is the source of what Piaget refers to as “intelligent adaptation.” Taken together, these three perspectives on experiential learning convey the fundamental notion that learning occurs as a continuous process rooted in experience (Kolb 1984). Using the words of Dewey: “The principle of continuity of experience means that every experience both takes up something from those which have gone before and modifies in some

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way the quality of those which come after” (Dewey 1938, 35). In this view, experiential learning becomes the crucial process of human adaptation to the external world (Kolb 1984) and is based on an intimate, essential relationship with knowledge and, hence, with epistemology. From an experiential learning perspective, learning is best conceived as a process through which knowledge is created on the basis of a transformation mechanism. This, in turn, is driven by the continuous interaction between social knowledge, that is, objective accumulation of human cultural experience, and personal knowledge, that is, the subjective accumulation of individual life experiences. Strongly retracing the perspective of experiential learning, with The Social Psychology of Organizing (1969), Karl Weick brings into the field of organization studies a new object of analysis: the cognitive process through which experience is provided with sense. Weick adopts a radical subjectivistic epistemology and argues that the external world does not have any intrinsic sense: it is the individual subject that gives sense to the external world through the construction of cognitive causal maps for sensemaking. With this novel notion of sensemaking, even formal organizations cannot be conceived as entities that aprioristically exist outside of individuals. The central idea of Weick is therefore that no distinction exists between sensemaking processes and organizing processes, where sensemaking occurs following three phases: • Enactment: The subject interacts with his/her initially chaotic experience and creates connections that provide such experience with sense. At that point, the environment is enacted.5 • Selection: Once enacted, the environment is, however, still characterized by some interpretative ambiguities, which are progressively eliminated through selection. Decision-making is therefore based on those interpretations that have been selected over others. • Retention: In the last step, human cognition operates two activities in a virtuous cycle: an elaboration of new information that may confirm existing cognitive maps and a reorganization and adjustment of those maps.  The notion of enacted environment has had an illustrious career in subsequent organization theories, especially in the theory of strategic choice by Child (1972) and in resource dependence theory (Pfeffer and Salancik 1978). 5

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The enacted environment is ambivalent as the environment that is enacted by the subject retroacts on the subject itself, since it becomes the environment in which actions take place. However, because sensemaking is a continuous process, the flows of experience may be perpetually reinterpreted and reorganized.

2.10 E  xperience as Analogical Reasoning for Reduction of Perceived Uncertainty The problem of uncertainty is central to any decision because guesses about future consequences of current actions are not easy to make. Uncertainty has an intrinsic perceptual component because actors in a certain environment do not necessarily perceive the same degree of uncertainty (Anderson and Paine 1975). When making decisions in conditions of uncertainty, the psychological need to reduce the painful state of lack of a tranquilizing certainty leads to the adoption of a problem-solving strategy known as analogical reasoning (Gilovich 1981; Schwenk 1984). Theories of decision-making under uncertainty at both the individual (Gilovich 1981) and organizational levels (Schwenk 1984) suggest that, when faced with a new, equivocal decision, there is a pervasive tendency to search for associations with past circumstances from which useful directions may be drawn. Grasping for analogies serves as an attempt to overcome the absence of immediate and obvious solutions and to simplify the decision-making process by reducing perceived uncertainty. In particular, linking the current decision situation with a domain that is already familiar to the decision-maker implies that the decision-maker will tend to utilize past information to assess possible alternative representations of the problem so that the problem will be structured in a way that is consistent with the individual’s past experience (Newell and Simon 1972). According to the principles of cognition identified by Spearman (1923), the main operations in the process of analogical reasoning are: apprehension of experience, education of relations, and education of correlates.

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Technically, reasoning by analogy implies that: (1) the analogous terms are encoded and translated into an internal cognitive representation, (2) a relation between the term and its meaning is inferred, (3) a relation between the term and other analogous terms is mapped, (4) a relation analogous to the one inferred is applied, and (5) a response completes the analogy. In other words, an analogy is drawn between the problem situation and the familiar domain so that the solution from the familiar domain can be related to the focal problem situation (Holyoak and Thagard 1997). Experience therefore represents a sort of repository of cognitive maps that allow for the forming of analogies. Although analogical reasoning represents a problem-solving strategy that contributes to a cognitive simplification of the problem situation (Gilovich 1981; Schwenk 1984), this notion should be carefully treated when considered in an organizational context for at least two reasons. First, analogical reasoning is a human faculty that is considered as a signal of intelligence. Hence, functionally extending this problem-­solving strategy to organizations may further contribute to an anthropomorphization process by implicitly providing the firm with the conceptually delicate and multifaceted attribute of intelligence. Second, because (1) the successful application of analogical reasoning requires a structural similarity between the familiar domain and the problem situation and (2) the result of analogical reasoning is that the solution from the familiar domain is related to the problem situation, it seems that a lack of outcome distinctiveness may virtually exist between analogical reasoning and path dependence. Two additional issues emerge. First, following Norman, new schemata, that is, the potential to act in a certain way, are developed by analogy on the basis of existing schemata; however, because a perfect analogy across schemata may not exist, learning by analogy tends to be less than perfect. Second, the tendency to reason by analogy to reduce perceived uncertainty, while possibly contributing to the generation of creative solutions (Huff 1980), may also become misleading and lead to an oversimplified view of the situation (Steinbruner 1974). Otherwise said, analogical reasoning may activate a heuristic of representativeness that may become deceptive in the generalization of learning (see Sect. 2.11.3).

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2.11 Experience and Judgment A central theme in learning theories is the relationship between the learning process and learning outcomes, referred to as the learning-­performance link (Crossan et al. 1995). According to Fiol and Lyles (1985), whatever the approach to organizational learning, there is a transversally shared and implicit assumption that learning leads to performance improvements. Indeed, some authors have seen a direct, positive effect of learning on performance in terms of superior performance in the long run (Senge 1990), improved organizational action and effectiveness, or improved competitiveness ­ (Duncan and Weiss 1979). This approach to the learning-performance link has, however, been challenged by scholars who suggest that an increase in the learner’s effectiveness or potential effectiveness does not represent an automatic consequence of learning (Huber 1991). Indeed, the learning may be incorrect (Huber 1991) or ineffective (Argyris and Schon 1978) and may not necessarily “lead to intelligent behavior” (Levitt and March 1988, 305) due to problems in causal attribution (Miller and Ross 1975) and learning disorders (Snyder and Cummings 1998). Both causal attribution and learning disorders share a common recognition of the role played by heuristics. Psychologists define heuristics as “any principle or device that contributes to the reduction in the average search to solution” (Newell et al. 1962, 85). In other words, they are general methods that, through the adoption of principles, lead to problem-­ solving when working with unfamiliar problems (Schunk 1991).

2.11.1 Causal Attribution The notion that behavior is interpreted on the basis of its causes and that the consequent inferences of causality affect reactions to that behavior is the core impulse to studies on perceived causation (e.g., Jones and Davis 1965; Kelley 1973; Ross 1977). Research on inference of causality has its origin in social psychology, where it is identified under the expression “attribution theory” and can be distinguished according to whether the

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focus is on the cognitive processes that underlie attribution— that is, antecedents of attribution—or on the behavioral dynamics surrounding attribution— that is, consequences of attribution (Kelley and Michela 1980).

2.11.1.1  Antecedents of Attribution In the theory of correspondent inference by Jones and Davis (1965), three classes of antecedents of attribution were singled out, that is, information, belief, and motivation, of which Kelley and Michela (1980) provided a detailed review.

Information The role played by information in affecting attribution may be connected to several principles: • The principle of noncommon effects: The intention underlying an act is inferred by building on the information about the consequences of alternative actions. • The principle of covariation: The cause of an event is attributed to the factor with which it covaries. The principle of covariation is implicitly based on the notion of temporal contiguity, according to which the two events of cause and effect occur at the same point in time. This creates a problem of ambiguity that could be ideally solved by the rule of temporal precedence, according to which the cause is assumed to precede the effect. • The principle of similarity: Building on the assumption that properties of the cause are expected to be similar to the properties of the effect, the latter, which is observable, is used to infer the former. • The principle of salience: The attribution of an observed effect to a given cause depends on which cause is perceived as most salient at the moment in which the event is observed. • The principle of primacy: A sequence of information is scanned until an attribution is obtained, which implies that information acquired in the earlier stages has a greater influence.

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Belief Beliefs about causes and effects occur in the form of suppositions about the causes of an observed effect and expectations of an effect given certain causes (Kelley and Michela 1980). Broadly speaking, the conception of how two or more causes act in combination to produce a given effect is described in an individual’s cognitive schemata, which therefore translate into causal schemata. Psychologists have acknowledged that individuals are typically inclined to attribute success to their own dispositions while attributing failure to exogenous forces: a potential consequence may be overestimation of dispositional causes of behavior, which has been termed as “fundamental attribution error” (Ross 1977). The role played by beliefs is strongly related to social desirability: expectations about the likelihood of a particular behavior are linked to consensus and, depending on whether the behavior is consistent or not with expectations, it will be attributed to situational constraints or to dispositional factors, respectively. Causal beliefs about attributions also affect in a retroactive way which information is treated as causally relevant. In other words, new information interacts with prior beliefs in such a way that beliefs are affected by information but also affect it, for instance following the principle of primacy. An additional example lies in the principle of covariation, in which the cause of an event is attributed to the factor with which it covaries. “Illusory correlations,” however, may lead to suppositions about nonexistent covariations while true covariations are ignored (Chapman and Chapman 1969).

Motivation The inferential process of causal relationships is strongly affected by motivation, in terms of self-enhancement, self-protection, belief in effective control, and motivation for a self-positive presentation to the observer (Kelley and Michela 1980). The different motivational factors are profoundly affected by the extent to which there is a causal responsibility for the effect of actions. Motivation also influences differentials of attribution between actors and observers:

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indeed, a pervasive tendency to attribute good outcomes to one’s actions and personal dispositions and bad outcomes to situational factors or bad luck has been observed (e.g., Jones 1972; Miller and Ross 1975). The degree to which more “cross-situational variability” versus more “trait ascriptions” is perceived in behavior (Kelley and Michela 1980, 477) appears as a semiautomatic mechanism that serves maintenance of self-esteem (Miller and Ross 1975) and continuation of control attempts (Kelley 1973).

2.11.1.2  Consequences of Attribution Research on consequences of attribution has directed attention to several dynamics of behavior following attribution. Specifically, a number of scholars have investigated consequences of attribution in terms of distinctions: person versus environment, intrinsic versus extrinsic motivation, intentional versus unintentional motivation, and skill versus chance. Person-Environment: When the effect of behavior produces negative consequences, the degree of tolerance toward them will be greater if the action is attributed to situational requirements than to the actor’s purposeful intention (Kelley and Michela 1980). Intrinsic-Extrinsic Motivation: When shifting the actor’s perception of his/her own motivation from intrinsic to extrinsic, for instance through a reward, there is a causal discounting effect: the expected behavior is discounted as an indicator of personal disposition because it is causally attributed to situational pressures or incentives. Intentional-Unintentional Motivation: The consequences of attribution in terms of the intentional-unintentional dichotomy relate to two main considerations in terms of level of responsibility for action and quality of achievement. The level of responsibility implies that positive outcomes generate greater appreciation when produced intentionally rather than unintentionally, while negative outcomes generate greater blame when attributed to intentionality (Heider 1958). Research on consequences of attribution in terms of achievement evaluation, however, suggests that the quality of achievement affects evaluations regardless of the nature of the intent causing the action (Weiner and Peter 1973).

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Skill-Chance: The distinction between the perceived causes of skill and chance rests on the notion that while skill is internal to the individual, change is exogenous. The locus (internal vs. external), which actually parallels the person-environment distinction (Kelley and Michela 1980), also has implications on the degree of stability in the perceived cause, skills providing more perceived stability than chance.

2.11.2 Attribution and Hubristic Effects From research on causal attribution, one argument that appears evident is that the pervasive mechanism through which the inference of cause is attributed to personal dispositions or to situational requirements is a function of affective consequences of attribution in terms of pride for success and shame for failure. This mechanism, however, results in an ego-protective attribution bias in learning from past experience and in the tendency to overestimate one’s own acumen (Miller and Ross 1975; Gervais and Odean 2001). In a context of uncertainty, where cause-effect linkages are ambiguous and where managers are held personally responsible for results and for outcomes of specific strategic decisions, the stock of accumulated experience may be erroneously used as a proxy of one’s own capability (Zollo 2009). This, in turn, may lead to exaggerated optimism, overconfidence, and an illusionary state of pervasive control based on beliefs that are profoundly resistant to any information that may disconfirm their validity (Kelley 1973). The result is a distorted perception of the costs and benefits associated with a given strategic move, which in turn may lead to dysfunctional behaviors (Fiol and Lyles 1985). Indeed, one of the reasons why scholars have suggested that the accumulation of experience may not necessarily be an effective learning mechanism is that it may produce a level of confidence in managers that is not justified by actual competence. Specifically, “experience enhances both competence and confidence. The problem is that the two develop ­asymmetrically over time” (March, pers. comm., in Zollo 2009). As a result of distorted perceptions of prior experience, managers may become overconfident and rush toward premature solutions, thus running the risk of overestimating the benefits and underestimating the risks of a given action.

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2.11.3 C  ognitive Simplification Processes and Learning Disorders The ill-structured nature of strategic decisions typically encourages managers to adopt cognitive simplification processes that, although intended to be conducive to smoother problem-solving, may actually engender a number of disorders in the experiential learning process. Learning disorders represent obstacles that hamper effective learning (Snyder and Cummings 1998) and are primarily driven by heuristics. Adopting the view that the learning process consists of the four interrelated phases of discovery, invention, production, and generalization (Dewey 1938; Senge 1990; Argyris and Schon 1978), Snyder and Cummings (1998) identify several potential learning disorders that may take place in each phase. It is interesting to note that these learning disorders mostly correspond to the cognitive simplification processes activated in the context of strategic decisions, as claimed by Schwenk (1984).

2.11.3.1  Learning Disorders in the Discovery Phase In the discovery phase, there are several simplification processes that may interfere with the effective formulation of the problem in terms of denial, both that the problem exists and that it is significant. A denial of a problem’s existence may be activated by: • Prior hypothesis bias, which leads to misinterpreting or ignoring information about gaps because of the tendency to recognize only that information that confirms preexisting beliefs (Schwenk 1984). This bias basically reflects the notion that illusory aprioristic causal beliefs are profoundly resistant to any information that may disconfirm them (Kelley 1973). • Anchoring, a process by which there is a tendency to stick to initial judgments. In some cases, the existence of a gap may be recognized but underestimated, as a consequence of two main learning disorders6:  According to Schwenk (1984), an additional element that may generate an underestimation of the problem is the individual’s escalating commitment. 6

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• Blindness, that is, the malfunctioning of scanning processes due to somnolence (Hedberg et al. 1976) and competency traps, which occur “when favorable performance with an inferior procedure leads an organization to accumulate more experience with it, thus keeping experience with a superior procedure inadequate to make it rewarding to use” (Levitt and March 1988, 322). • Projection, that is, the distortion of perceptions of phenomena caused by ambiguity, anxiety, and confirmation (or prior hypothesis) biases of existing cognitive schemata.

2.11.3.2  Learning Disorders in the Development Phase The development, or invention, phase may be obstructed by: • Simplemindedness, that is, the use of deficient conceptual maps and behavioral schemata that prevent consideration of complex relationships or that support inaccurate assumptions. The possibility that the wrong conceptual schema may be invoked has been found to affect causal attributions (Langer 1975). • Multiple-personality disorder, in which multiple and competing invention perspectives are not coordinated and integrated with each other. Alternatives generation is subject to several interrelated simplification processes. For instance, decision-makers may focus on one single o­ bjective and, consequently, on one single path to achieve it—a simplification process known as single outcome calculation (Steinbruner 1974; Schwenk 1984). Single outcome calculation implies that for nonpreferred alternatives there may be a tendency to identify either unfavorable outcomes or inferences of impossibility, that is, negative aspects that confirm that the nonpreferred alternative cannot be implemented, thus leading to premature rejection (Steinbruner 1974; Schwenk 1984).

2.11.3.3  Learning Disorders in the Production Phase The production phase may be jeopardized both by paralysis, caused by constraints, confusion, or complacency, and by a disconnection between

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organizational intentions and effective actions, a disorder known as alien-­ hand syndrome (Snyder and Cummings 1998). The evaluation and selection of alternatives is also affected by the heuristic of representativeness (Tversky and Kahneman 1974), which occurs when the decision-maker overvalues the extent to which a situation is considered as representative of the one to which he is willing to generalize and which may cause simplistic predictions of alternatives’ outcomes (Schwenk 1984). These simplistic predictions may also be driven by overestimation of the extent to which such outcomes can be controlled, that is, illusion of control (Larwood and Whittaker 1977). In addition, as found by Yates et al. (1978), nonpreferred alternatives are typically those that are partially described, that is, those for which there is less information, because partial description involves greater uncertainty and hence leads to devaluation.

2.11.3.4  Learning Disorders in the Generalization Phase The phase of generalization, which reflects the extent to which learning becomes generalizable/transferable instead of situation-specific (Schunk 1991), determines whether knowledge can be applied in new ways or new contexts if compared to the situation in which it was originally acquired.7 The relevance of transfer appears evident in the context of strategic decision-making, as the development of organizational capabilities concerning collective learning processes implies that knowledge articulation and codification related to a particular strategic choice can be extended and applied to other strategic issues. Two learning disorders may substantially influence the effective functioning of generalization: amnesia and superstition (Levitt and March 1988; Snyder and Cummings 1998).  A substantial difference in how transfer is conceived exists between the behavioral and the cognitive schools: while behavioral theories suggest that transfer depends upon the similarity between situations, cognitive theories postulate that transfer involves the understanding of how to apply knowledge in a different setting. From the perspective of organizational learning as a socially constructed phenomenon, on the contrary, if assuming that the transfer of knowledge across settings is based on a judgment of similarity of the contexts involved, the problem of transfer would remain open as such judgment would be influenced by personal interpretation. 7

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Amnesia reflects the inability to both encode and disseminate results throughout the organization, due to the lack of automated monitoring systems (Levitt and March 1988; Walsh and Ungson 1991), the difficulty of creating connections across different but related learning events, the lack of communication of routines and critical knowledge to new organizational members, along with resistance, and the discounting of experience and knowledge (Cangelosi and Dill 1965; Walsh and Ungson 1991). Superstition derives from inaccurate interpretations of causal relationships between actions and effects (Snyder and Cummings 1998) and occurs when “the subjective experience of learning is compelling, but the connections between actions and outcomes are mis-specified” (Levitt and March 1988, 325). This concept can be traced back to operant conditioning theory, in which noncontingent reinforcement, that is, reinforcement that occurs regardless of one’s behavior, causes superstitious behavior, which basically represents the belief that an association exists between a behavior and a reinforcement while they are actually not related. One additional element that may create obstacles in the generalization process lies in possible disorders related to the attribution of responsibility and causality, as it substantially affects how experience is interpreted and hence the extent to which such experience is appropriately transferred to new situations (Gervais and Odean 2001). Generalization may also be strongly affected by representativeness as a result of analogical reasoning leading to oversimplification (Schwenk 1984).

References Amburgey, Terry L., and Anne S.  Miner. 1992. Strategic Momentum: The Effects of Repetitive, Positional, and Contextual Momentum on Merger Activity. Strategic Management Journal 13: 335–348. Anderson, Carl R., and Frank T.  Paine. 1975. Managerial Perceptions and Strategic Behavior. Academy of Management Journal 18: 811–823. Argote, Linda, and Dennis Epple. 1990. Learning Curves in Manufacturing. Science 24: 920–924. Argote, Linda, and Henrich R. Greve. 2007. A Behavioral Theory of the Firm— 40 Years and Counting: Introduction and Impact. Organization Science 18: 337–349.

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Argyris, Chris, and Donald Schon. 1978. Organizational Learning: A Theory of Action Approach. Reading, MA: Addison-Wesley. Ausubel, David P. 1962. A Subsumption Theory of Meaningful Verbal Learning and Retention. The Journal of General Psychology 66: 213–224. Ausubel, David Paul, Joseph Donald Novak, and Helen Hanesian. 1978. Educational Psychology: A Cognitive View. New  York: Holt, Rinehart & Winston. Bandura, Albert. 1969. Social-Learning Theory of Identificatory Processes. Handbook of Socialization Theory and Research: 213–262. ———. 1977. Social Learning Theory. Englewood Cliffs, NJ: Prentice Hall. ———. 1986. Social Foundations of Thought and Action: A Social Cognitive Theory. Englewood Cliffs, NJ: Prentice Hall. ———. 2001. Social Cognitive Theory: An Agentic Perspective. Annual Review of Psychology 52: 1–26. Berger, Peter, and Thomas Luckmann. 1967. The Social Construction of Reality. London: Allen Lane. Bettis, Richard A., and Coimbatore K. Prahalad. 1995. The Dominant Logic: Retrospective and Extension. Strategic Management Journal 16: 5–14. Cangelosi, Vincent E., and William R.  Dill. 1965. Organizational Learning: Observations Toward a Theory. Administrative Science Quarterly 10: 175–203. Carter, E.  Eugene. 1971. The Behavioral Theory of the Firm and Top-Level Corporate Decisions. Administrative Science Quarterly 16: 413–429. Chapman, Loren J., and Jean P.  Chapman. 1969. Illusory Correlation as an Obstacle to the Use of Valid Psychodiagnostic Signs. Journal of Abnormal Psychology 74: 271–280. Child, John. 1972. Organizational Structure, Environment and Performance: The Role of Strategic Choice. Sociology 6: 1–22. Cohen, Michael D., and Paul Bacdayan. 1994. Organizational Routines Are Stored as Procedural Memory: Evidence from a Laboratory Study. Organization Science 5 (4): 554–568. Crossan, Mary M., Henry W.  Lane, Roderick E.  White, and Lisa Djurfeldt. 1995. Organizational Learning: Dimensions for a Theory. The International Journal of Organizational Analysis 3: 337–360. Cyert, Richard M., and James G. March. 1963. A Behavioral Theory of the Firm. Englewood Cliffs, NJ: Prentice Hall. Daft, Richard L., and Karl E. Weick. 1984. Toward a Model of Organizations as Interpretation Systems. Academy of Management Review 9: 284–295. Dewey, John. 1938. Experience and Education: The Kappa Delta Pi Lecture Series. New York: Kappa Delta Pi.

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3 Mergers and Acquisitions as Strategic Decisions

3.1 Mergers and Acquisitions Among Strategic Decisions: Distinctive Characteristics The argument that the firm, rather than being considered as just an autonomous administrative unit, should rather be regarded as a collection of productive resources, whose disposal and allocation depend upon administrative decisions, dates back to Penrose’s Theory of the Growth of the Firm (1959). In her seminal work, she emphasizes that the long-term profitability of the firm is closely related to the growth opportunities that allow a more efficient use of resources, that is, both tangible and intangible assets semi-permanently tied to the firm. Mergers and acquisitions (M&A) are considered among the most important strategic decisions for resource allocation (Wally and Robert Baum 1994), but, compared to other investment decisions, they show peculiar risk characteristics in virtue of their huge resource requirements and their considerable performance implications (Haspeslagh and Jemison 1991).

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A first distinctive characteristic of acquisitions compared to other resource allocation decisions is that they are inherently nonroutinary. In view of their sporadic nature, they differ from traditional managers’ experiences: while routinary investment decisions are made within the familiar frame of the firm’s organizational context and are rooted in its current strategy, acquisitions involve a second, unknown organizational context and imply a redefinition of the firm’s strategic posture. For this reason, acquisitions are characterized by more difficult information processing vis-à-vis other strategic decisions due to their inherent interorganizational nature. An additional distinctive trait is related to the complexity of the acquisition process: acquisitions involve timely and intense decision-making, multiple and heterogeneous tasks, and exacerbated equivocality (Thomas and Trevino 1993; Zollo and Winter 2002). Their infrequent and causally ambiguous essence therefore makes this corporate strategic move an extremely complex and multifaceted strategic event in firms’ lives.

3.2 Value Creation in Acquisitions A basic premise in the literature on acquisitions is that they are justified as long as they create value. Value creation is a necessary condition for the shareholders of the acquiring firm to benefit from the transaction in terms of wealth gains (Sudarsanam 2012). From a strategic management perspective, the degree to which value is potentially created is considered as a function of synergies, which arise when the combined value of the two firms is greater than their value if remaining independent from one another. The concept of synergy may be synthetically formulated as follows:

Value ( A + B) > Value ( A ) + Value ( B)



Synergies may derive from a variety of sources, including market power, revenue increase, cost efficiency (scale, scope, and learning economies), and resource redeployment (McSweeney and Happonen 2012).

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3.2.1 Sources of Synergy 3.2.1.1  Market Power Benefits deriving from market power were first explored in the finance literature to assess the extent to which the reduced competition deriving from industry concentration following an acquisition increases the firm’s pricing power. Although evidence of market power as an antecedent of acquisitions is actually limited (e.g., Kim and Singal 1993), market power has been typically considered as a potential synergistic benefit motivating acquisitions. From a theoretical point of view, benefits in terms of market power may be traced by way of resource dependence theory (Sect. 1.2.7), which suggests that, in view of the interdependences in which a firm becomes embedded to obtain those resources that it cannot generate internally, a key influence is exercised by power, through which organizations try to reduce their relative dependence. According to Pfeffer and Salancik (1978), M&A represent a means by which firms attempt to modify the conditions of environmental interdependence and to achieve stability and predictability in their critical exchanges. M&A may therefore be considered as an actualization of the responsive role conferred on managers, which is substantiated in the potential to act in order to adjust to and to shape the environmental constraints. According to resource dependence theory, there are three general types of mergers and acquisitions, that is, vertical, horizontal, and diversification, each directed to the management of a different form of interdependence. In Sect. 1.2.7, we distinguished between outcome interdependence, which may arise as a result of both exchange/symbiotic and competitive interdependences, and behavior interdependence, which occurs when the focal firm behavior is influenced by the actions of its interacting organizations. Specifically, outcome interdependence can be manipulated through both vertical and horizontal acquisitions, as they allow for managing exchange and competitive interdependences, respectively, while acquisitions for diversification may be used to cope with behavioral interdependence.

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The three types of M&A may therefore be described as follows1: • Vertical integration: M&A for vertical integration are aimed at gaining and extending control of the supply chain by acquiring a firm that operates in an adjacent stage. This type of acquisition responds to the need to manage symbiotic interdependence, that is, “mutual dependence between unlike organisms” (Hawley 1950, 36). • Horizontal expansion: In this category of M&A, firms acquire a competitor in order to reduce industry concentration and, hence, commensalistic interdependence, that is, “the interdependence which derives from the competitive relationship of outcomes obtained by two or more parties” (Pfeffer and Salancik 1978, 115). Horizontal expansion not only serves to reduce competitive interdependences through the absorption of a competitor, but also results in a size growth that, in turn, increases the firm’s power within symbiotic interdependences. • Diversification: M&A realized for diversification purposes are guided by the need to reduce the firm’s dependence on any single exchange and are usually referred to as conglomerate or unrelated acquisitions. Diversification basically represents “a way of avoiding the domination that comes from asymmetric exchanges when it is not possible to absorb or in some way gain increased control over the powerful external exchange partner” (Pfeffer and Salancik 1978, 127). In a resource dependence orientation, therefore, M&A are not pursued for any profit-related or efficiency reason, but rather are seen as a mechanism used to manage and restructure interdependences with the ultimate purpose of stabilizing critical exchanges through the increased power. Although there is consensus among resource dependence theorists that M&A occur as a way to reduce interorganizational dependence and that the likelihood of occurrence increases with the magnitude of such dependence,  These types of M&A retrace the classification proposed by Kitching (1967). Kitching actually identified a fourth typology, that is, the concentric acquisition, which occurs when acquirer and target either share the same technology but have different customers or, vice versa, share the same customers but with different technologies. 1

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Casciaro and Piskorski (2005) call for the need to refine this perspective by discriminating between power imbalance and mutual dependence. Indeed, while power imbalance refers to interorganizational power differentials, mutual dependence is the cumulative aggregate of dependencies between two organizations.

3.2.1.2  Revenue Enhancement Revenue synergies occur when total sales realized by jointly selling and distributing two products are greater than the sales realized by separate firms selling them. The common ownership strategy subsumed in acquisitions therefore becomes synergistic from a revenue point of view as long as: Total revenues ( A + B) > Total revenues ( A ) + Total revenues ( B) This type of synergies may derive from different sources including increased product’s peak sales level, reaching the increased peak in a shorter time, extending the product life cycle, and adding new products or innovating existing ones (Sudarsanam 2012). An additional source of revenue synergies is a derivative of market power benefits: indeed, the firm-level power to influence, and possibly increase, prices implicitly represents a facilitator of revenue enhancement.

3.2.1.3  Cost Efficiency Efficiency derived from cost savings is a common synergy sought for in acquisitions. Cost synergies may involve a variety of areas: R&D, ­procurement, manufacturing, sales and marketing, distribution, and administration. This category of synergy is typically easier to implement and to calculate if compared to revenue-enhancement synergies and tends to be rewarded with higher stock prices by financial markets. The most common sources of cost efficiency synergies are scale and scope economies.

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Scale economies occur when cost efficiency arises from increased production of a specific product, specifically, when the greater production volume results in a lower average unit cost. Scope economies, on the contrary, arise when cost efficiency is obtained as a result of the joint production of two or more products or when resources or activities of the value chain can be leveraged and shared across business units, services, or geographic markets. In both cases, the resulting cost efficiency synergy is realized in a reduction of average unit cost:

Average costs ( A + B) < Average costs ( A ) + Average costs ( B)



3.2.1.4  Resource Redeployment The combination of pools of resources of two formerly separate firms under a single, common ownership may provide a new bundle of resources and competencies that is unavailable to competitors and that may substantially nurture the firm’s competitive advantage. A key argument in the resource-based view is that the degree to which resources are difficult to imitate is the source of competitive advantage. Yet, M&A represent a substitute for inefficient or nonexistent factor markets for specialized resources (Eschen and Bresser 2005), and they provide the possibility to obtain entire knowledge systems that are brought under a unified control and to transfer strategically valuable resources and capabilities. As a consequence, synergies deriving from resource redeployment are realized only if the total cost of the acquisition does not exceed the cost that competitors would bear to accumulate comparable resources. Among resources being combined, knowledge is subject to unique characteristics and complexities. The main issue affecting knowledge is its appropriability, broadly defined as “the ability of the owner of a resource to receive a return equal to the value created by that resource” (Grant 1996, 111). Appropriability is a function, at first, of the extent to which knowledge can be transferred. The transfer of knowledge involves both the transmission to a given recipient and the absorption by the recipient. Viewing knowledge transfer in terms of transmission subsumes the adoption of an information system perspective; however, once transmitted, the meaning

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of knowledge is actually reconstructed, which introduces an interpretative and constructivist component to knowledge transfer. Knowledge is typically assumed to be firm-specific and, hence, M&A become an expedient tool to acquire knowledge that is not already possessed by the firm (Kogut and Zander 1993). A knowledge-based view of the firm explains both vertical and horizontal boundaries of firms in terms of efficiency with which knowledge is transferred: acquisitions for vertical integration occur when there is a need to access knowledge utilized in an adjacent stage of the production process, while acquisitions for horizontal expansion are a function of product-knowledge constellations. In an acquisition context, ideally, the combined knowledge pool of the two formerly independent firms should be greater than the two knowledge stocks separately in order to generate synergies (Reus 2012). From a knowledge-based perspective, a valuable balance between exploration of new knowledge and exploitation of existing knowledge revolves around some crucial organizational capabilities. This tight connection between knowledge and capabilities implies that, from a theoretical point of view, the knowledge-based perspective needs to be supplemented with a capabilities-­based view. The concept of organizational capability is directly rooted in the notion of routine: Winter (2003) defines an organizational capability as “a high-­ level routine (or collection of routines) that, together with its implementing input flows, confers upon an organization’s management a set of decision options for producing significant outputs of a particular type” (991). The ability of the firm to systematically generate and reconfigure its operating routines is defined as “dynamic capability” (Teece et  al. 1997; Zollo and Winter 2002). In the context of acquisitions, two dynamic capabilities are of particular relevance: absorptive capacity and combinative capability.

Absorptive Capacity In Cohen and Levinthal’s (1990) theorization, absorptive capacity is defined as the capacity to assimilate new knowledge. From the start, absorption requires that the value of previously unknown knowledge be recognized. Absorptive capacity therefore becomes a function of two key elements: complementary knowledge and prior related experience.

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In the context of acquisitions, absorptive capacity is contingent upon the extent to which the combining firms have complementary versus similar knowledge bases, whereby complementarity is considered to occur when the two firms have distinct capabilities but in similar business areas (Reus 2012). The second key element that affects absorptive capacity is prior related experience: past experience, indeed, becomes ­embedded in the repertoire of organizational routines that shape the firm’s knowledge base upon which it develops its absorptive capacity (Cohen and Levinthal 1990).

Combinative Capability Combinative capability refers to the ability of the firm to combine and recombine existing knowledge (Kogut and Zander 1992). Within an acquisition, combinative capability plays a fundamental role because it affects the extent to which knowledge is transferred and, as a consequence, the extent of its appropriability (Grant 1996). Combinative capability is contingent upon the existence of an opportunity, the motivation, and the ability to share knowledge (Adler and Kwon 2002). The main problem affecting knowledge and capabilities is their causal ambiguity: if, on the one hand, causal ambiguity protects a focal firm’s competitive advantage from imitation, on the other it may act as a powerful block on factor mobility, that is, it may limit managers’ ability to leverage valuable resources (Lippman and Rumelt 1982). Two dimensions of causal ambiguity are particularly relevant: linkage ambiguity, which derives from decision-makers having different beliefs about the contribution of a competency to competitive advantage, and characteristic ambiguity, which derives from the inherent characteristic of the resource (King and Zeithaml 2001). One characteristic that is particularly causally ambiguous is tacitness because unarticulated, nonverbalized knowledge poses constraints on its mobility and transfer within the firm.

3.2.2 Value Creation vs. Value Appropriation When reasoning on the concept of value in acquisitions, a distinction needs to be made between creation and appropriation of value. While value creation is a long-term phenomenon that depends on the robustness

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of the acquisition strategy and on the effectiveness of integration, value appropriation, also referred to as value capturing, is a one-time event that is specific to the single transaction and that depends on the relative bargaining power of the acquiring and target firms. Bargaining power may be broadly defined as “a bargainer’s ability to favourably change the ‘bargaining set’ to win accommodation from the other party, and to influence the outcome of negotiation” (Yan and Gray 1994, 1480). Of course, value appropriation depends, at first, upon value creation, given that if no value has been created, then there will be little to appropriate. However, many acquisitions scholars have argued that, while value creation is a necessary and preliminary condition for value appropriation, value appropriation by the acquiring firm’s shareholders actually does not represent an automatic consequence. Yet, several researchers have suggested that the reason why acquisitions do not create value for the acquiring firm’s shareholders is that value is ultimately captured by the target firm’s shareholders. Hence, provided that some value is created, the point becomes who ultimately captures the value or the greatest part of it. According to Gates and Very (2003), value creation is also a function of the extent to which the intrinsic value of both the acquiring and the target firm is preserved: if their intrinsic value is decreased, value is destroyed.

3.2.3 Value Creation vs. Value Destruction As opposed to synergistic/value creation motivations, a large number of scholars have actually suggested that acquisitions may destroy shareholders’ value. Two main reasons have been identified to explain the occurrence of value-destroying acquisitions: first, the tendency of managers to pursue the maximization of their own interest over shareholders’ interest; second, managerial bias in perceived causality, which in turn engenders overconfidence. Although managerial self-interest and overconfidence actually capture two very distinct aspects, that is, problems arising from the agency relationship and attribution biases, respectively, they may be considered under the same umbrella since they both typically lead to value-destroying acquisitions.

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Additional sources of value destruction, or value leakage, include the inability to obtain the expected synergies and the case in which the cost of managing the post-acquisition integration process exceeds the potential benefits that may be obtained.

3.2.3.1  Managerial Self-Interest Agency theory examines the ubiquitous agency relationship, considered as one of the oldest and most common modes of social interaction (Ross 1973). In an agency relationship, one party (the agent) acts on behalf of another party (the principal): in this principal-agent relationship, two problems may occur, that is, the agency problem and the problem of risk sharing (Ross 1973; Jensen and Meckling 1976). The agency problem arises when the desires and goals of the principal and agent are in conflict and when it is complex or burdensome for the principal to control whether the agent is behaving in his/her interests. The problem of risk sharing arises when the principal and agent have different attitudes toward risk and, due to their different risk preferences, may opt for diverging actions. The typical traits of an agency relationship between shareholders and managers create peculiar challenges in the context of M&A due to the existence of a direct and close association between managerial compensation and firm size. Indeed, because acquisitions act as an easy and immediate tool to increase firm size, the expectation of increased compensation leads managers to pursue size-enhancing acquisitions for empire-building purposes (Jensen 1986). The increased acquisition activity driven by personal lucrative motivations is even more difficult to contain if considering that a compensation increase after an acquisition may occur independently from post-acquisition outcomes, thus making managers further overly attracted by acquisitions (Harford and Li 2007). The role played by managerial compensation as a driving force of acquisition activity has also been acknowledged in the literature on M&A waves: in particular, managerial self-interest boosts managers’ willingness to sacrifice corporate funds for the sake of their own reward to such an extent that the large volume of acquisitions turns into a wave (Kolev et al. 2012).

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3.2.3.2  Overconfidence The argument that exaggerated self-confidence may work as an incentive for acquisitions may be traced back to Roll’s (1986) hubris hypothesis. Overconfidence is a bias that leads decision-makers to believe that they can overinfluence the consequences of an action (Baker and Ricciardi 2014), and, in an acquisition context, it implies that managers may overestimate their ability to extract synergies from the deal. This exaggerated self-confidence about personal disposition in managing the acquisition represents an error of supposition that leads managers to overestimate the benefits and underestimate the costs of an acquisition move (Roll 1986; Malmendier and Tate 2005). Acquisition scholars have therefore started to explore the effects of this bias and found an association between the wrong expectations and suppositions of overconfident managers and the acquisition premiums paid, with detrimental consequences in terms of value (Morck et  al. 1990; Hayward and Hambrick 1997). The exaggerated pride and self-­confidence (Hayward and Hambrick 1997) undermines managers’ judgment and causes them to overestimate their managerial capabilities in extracting acquisition benefits and to “systematically overestimate the return to their investment projects” (Malmendier and Tate 2005, 2662), thereby ending up in overpaying for the acquisition (Morck et al. 1990; Hayward and Hambrick 1997). The premium is the difference between the price paid, which generally exceeds the target firm’s market value, and the market value of the target firm, that is, the market’s estimate of the target firm’s future cash flows. The premium has significant effects on acquisition outcomes (Krishnan et al. 2007), as, to allow value creation, it should not exceed the synergistic benefits that could potentially be realized. While synergies obviously represent a justification for the premium paid (Hitt et al. 2012), it has been suggested that overpaying for targets reduces the value-creating potential of the acquisition (Hayward and Hambrick 1997). While overoptimistic expectations about potential synergies may actually be considered as an estimation error, supposition on one’s own ability is an attribution bias that is more typically interpreted as a signal of ­arrogance. When overconfidence is associated with presumptuous

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arrogance, it typically turns into hubris. In this case, tolerance toward the consequences may be expectedly lower if compared to the case in which overpayment is due to an error of expectation. According to Baker and Ricciardi (2014), overoptimism and overconfidence are also associated with what they call “hindsight bias,” which causes a correlation between past actions and positive outcomes that is actually spurious, as those actions were not necessarily responsible for those outcomes. This spurious correlation may be also due to the so-­ called better-than-average effect (Malmendier and Tate 2005), that is, the tendency to overestimate one’s own acumen.

3.2.4 P  erspectives on Value Creation: Strategic Fit, Organizational Fit, and the Process Perspective Concerns in terms of value creation for acquiring firms dominate the scene of acquisition research, given that, despite the growing and sometimes almost epidemic acquisition activity, most acquiring firms typically experience value erosion and unrewarding performance outcomes (Hitt et al. 2012). Such degree of performance variance has inspired extensive research from diverse groups of scholars, motivated by the desire to identify factors that may explain the underlying dynamics and value-creating mechanisms in acquisitions (Teerikangas et al. 2012). According to several scholars (e.g., Haspeslagh and Jemison 1991; Weber and Tarba 2010; Straub et al. 2012), contributions in the field of M&A may be clustered into four groups: the finance school, the strategic school, the organizational behavior school, and the process perspective. The finance school adopts a capital market perspective in which value creation is considered to be a function of variables like the bidding process, due diligence, and the premium paid. Both the strategic and the organizational behavior perspectives emphasize that, due to the inherent interorganizational nature of acquisitions, the potential for value creation depends upon the existence of a fit between the two firms involved. Around the notion of fit, long-lasting academic conversations have proliferated, with its meaning being regarded through different lenses, that is, strategic fit in the strategic school and organizational fit in the organizational behavior

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school. In addition to the strategic logic and the organizational behavior perspectives, starting with the works by Jemison and Sitkin (1986) and Haspeslagh and Jemison (1991), a shift in attention has been encouraged toward the examination of the acquisition process as an additional determinant of acquisition results, which is at the core of a process perspective.

3.2.4.1  The Finance School From a capital markets perspective, value represents the net wealth gains for shareholders, intended as the change in stock price adjusted for market fluctuations. According to financial economists, acquisitions are therefore judged as to the immediate value created for the acquiring firm’s shareholders, based on the assumption that the market stock price unbiasedly proxies the estimate of a firm’s future cash flows and risks. In this view, the firm is considered as a bundle of assets and the emphasis is placed on the effects of acquisitions on the economy, typically observing short-term windows around the acquisition announcement.

3.2.4.2  The Strategic School Within the strategic school, a conventional and common approach is the view of the acquisition process as a sequence of separate steps from the definition of acquisition objectives, the evaluation of both strategic and financial aspects, to the negotiation, agreement, and implementation. The most emphasized concept in the strategic school is the notion of strategic fit, that is, “the degree to which the target firm augments or complements the parent’s strategy and thus makes identifiable contributions to the financial and non-financial goals of the parent” (Jemison and Sitkin 1986, 146). In particular, the notion of strategic fit has been mostly explored in terms of the relatedness of the acquisition, where value creation derives from scale and scope economies and market power (Singh and Montgomery 1987). From a theoretical point of view, the resource-based view of the firm has represented the major reference paradigm as it directs attention to a firm’s resource position and its relationship to profitability. Specifically,

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with the legacy of the resource-based view, scholars directing attention to strategic fit have suggested that the value created depends upon the type of resources being combined. Following this approach, Shelton (1988) proposed a typology based on strategic fit along the two dimensions of products and markets,2 thus retracing Ansoff’s (1957) growth vector component matrix and distinguishing among: • Identical, when both the products and the customers are similar; • Related-complementary, when the business of the target firm involves a different product but the same customers; • Related-supplementary, when, on the contrary, the acquiring and target firm share similar products but have different customers; and • Unrelated, when both the products and the customers are new. Delving deeper into the related-complementary type, three types of complementary resources may be distinguished (Eschen and Bresser 2005): • Generic complements, that is, abundantly available commodity assets which represent resources that are not specifically tailored to fit other resources and whose combination cannot generate unique value; • Specialized complements, that is, resources that are unilaterally dependent on other resources, in the absence of which they lose value; and • Co-specialized complements, that is, resources characterized by a bilateral dependence, on the basis of which the economic value of both resources is enhanced when combined and diminished when separated. An interesting typology was provided by Bower (2001), who, in addition to the traditional motivations of portfolio extension and market expansion, identified three additional types of M&A motives:  The related-complementary and related-supplementary acquisition types were identified by Salter and Weinhold (1980) as a resource-based set of acquisition strategies and were later adopted by Wernerfelt (1984). Wernerfelt (1984) defined related-complementary as an acquisition strategy that allows for getting resources that combine effectively with those already possessed by the firm, and related-supplementary, in contrast, as an acquisition strategy that allows for getting more of already existing resources. 2

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• Overcapacity acquisitions: acquisitions pursued to reduce capacity within an industry; • Acquisitions for R&D: acquisitions carried out to strengthen a firm’s R&D capabilities; and • Convergence acquisitions: acquisitions in which the acquiring firm is willing to enter a new industry by acquiring firms operating in converging industries.

3.2.4.3  The Organizational Behavior School Strategic management scholars have been concerned with strategic fit under the expectation that good strategic fit should lead to successful acquisition performance. The lack of such a simple and direct relationship between selecting the right target and value creation has encouraged organizational behavior scholars to suggest a shift in attention toward the acquisition implementation. In the organizational behavior perspective, emphasis is placed on the role played by organizational conditions in terms of challenges brought about by the integration of two distinct organizations. The school of organizational behavior therefore focuses on the notion of organizational fit, defined as “the match between administrative practices, cultural practices, and personnel characteristics of the target and parent firm and (that) may directly affect how the firms can be integrated with respect to day-to-day operations once an acquisition has been made” (Jemison and Sitkin 1986, 147). Consistently, the organizational behavior school has developed around three major trajectories, that is, human resource management in terms of employees’ turnover (Schweiger and Walsh 1990), the collective experiences of individuals of the acquired firm, and the role played by cultural compatibility (Datta 1991). Within this view, some typologies have been elaborated specifically related to organizational fit features, such as cultural integration (e.g., Nahavandi and Malekzadeh 1988) and human resource integration (e.g., Napier 1989; Birkinshaw et al. 2000). A transversally shared view in the organizational behavior school is that culture plays a fundamental role in determining the challenges and the effectiveness of interorganizational integration. Culture, defined as “the beliefs and assumptions shared by members of an organization”

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(Nahavandi and Malekzadeh 1988, 80), indeed poses peculiar complexities, especially if considering that, although it is typically treated as a monolithic notion, firms actually comprise various subcultures.

3.2.4.4  The Process Perspective In contrast with the previously mentioned schools of thought, the process perspective takes a broader and integrative view that not only combines dimensions related to both strategic and organizational fit but also “adds the consideration that both acquisition decision-making and integration processes can affect the final outcome” (Haspeslagh and Jemison 1991, 306). The merit of the process perspective lies in the recognition that, while both an adequate analysis of strategic fit and an appropriate consideration of organizational fit issues are fundamental premises, they are actually not sufficient. Indeed, while preparing the ground for whether the acquisition will be successful, they need to be supplemented by consideration of the process itself as part of the “problem.” Prior to the works by Jemison and Sitkin (1986) and Haspeslagh and Jemison (1991), who represent the founding fathers of a process perspective on acquisitions, the two lenses of strategic fit and organizational fit were actually disconnected, each directing attention at specific notions of compatibility. From a theoretical viewpoint, the process perspective builds on a capabilities-­based view and hence embraces a concept of the firm as a set of capabilities. Within this view, acquisitions may be classified depending on the type of capability being transferred: • Resource sharing, which implies that the operating assets of the two firms are combined and/or rationalized. Typically, resource sharing generates cost efficiencies of both scale and scope nature. • Functional skill transfer, which occurs when the capabilities base of a firm is strengthened by the transfer of functional skills from another firm. • General management skill transfer, including skills in terms of leadership, strategic and financial planning, control, and human resource management. The transfer of these types of skills fosters improvement of the range and depth of a firm’s management skills.

  Mergers and Acquisitions as Strategic Decisions  ACQUISITION DECISION-MAKING PROCESS

Decision-making problems: Fragmented perspectives Increasing momentum Ambiguous expectations Multiple motives

Idea • Definition of objectives • Search/screening • Strategic evaluation • Financial valuation • Negotiation

Justification • Quality of the strategic assessment • Shared view of the purpose • Degree of detail in the consideration of benefits and problems • Regard for organizational conditions • Walk-away price

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ACQUISITION INTEGRATION PROCESS

Integration Stage setting Atmosphere for capability transfer • Reciprocal understanding • Willingness to cooperate • Capacity to transfer and receive • Availability of slack resources • Understanding of cause-effects

Potential for value creation

Transfer of strategic capabilities • Integration approaches

Integration problems: Determinism Value destruction Leadership vacuum Misapplication of management systems

Fig. 3.1  A process perspective: Acquisition decision-making and integration processes. Source: Based on Haspeslagh and Jemison (1991) and Jemison and Sitkin (1986)

In a process perspective, the final value created by an acquisition is a reflection of several contingencies that affect both the decision-making processes and the integration processes. A schematic representation of the process perspective proposed by Jemison and Sitkin (1986) and Haspeslagh and Jemison (1991) is provided in Fig. 3.1.

3.2.4.5  Acquisition Decision-Making Processes The processes subtended in acquisition decision-making gravitate around the central argument of the justification of the acquisition, which clarifies how the acquisition contributes to the overall firm’s strategy and on the basis of which the price paid is justified. According to Haspeslagh and Jemison (1991), the justification of the acquisition depends upon several dimensions: the quality of the strategic assessment, intended in terms of contribution of the acquisition to the firm’s corporate strategy and competitive position in light of an expected value-creating potential; the existence of a shared view of the acquisition’s

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purpose; the extent to which the sources of potential benefits and problems are addressed in details; regard for organizational conditions; the timing of implementation; and the identification of a maximum/walk-­ away price, identified on the basis of the assessment of both expected value creation and the organizational changes brought about by the acquisition implementation. The internal and external logics for the acquisition embedded in the justification are, however, affected by a number of decision-making problems: • Fragmented perspectives: The technical complexity of activities and tasks within an acquisition requires task segmentation and the involvement of a number of different technical specialists. Activity segmentation, while essential for handling the complexity of acquisitions, leads to a fragmentation of perspectives: the different experts involved typically produce isolated analyses based on distinct perspectives that are difficult to integrate and that prevent the development of a generalist view. In addition, this fragmentation implies that a greater emphasis is placed on quantifiable financial estimates over strategic considerations and, in turn, on strategic analysis over organizational compatibility. • Escalating momentum: Escalating momentum may be defined as the increasing desire to close the acquisition process quickly. This phenomenon is driven by managers’ personal commitment as well as by the conflicts of interest that may arise when involving outside advisors. Potentially, escalating momentum may have detrimental consequences on the success of the acquisition because the rush to solutions that may actually be premature may result in an inadequate appraisal of integration issues. • Ambiguous expectations: The two firms involved in the acquisition typically have different expectations from the deal. This divergence of expectations has substantially opposite effects during negotiation and integration. During the negotiation phase, the parties involved may agree to postpone consideration/resolution of the critical issues generated by diverging expectations in order to keep some maneuvering room within the negotiation. Haspeslagh and Jemison (1991) refer to this phenomenon as an agreement to disagree.

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While the ambiguities upon expectations may be functional to build the political coalitions during negotiation, they bring dysfunctional effects into the integration phase: they inject unresolved, contentious issues into integration that lead to escalating conflicts as soon as ambiguities are clarified and to a growing polarization effect toward reciprocal distrust (Jemison and Sitkin 1986). • Multiple motives: In many cases, the justification of the acquisition includes diverse motives and “implicit promises” (Haspeslagh and Jemison 1991, 68) to different categories of shareholders. These multiple motives may concretely result in a list of diverse synergies that mirror the different expectations of groups of shareholders. The problem is that these synergies may actually turn out not to be compatible at a later stage and may hence ultimately require prioritizing some synergies over others, thus breaking the original promises made to some categories of shareholders.

3.2.4.6  Acquisition Integration Processes Integration has been defined as an “interactive and gradual process in which individuals from two organizations learn to work together and cooperate in the transfer of strategic capabilities” (Haspeslagh and Jemison 1991, 106). The integration challenges may substantially differ depending on the type of strategic capability being transferred but, regardless of the peculiarities associated with specific capabilities, the creation of an atmosphere that is conducive to transfer is considered as a necessary precondition to allow for effective integration. The literature on the process perspective identifies several elements that may contribute to the creation of this atmosphere: reciprocal understanding, willingness to cooperate, the capacity to both transfer and receive, availability of slack resources, and understanding of cause-effect linkages. The presence and effectiveness of these elements may, however, be undermined by several problems: determinism, value destruction, leadership vacuum, and misapplication of management systems. Determinism arises when the firm is unable to modify the original justification to accommodate emergent changes in the current situation, typically

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because the original justification provides the firm with a false sense of security that it is myopically reluctant to abandon. The conditioning deriving from the original justification may also generate a sense of confusion and frustration when the justification proves to be unable to survive the real circumstances. The notion of value destruction in the acquisition integration process has a different meaning if compared to that implied in managerial self-­ interest and overconfidence. In particular, Haspeslagh and Jemison make a bridge with the organizational behavior perspective and consider value destruction for members of the organization through two main lenses: destruction of economic value and destruction of psychic value. Economic value destruction occurs with loss of job security, employee turnover, and loss of economic benefits and typically results from the post-acquisition standardization of operation procedures or elimination of redundancies. Psychic value destruction, on the contrary, is related to loss of ­opportunities of career advancement and of the status provided by being a member of a given organization. Regardless of whether the value being destroyed is of an economic or a psychic nature, there is a shared consensus among scholars that it profoundly affects the potential for the creation of an atmosphere for the transfer of strategic capabilities as it hampers the willingness of people to work together. The atmosphere for capability transfer is also affected by institutional leadership. In particular, the lack of effective leadership may limit the understanding of cause-effect linkages as well as the willingness to cooperate while also reducing slack resources. According to Jemison and Sitkin (1986), a further element that may be profoundly dysfunctional for the creation of an atmosphere for capability transfer is the misapplication of management systems, which translates into the imposition of the parent firm’s practices onto the newly acquired subsidiary. This misapplication is typically driven by two forces: defensiveness and arrogance. Defensiveness is pervasive in both the parent and the subsidiary due to the parent’s inability to help the subsidiary for its unfamiliarity with the latter’s business, culture, and style on the one hand and the subsidiary’s reluctance to admit possible lack of knowledge on the other. Arrogance, on the contrary, usually occurs on the part of the parent firm and results from the presumption that its operating

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systems and management style are superior and should hence be unilaterally adopted by the subsidiary. Overall, both defensiveness and arrogance lead to a perception of the acquiring firm’s compelling dominance over the subsidiary which, in turn, becomes resistant to the cooperative relationship. The process perspective identifies two key dimensions that determine the integration approach that should be contingently adopted: • The level of need for strategic interdependence, intended as the extent to which the transfer of resources and capabilities among the two firms is necessary for the acquisition to create value; and • The level of need for organizational autonomy, intended as the degree to which the acquired firm should be protected from organizational integration into the parent firm in order to ensure that the relevant capabilities residing inside the target firm are not lost. Depending on the different combinations among these two needs, Haspeslagh and Jemison (1991) identify three integration approaches: preservation, absorption, and symbiosis (Fig. 3.2). The fourth quadrant, referred to as the “holding” type, combines low strategic interdependence and low organizational autonomy and hence actually does not really entail any integration. A typical example of the holding type is the conglomerate acquisition: the diversification in an unrelated business indeed usually does not require either strategic interdependence or organizational autonomy. Absorption acquisitions are those in which there is a high need for strategic interdependence and a low need to maintain the subsidiary’s organizational autonomy. From an integration point of view, absorption therefore requires consolidation and rationalization efforts. Preservation acquisitions, on the contrary, are characterized by a low need for strategic interdependence but a high need for the target firm’s organizational autonomy and hence involve the delicate challenge to create the conditions for the development of new capabilities without harming those already existing. Finally, symbiotic acquisitions require the most challenging integration approach because while on the one hand some changes are needed to achieve strategic interdependence,

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Fig. 3.2  Integration approaches matrix. Source: Adapted from Haspeslagh and Jemison (1991)

on the other such changes should preserve existing organizational capabilities.

3.3 L inking Mergers and Acquisitions to Corporate Strategy: An Integrative Perspective Linking M&A to the broader corporate strategy means understanding: 1 . the need for continuity versus renewal; 2. the selection of acquisitions over alternative modes to implement corporate strategy renewal; and 3. the selection of the type of acquisition. An integrative perspective on the relationship between acquisitions and corporate strategy is schematically shown in Fig. 3.3.

New

DOMAIN EXPANSION: PRODUCT DIVERSIFICATION

DOMAIN EXPLORATION

Diversification (new products in new markets)

Product development (new products in existing markets)

Market penetration (existing products in existing markets)

Market development (existing products in new markets)

New

Selection of the mode of corporate renewal

Existing

PRODUCT DOMAIN

Identification of renewal objectives/paths Full ownership

Acquisition integration process

Acquisition decision making process

Acquisition process

Selection of the type of acquisition

Non-equity based

Equity-based

External growth (acquisitions)

Internal growth

Fig. 3.3  An integrative perspective on the relationship between acquisitions and corporate strategy. Source: Adapted from Ansoff (1957) and Haspeslagh and Jemison (1991)

DOMAIN EXPANSION: GEOGRAPHIC DIVERSIFICATION

MARKET DOMAIN

Existing

DOMAIN STREGHTENING: HORIZONTAL EXPANSION

Corporate strategy balance (continuity – renewal)

Shared ownership

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3.3.1 Strategic Continuity vs. Renewal A firm’s strategy is always based on striking a balance between continuity of ongoing operations and renewal (Haspeslagh and Jemison 1991). This tension between exploration and exploitation has been recognized as a fundamental factor determining a firm’s survival and prosperity (March 1991): to maintain competitive advantage over time, firms need to reconfigure their resources, either by employing existing resources in new uses or by obtaining new resources (Capron et al. 1998). Acquisitions may hence either reinforce or reshape the firm’s current strategic direction: being a substitute for inefficient or absent factor markets for specialized resources (Eschen and Bresser 2005) and a means to facilitate redeployment of resources and transfer of competence, M&A represent a mode of corporate scope expansion and renewal (Jemison and Sitkin 1986) to increase market shares, quickly acquire new knowledge and competencies, eliminate existing rivals, exploit scale and scope economies, and enter new business and geographic areas. Corporate renewal may arise either from an opportunity or by formal planning. Formally planned renewal may derive from the identification of a major repositioning need, for instance in light of a growth gap; on the contrary, opportunity-driven renewal does not stem from a proactive analysis of the firm’s current situation, but rather derives from the willingness to seize an existing opportunity. Regardless of whether the relationship between an acquisition and corporate strategy is the result of a formal planning process or an external opportunity, it has been suggested that to be considered as strategic, acquisitions have to contribute to corporate strategy.

3.3.2 Implementing Strategic Renewal In striking a balance between continuity and renewal, firms identifying the need for renewal address the choice of acquisitions relative to alternative modes that enable them to realize corporate redirection. With the resource-based view and transaction cost economics as key theoretical frameworks of reference, scholars have been interested in the exploration of motivations that explain the preference for one governance form over the others, along the continuum between market and hierarchy.

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In her Theory of the Growth of the Firm, Penrose (1959) argues that, in principle, firms have two alternative methods of expansion: internal (or organic) growth and external growth, whereby M&A represent moves to realize external growth and are chosen over organic development as a function of whether the acquisition is considered cheaper than internal expansion. Penrose actually dedicates an insightful digression as to how the “cheap” attribute should be intended. Specifically, she argues that acquisitions are cheaper than internal expansion to the extent that the price at which another firm is acquired is lower than the investment outlay that would be required by the firm to build up organically all the necessary resources for expanding. Therefore, a precondition to consider acquisitions as the cheapest method of expansion is that the acquisition price should not exceed the value of the target firm to the acquirer. This, however, implies that there must be some conditions under which either the value of a firm to itself is depressed below its value to another firm or it is raised for the acquiring firm above its value to itself (Penrose 1959). Extending Penrose, Wernerfelt (1984) suggests that M&A represent a vehicle to trade resources that would otherwise not be marketable and, hence, to close resource gaps. Indeed, if compared to organic development, M&A provide the advantage of imposing virtually no limitation as to the extent to which newly acquired resources can differ from existing ones (Eschen and Bresser 2005). An additional key aspect is the time compression opportunities offered by acquisitions over organic growth: the time required to acquire an existing firm is typically lower than the time required to set up internally an entirely new pool of material and nonmaterial resources. From the point of view of transaction cost economics, the choice of the governance form is a function of the need to minimize the cost of the transaction. Within this theoretical perspective, a critical role is played by uncertainty, opportunism, and asset specificity. When these factors increase, transaction costs increase as well, and hence the firm is encouraged to adopt governance forms that internalize the transaction rather than relying on the market. Scholars, additionally, suggest that hierarchical forms will be more likely adopted when uncertainty and asset specificity are copresent (Villalonga and McGahan 2005).

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The choice of hierarchical forms over market-based forms is also driven by considerations related to knowledge and capabilities: when the knowledge capital is very valuable and resides in the focal firm, the hierarchy may be more likely to protect it from external appropriation, while, when on the contrary it resides in the target firm, and especially if it has characteristic ambiguity deriving from its tacitness, hierarchy may be preferred over alternative governance forms to increase its appropriability and transfer to the acquiring firm. When the choice of the governance form is related to the firm’s expansion in a foreign market, equity-based external growth is realized through international, or cross-border, acquisitions. According to international business scholars, cross-border acquisitions involve unique challenges if compared to their domestic counterparts. The peculiar challenges that characterize cross-border acquisitions are liability of foreignness and double-layered acculturation (Shimizu et al. 2004). The liability of foreignness, that is, all additional costs that a firm operating in a foreign market incurs that a local firm would not incur, may arise from at least four sources (Zaheer 1995): • costs directly associated with spatial distance, such as the costs of travel, transportation, and coordination over distance and across time zones; • firm-specific costs based on a particular company’s unfamiliarity with and lack of roots in a local environment; • costs resulting from the host-country environment, such as the lack of legitimacy of foreign firms and economic nationalism; and • costs deriving from the home country environment, such as restrictions on high-technology sales to certain countries imposed on domestic multinational enterprises (MNEs). Acculturation is defined as “changes induced in (two cultural) systems as a result of the diffusion of cultural elements in both directions” (Berry 1980, 215). Although the issue of acculturation is pervasive in M&A, inherently being interorganizational combinations (Larsson and Lubatkin 2001), in the context of cross-border acquisitions, the process of

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a­cculturation is particularly salient as it is “double-layered,” that is, it involves not only the integration of the target’s corporate culture, but also the adaptation to a foreign national culture and institutional environment (Barkema et al. 1996). From a knowledge-based and a capabilities-based view, it is worth noting that national cultural differences have a double effect. If, on the one hand, they may undermine the development of combinative capability because of the more complex integration of knowledge bases rooted in different social contexts (Lubatkin et al. 1998), on the other hand, cultural differences provide the opportunity to get access to a distinct and, thus, richer knowledge pool (Reus 2012).

3.3.3 F rom Corporate Renewal Objectives to Acquisition-Type Selection Once the firm has decided that the acquisition represents the most proper way to realize corporate renewal, the firm needs to identify which type of acquisition best reflects the renewal objectives. The literature on acquisitions has actually produced a wide variety of different labels to classify types of acquisitions, as extensively identified throughout the previous sections of this chapter. Selecting the type of acquisition implies considering how the acquisition contributes to corporate renewal in terms of relationship with the firm’s current domain, intended as product/market combinations. Most research on M&A adopting a resource-based view approach has built on Ansoff’s elaboration of the growth vectors of corporate strategy, with product diversification and internationalization being acknowledged as two dominant growth trajectories for firms (e.g., Qian 2002; Kumar 2009; Hashai and Delios 2012; Mayer et al. 2015). Corporate renewal may hence proceed along three main trajectories: strengthening the firm’s current domain, extending the current domain, or exploring a new domain. Haspeslagh and Jemison (1991) provide a description of these three paths of corporate renewal. Domain strengthening implies that the firm’s competitive positioning in an existing domain is deepened. The extension of the firm’s current domain means

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that the existing resources and capabilities are applied into adjacent businesses or that new resources and capabilities are brought in the firm and applied to its existing domains. Finally, the exploration of new domains translates into moves that allow to enter new domains that typically require new capabilities. On the basis of the acquisition type, the acquisition process in terms of both decision-making and integration processes will be a function of the specificities involved in the type of acquisition selected.

3.4 T  oward a Role of Experience and Learning in Mergers and Acquisitions A pervasive argument among acquisition scholars in their exploration of the circumstances and the dynamics that may be held responsible for value creation or value destruction is that firms substantially differ in terms of their ability to perform acquisitions (Barkema and Schijven 2008). Indeed, acquisitions, although mostly considered as infrequent events (e.g., Zollo 2009), may repeatedly occur during a firm’s life and hence scholars have started to wonder whether, if compared to first-time acquisitions, performance improvements may be obtained over time thanks to the experiential learning of relevant capabilities. Capabilities relevant to acquisitions include a wide variety of activities and s­ ubprocesses within the more general acquisition process, including target identification/selection, due diligence, negotiation, integration, and retention of the target’s valuable human capital (Arikan and McGahan 2010). Because capabilities are embedded in activities and routines and accumulate incrementally through experience (Anand and Khanna 2000), acquisition scholars have approached the role played by experience with the intuitive expectation that it should have a positive effect on acquisitions. For instance, in the international business literature, because both liability foreignness and double-layered acculturation are the result of the acquiring firm’s unfamiliarity with the target environment, scholars have explored the role played by experience at the host-country level in reducing these two challenges affecting cross-border acquisitions. From a

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capabilities-­based view, experience in acquisitions has been regarded as a force that may potentially slow down the escalating momentum and as the basis for a firm’s absorptive capacity. From a hubris perspective, arguments have been produced regarding acquisition experience as both a catalyzer of overconfidence, and hence of potential value destruction, and a force able to reduce exaggerated confidence and illusion of control. However, the profoundly inconsistent empirical results obtained have increasingly challenged the idea that experience automatically translates into learning, and have provided a fertile territory of inquiry upon which an entire branch of studies has sprouted. Within this corpus of literature, which started to emerge during the 1980s, borrowing notions from the long tradition of the psychology literature on learning, attention has been devoted to both experience as a potential driver of acquisition activity and behavior and as an intervening force that may contingently play a role in affecting post-acquisition performance. Over the years, experience and learning have become a pervasive theme and the heterogeneous effects potentially associated with experience and learning have set in motion manifold research questions in various domains, thus animating a steadily ongoing academic interest from multiple disciplines. At the same time, its intrinsically multifaceted and contingent quintessence has engendered evanescent findings, from which numerous, intricate, and unsolved puzzles seem to emanate. After more than 30 years of literature on what still represents a hot topic in acquisition research, we are still quite far from reaching consonant conclusions. An effort at systematizing the huge corpus of research produced over more than three decades therefore seems more than necessary to identify the areas both of controversy and of potential cross-fertilizing conversations.

References Adler, Paul S., and Seok-Woo Kwon. 2002. Social Capital: Prospects for a New Concept. Academy of Management Review 27: 17–40. Anand, Bharat N., and Tarun Khanna. 2000. Do Firms Learn to Create Value? The Case of Alliances. Strategic Management Journal 21: 295–315.

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Ansoff, H.  Igor. 1957. Strategies for Diversification. Harvard Business Review 35: 113–124. Arikan, Asli M., and Anita M. McGahan. 2010. The Development of Capabilities in New Firms. Strategic Management Journal 31: 1–18. Baker, H. Kent, and Victor Ricciardi. 2014. Investor Behavior – The Psychology of Financial Planning and Investing. Hoboken, NJ: John Wiley & Sons Inc. Barkema, H.G., and M.  Schijven. 2008. How Do Firms Learn to Make Acquisitions? A Review of Past Research and an Agenda for the Future. Journal of Management 34: 594–634. Barkema, Harry G., John H.J. Bell, and Johannes M. Pennings. 1996. Foreign Entry, Cultural Barriers, and Learning. Strategic Management Journal 17: 151–166. Berry, John W. 1980. Social and Cultural Change. In Handbook of Cross-Cultural Psychology, ed. H.C.  Triandis and R.W.  Brislin, vol. 5, 211–279. Boston: Allyn & Bacon. Birkinshaw, Julian, Henrik Bresman, and Lars Håkanson. 2000. Managing the Post-Acquisition Integration Process: How the Human Integration and Task Integration Processes Interact to Foster Value Creation. Journal of Management Studies 37: 395–425. Bower, Joseph L. 2001. Not All M&As Are Alike – And That Matters. Harvard Business Review 79: 92–101. Capron, Laurence, Pierre Dussauge, and Will Mitchell. 1998. Resource Redeployment Following Horizontal Acquisitions in Europe and North America, 1988–1992. Strategic Management Journal 19: 631–661. Casciaro, Tiziana, and Mikoɨai J.  Piskorski. 2005. Power Imbalance, Mutual Dependence, and Constraint Absorption: A Closer Look at Resource Dependence Theory. Administrative Science Quarterly 50: 167–199. Cohen, Wesley M., and Daniel A. Levinthal. 1990. Absorptive Capacity: A New Perspective on Learning and Innovation. Administrative Science Quarterly 35: 128–153. Datta, Deepak K. 1991. Organizational Fit and Acquisition Performance: Effects of Post-Acquisition Integration. Strategic Management Journal 12: 281–297. Eschen, Erik, and Rudi K.F.  Bresser. 2005. Closing Resource Gap: Toward a Resource-Based Theory of Advantageous Mergers and Acquisitions. European Management Review 2: 167–178. Gates, Stephen, and Philippe Very. 2003. Measuring Performance during M&A Integration. Long Range Planning 36: 167–185.

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Grant, Robert M. 1996. Toward a Knowledge-Based Theory of the Firm. Strategic Management Journal 17: 109–122. Harford, Jarrad, and Kai Li. 2007. Decoupling CEO Wealth and Firm Performance: The Case of Acquiring CEOs. The Journal of Finance 62: 917–949. Hashai, N., and A.  Delios. 2012. Balancing Growth across Geographic Diversification and Product Diversification: A Contingency Approach. International Business Review 21: 1052–1064. Haspeslagh, Philippe C., and David B. Jemison. 1991. Managing Acquisitions: Creating Value through Corporate Renewal. New York: Free Press. Hawley, Amos H. 1950. Human Ecology. New York: Ronald Press. Hayward, Mathew L.A., and Donald C.  Hambrick. 1997. Explaining the Premiums Paid for Large Acquisitions: Evidence of CEO Hubris. Administrative Science Quarterly 42: 103–127. Hitt, Michael A., David King, Hema Krishnan, Marianna Makri, Mario Schijven, Katsuhiko Shimizu, and Hong Zhu. 2012. Creating Value through Mergers and Acquisitions: Challenges and Opportunities. In The Handbook of Mergers and Acquisitions, ed. David Faulkner, Satu Teerikangas, and Richard J. Joseph, 71–113. Oxford: Oxford University Press. Jemison, David B., and Sim B. Sitkin. 1986. Corporate Acquisitions: A Process Perspective. Academy of Management Review 11: 145–163. Jensen, Michael C. 1986. Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. American Economic Review 76: 323–329. Jensen, Michael C., and William H.  Meckling. 1976. Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics 3: 305–360. Kim, E.  Han, and Vijay Singal. 1993. Mergers and Market Power: Evidence from the Airline Industry. The American Economic Review 83: 549–569. King, Adelaide Wilcox, and Carl P. Zeithaml. 2001. Competencies and Firm Performance: Examining the Causal Ambiguity Paradox. Strategic Management Journal 22: 75–99. Kitching, John. 1967. Why Do Mergers Miscarry? Harvard Business Review 45: 84–101. Kogut, Bruce, and Udo Zander. 1992. Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology. Organization Science 3: 383–397. ———. 1993. Knowledge of the Firm and the Evolutionary Theory of the Multinational Corporation. Journal of International Business Studies 24: 625–645.

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Kolev, Kalin, Jerayr Haleblian, and Gerry McNamara. 2012. A Review of the Merger and Acquisition Wave Literature: History, Antecedents, Consequences, and Future Directions. In The Handbook of Mergers and Acquisitions, ed. David Faulkner, Satu Teerikangas, and Richard J.  Joseph, 19–39. Oxford: Oxford University Press. Krishnan, Hema A., Michael A.  Hitt, and Daewoo Park. 2007. Acquisition Premiums, Subsequent Workforce Reductions and Post-Acquisition Performance. Journal of Management Studies 44: 709–732. Kumar, Shyam. 2009. The Relationship between Product and International Diversification: The Effects of Short-Run Constraints and Endogeneity. Strategic Management Journal 30: 99–116. Larsson, Rikard, and Michael Lubatkin. 2001. Achieving Acculturation in Mergers and Acquisitions: An International Case Survey. Human Relations 54: 1573–1607. Lippman, Steven A., and Richard P. Rumelt. 1982. Uncertain Imitability: An Analysis of Interfirm Differences in Efficiency under Competition. The Bell Journal of Economics 13: 418–438. Lubatkin, Michael, Roland Calori, Philippe Very, and John F.  Veiga. 1998. Managing Mergers across Borders: A Two-Nation Exploration of a Nationally Bound Administrative Heritage. Organization Science 9: 670–684. Malmendier, Ulrike, and Geoffrey Tate. 2005. CEO Overconfidence and Corporate Investments. The Journal of Finance 60: 2661–2700. March, James G. 1991. Exploration and Exploitation in Organizational Learning. Organization Science 2: 71–87. Mayer, Michael C.J., Christian Stadler, and Julia Hautz. 2015. The Relationship between Product and International Diversification: The Role of Experience. Strategic Management Journal 36: 1458–1468. McSweeney, Brendan, and Elina Happonen. 2012. Pre-Deal Management. In The Handbook of Mergers and Acquisitions, ed. David Faulkner, Satu Teerikangas, and Richard J.  Joseph, 171–194. Oxford: Oxford University Press. Morck, Randall, Andrei Shleifer, and Robert W. Vishny. 1990. Do Managerial Objectives Drive Bad Acquisitions? The Journal of Finance 45: 31–48. Nahavandi, Afsaneh, and Ali R. Malekzadeh. 1988. Acculturation in Mergers and Acquisitions. Academy of Management Review 13: 79–90. Napier, Nancy K. 1989. Mergers and Acquisitions, Human Resource Issues and Outcomes: A Review and Suggested Typology. Journal of Management Studies 26: 271–290.

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Penrose, Edith. 1959. The Theory of the Growth of the Firm. Oxford: Oxford University Press. Pfeffer, Jeffrey, and Gerald R.  Salancik. 1978. The External Control of Organizations: A Resource Dependence Perspective. Stanford: Stanford University Press. Qian, Gongming. 2002. Multinationality, Product Diversification, and Profitability of Emerging US Small and Medium-Sized Enterprises. Journal of Business Venturing 17: 611–633. Reus, Taco H. 2012. A Knowledge-Based View of Mergers and Acquisitions Revisited: Absorptive Capacity and Combinative Capability. In Advances in Mergers and Acquisitions, ed. Sydney Finkelstein and Cary L. Cooper, vol. 11, 69–88. Bingley: Emerald Group Publishing Limited. Roll, Richard. 1986. The Hubris Hypothesis of Corporate Takeovers. The Journal of Business 59: 197–216. Ross, Stephen A. 1973. The Economic Theory of Agency: The Principal’s Problem. American Economic Association 63: 134–139. Salter, Malcolm S., and Wolf A. Weinhold. 1980. Diversification by Acquisition. New York: Free Press. Schweiger, David M., and James P. Walsh. 1990. Mergers and Acquisitions: An Interdisciplinary View. Research in Personnel and Human Resources Management 8: 41–107. Shelton, Lois M. 1988. Strategic Business Fits and Corporate Acquisition: Empirical Evidence. Strategic Management Journal 9: 279–287. Shimizu, Katsuhiko, Michael A. Hitt, Deepa Vaidyanath, and Vincenzo Pisano. 2004. Theoretical Foundations of Cross-Border Mergers and Acquisitions: A Review of Current Research and Recommendations for the Future. Journal of International Management 10: 307–353. Singh, Harbir, and Cynthia A.  Montgomery. 1987. Corporate Acquisition Strategies and Economic Performance. Strategic Management Journal 8: 377–386. Straub, Thomas, Stefano Borzillo, and Gilbert Probst. 2012. A Decision-Making Framework to Analyze Important Dimensions of M&A Performance. In Advances in Mergers and Acquisitions, ed. Sydney Finkelstein and Cary L. Cooper, vol. 11, 199–235. Bingley: Emerald Group Publishing Limited. Sudarsanam, Sudi. 2012. Value Creation and Value Appropriation in M&A Deals. In The Handbook of Mergers and Acquisitions, ed. David Faulkner, Satu Teerikangas, and Richard J.  Joseph, 195–253. Oxford: Oxford University Press.

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Teece, David J., Gary Pisano, and Amy Shuen. 1997. Dynamic Capabilities and Strategic Management. Strategic Management Journal 18: 509–533. Teerikangas, Satu, Richard J. Joseph, and David Faulkner. 2012. Mergers and Acquisitions: A Synthesis. In The Handbook of Mergers and Acquisitions, ed. David Faulkner, Satu Teerikangas, and Richard J. Joseph, 661–685. Oxford: Oxford University Press. Thomas, James B., and Linda Klebe Trevino. 1993. Information Processing in Strategic Alliance Building: A Multiple-Case Approach. Journal of Management Studies 30: 779–814. Villalonga, Belen, and Anita M.  McGahan. 2005. The Choice among Acquisitions, Alliances, and Divestitures. Strategic Management Journal 26: 1183–1208. Wally, Stefan, and J. Robert Baum. 1994. Personal and Structural Determinants of the Pace of Strategic Decision Making. Academy of Management Journal 37: 932–956. Weber, Yaakov, and Shlomo Yedidia Tarba. 2010. Human Resource Practices and Performance of Mergers and Acquisitions in Israel. Human Resource Management Review 20: 203–211. Wernerfelt, Birger. 1984. A Resource-Based View of the Firm. Strategic Management Journal 5: 171–180. Winter, Sidney G. 2003. Understanding Dynamic Capabilities. Strategic Management Journal 24: 991–995. Yan, Aimin, and Barbara Gray. 1994. Bargaining Power, Management Control, and Performance in United States-China Joint Ventures: A Comparative Case Study. Academy of Management Journal 37: 1478–1517. Zaheer, Srilata. 1995. Overcoming the Liability of Foreignness. Academy of Management Journal 38: 341–363. Zollo, Maurizio. 2009. Superstitious Learning with Rare Strategic Decisions: Theory and Evidence from Corporate Acquisitions. Organization Science 20: 894–908. Zollo, Maurizio, and Sidney G.  Winter. 2002. Deliberate Learning and the Evolution of Dynamic Capabilities. Organization Science 13: 339–351.

4 Systematic Literature Review on Experience and Learning in Acquisitions: Search Strategy and Data Synthesis

4.1 Introduction to Systematic Literature Review 4.1.1 D  efinition and Relevance of Conducting a Systematic Literature Review Process The need to review the literature is of central importance to any scholar in any field of research, for literature reviews serve to map existing knowledge and to identify new research questions that extend that body of knowledge further (Tranfield et al. 2003). Especially in strategic management research, where the corpus of knowledge is fragmented and more and more interdisciplinary, literature reviews represent an essential tool to trace the boundaries of the intellectual territory of inquiry (Tranfield et al. 2003). Traditional approaches to literature reviews in the management field have been mostly narrative, thus running the risk of becoming a-critical descriptive summaries of the relevant state-of-the-art, where the relevance may actually be biased by the researcher conducting the review (Fink 1998). The need to keep up with evolutions in social sciences and to © The Author(s) 2019 I. Galavotti, Experience and Learning in Corporate Acquisitions, https://doi.org/10.1007/978-3-319-94980-2_4

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rigorously inform policy and practice urges the adoption of systematic approaches to the process of literature review. In contrast with more narrative approaches, literature reviews conducted through a systematic process entail a number of advantages (Tranfield et al. 2003; Thorpe et al. 2005): • Transparency: the selection criteria for inclusion of studies is made explicit, thus leading to the possibility of replicating the process; • Clarity, achieved through the explicit and detailed clarification of the methodology used and of the different steps followed within a given protocol to arrive at a final number of selected articles; • Equality: compared to narrative reviews, subject to the risk of not being exhaustive, a systematic literature review process avoids an aprioristic discrimination of journals, which in turn allows the reviewer to cover a wide range of sources; and • Synthesis: the systematic literature review allows one to synthesize and critically link a number of different studies possibly based on different methodologies. A systematic literature review may hence be defined as a reliable overview of the existing knowledge in a given subject area that provides the most efficient methodology to identify extensive literatures (Tranfield et al. 2003; Petticrew and Roberts 2006).

4.1.2 General Rules for a Systematic Review Process Tranfield et al. (2003) propose a list of sequential steps to conduct a systematic literature review, whose collective execution is aimed at ensuring that the desirable methodological characteristics of such type of review are met. The stages are summarized below and graphically represented in Fig. 4.1. Stage 1: Planning the review The first stage involves those preliminary activities that are necessary for conducting the review. The planning step consists of three phases: identification of a need for a review, preparation of a review proposal, and development of a review protocol.

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CONDUCTING • Need for a review • Review proposal • Review protocol

• • • •

Research identification Studies selection Study quality assessment Data extraction and monitoring • Data synthesis

PLANNING

• Report and recommendations • Practical implications

REPORTING & DISSEMINATION

Fig. 4.1  Phases of the systematic literature review process. Source: Adapted from Tranfield et al. (2003)

Stage 2: Conducting the review Once a review protocol has been developed, the review can be conducted on the basis of the following phases: identification of research, selection of studies, study quality assessment, data extraction and monitoring process, and data synthesis. Stage 3: Reporting and dissemination The third stage is concerned with the reporting of results obtained and consists of the following phases: report and recommendations, and getting evidence into practice.

4.2 Planning the Review 4.2.1 Identification of the Need for a Review and Review Proposal Running parallel to the intense acquisition activity, a lively and flourishing academic interest on mergers and acquisitions has contributed to nourish and refine our knowledge of this phenomenon. However, the impressive proliferation of research on the one hand and the paucity of systematization efforts on the other have led to an increasing

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fragmentation of the literature that invites a synthesis (Larsson and Finkelstein 1999). Efforts at consolidating research on the role played by experience in the context of acquisitions are not new, with Barkema and Schijven (2008) representing a key reference review paper for scholars approaching this topic. Barkema and Schijven provide a nonsystematic, narrative review conducted on studies published since the 1980s until mid-1990s on the leading management journals: Academy of Management Journal, Administrative Science Quarterly, the Journal of International Business Studies, the Journal of Management, Organization Science, and the Strategic Management Journal. Their focus is on the performance implications of experience and learning in the context of acquisitions. Three considerations lie at the basis of the motivation for the systematic review hereby proposed. A first consideration relates to the type of review. As suggested by Tranfield et  al. (2003), focusing solely on leading journals generates a selective bias that derives from the implicit reliance on the quality rating and the popularity of a restricted number of specific journals. A huge number of contributions may, however, fall outside the circumscribed array of leading journals, and intercepting such a potential heritage from academic conversations may more exhaustively depict our current knowledge of experience implications in M&A. Because equality among journals, as expressed in Thorpe et  al.’s (2005) sense of nondiscrimination among journals, represents a key aspect in a systematic review, a systematization effort, unlike a more narrative approach, would allow for reaching and capturing in the most comprehensive and exhaustive way all relevant research produced in this field. A second consideration relates to the contents that such a systematic review needs to address. Although the greatest attention of most empirical research has been directed to the role played by experience in the performance implications of acquisitions, research has shown that experience also has a fundamental influence on decision-making aspects. The potential of experience in affecting acquisition choices and behavior has indeed increasingly moved at the heart of a growing number of studies, the collective findings of which have not yet been systematized.

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A third consideration pertains to the temporal extension: since the 1980s, management and organizational scholars have borrowed concepts of knowledge and learning from psychologists, and after more than 30  years of research the corpus of literature produced has reached an impressive size and substance, showing a steadily growing interest in the topic of experience in acquisitions. The review hereby proposed is hence a systematic literature review that, compared to previous review efforts, avoids the aprioristic selection of journals and, hence, extends its boundaries beyond the most renowned journals. This enables one not only to systematize research more exhaustively in terms of sources on which it has been published, but also, and as a natural consequence, to span a wide range of disciplines that, in different forms, may throughout the years have contributed to develop insights in the role of experience in acquisitions. Indeed, although perfectly aware that journals do differ in their scholarly impact and rigor, the adoption of a more inclusive approach helps to avoid the risk of sticking only to the mainstream. Such a broader perspective may hence provide a more comprehensive overview of both themes and theoretical perspectives. In addition, in view of the long-lasting popularity of the topic under investigation, the time horizon covered in the review encompasses research published from the 1980s until 2017, thus covering more than three decades of research. The 1980s represent the natural point of departure of a review on the role of experience in acquisitions because, while coinciding with the fourth merger wave (Kolev et al. 2012), and hence, although being preceded by other periods of intense acquisition activity, it represents the period in which the notion of experience, together with the connected notions of learning, knowledge, and memory, have been initially borrowed from the field of inquiry of psychology and functionally extended to the context of acquisitions.

4.2.2 Review Protocol: Search Strategy and Criteria Following Tranfield et al. (2003), this section is dedicated to the presentation of the search protocol, which provides a detailed and explicit description of the steps, the search strategy, and the criteria for inclusion and exclusion of studies.

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SCOPUS has been used as the sourcing bibliographic database for the identification and extraction of the relevant articles for the purpose of this review. Because the focus is on the role played by experience in the context of acquisitions, a first criterion that has been imposed for article selection has been the presence of the words acquisition* AND experien* OR learn* in the title or the abstract within the subject areas of business and economics. Books, book reviews, book chapters, and conference papers were excluded, thus limiting the search to articles in published journals. Building on Tranfield et al. (2003), rather than narrowing down the search only to leading journals and thus relying on their quality rating, the boundaries of this review have been extended to all published or in-­ press and accessible articles that met the aforementioned search criteria, thus ensuring that the review is less open to the researcher’s bias.

4.3 Conducting the Review 4.3.1 Article Selection and Data Extraction The search protocol led to the identification of 321 articles. To ensure that the output of the first steps of the search protocol was consistent with the purposes of this systematic review, the 321 articles were exposed to a rigorous scrutiny through an accurate analysis of the abstract of each of the selected articles. This step resulted in the elimination of 127 papers based on the fact the term “acquisition” had a different meaning from firm acquisition, leading to a new intermediate list of 185 articles. Following the same procedure, an additional 85 articles were excluded because the term “experience” was only used as a verb and, hence, as a synonym of encounter, suffer, undergo, bear, face, and so on, thus resulting in a list of 100 articles. Finally, an in-depth scrutiny of leading management journals, that is, the Academy of Management Journal, Strategic Management Journal, Organization Science, Administrative Science Quarterly, and Journal of International Business Studies, allowed for the inclusion of 41 additional papers.

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An in-depth appraisal of each study’s internal validity based on Tranfield et al. (2003) followed to ensure that the systematic analysis was specifically addressed to studies focusing on the role of experience in the context of acquisitions. Particularly, articles have been scrutinized in a last step to ensure the true existence of a research inquiry related to experience or learning. Studies including experience only as a control variable were therefore eliminated from the final sample of papers considered for the review: the existence of a hypothesis or research question on ­experience, as either a main or a moderating effect, represented the final criterion for inclusion of an article within the sample. This process led to the identification of a final sample of 141 articles, of which 134 are empirical papers. Among the other seven papers, three are literature reviews (Shimizu et al. 2004; Barkema and Schijven 2008; Haleblian et al. 2009), one is a metaanalysis (King et al. 2004), and three are conceptual papers (Jemison and Sitkin 1986; Aktas et al. 2009; Degbey 2015).

4.3.2 D  ata Synthesis: Descriptive Analysis of the Selected Articles Following Tranfield et al. (2003), who suggest that the reporting stage of a systematic review should first provide a descriptive analysis of the field, this section explores the contributions on the topic as to their distribution by discipline, journal, and time. As suggested, among the advantages of a systematic review over a narrative approach, a more comprehensive and exhaustive coverage of research published across different disciplines is expected. This is of particular relevance in the context of this systematization effort, especially if considering that the notion of experience has been variously employed from a wide number of scholars in different research areas. Looking at the time distribution of publications, Fig. 4.2 shows that the topic of experience in acquisitions has been receiving a growing interest over the years. In particular, especially the last decade has seen an exponential increase of contributions, with the two-year period 2008–2009 and the period 2013–2016 being the years in which academic interest on the topic of experience in acquisitions peaked.

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12 12 11 10 9

9 7

7

7 6

6 5 4 3 2

4

3 3

3 2 2

2 1

1

1985 1986 1989 1990 1991 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

1 1 1 1 1

5

Fig. 4.2  Distribution of papers by year of publication

Others Journal of Management

60 6

Organization Science

8

Management Decision

8

Journal of International Business Studies

10

Administrative Science Quarterly

10

Academy of Management Journal

10

Strategic Management Journal

29

Fig. 4.3  Distribution of papers by journal

Figure 4.3 plots the most fertile journals in terms of number of published papers. Management and international business journals represent by far the most active destinations for contributions on the topic of experience in the context of acquisition. The leading journal is the Strategic Management

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Journal with its 29 articles on the subject, followed by the Journal of International Business Studies, Administrative Science Quarterly, and the Academy of Management Journal, with 10 such publications each. Management Decision and Organization Science follow with 8; finally, the Journal of Management closes the top list with 6 published papers. In line with considerations in terms of journal equality, it is worth noting that Management Decision has offered a number of contributions on the topic, although falling outside the traditional set of leading journals. This testifies that this systematic review approach has actually encompassed important contributions on the role of experience in acquisitions that would otherwise not have been included if a narrative approach had been adopted. Figure 4.4 provides a synthesis of the distribution of published papers by discipline following the Journal Quality List produced by Anne-Wil Harzing (2018). Contributions predominantly come from the subject area of general and strategy, with 81 published papers. International business is the second largest discipline with 17 papers, followed by finance and accounting with 16 publications, and by the subject area of organizational behavior/studies, human resource management, and industrial relations with 9 papers. Additional contributions come from the areas of economics (5 papers), innovation (4 papers), marketing (3 papers), and management information systems and knowledge management (2 papers). Minor contributions Operations research, Management science, Production and operations management Entrepreneurship Other Management information systems, Knowledge management Marketing

1 1 2 2 3

Innovation

4

Economics Organization behavior/studies, Human resource management, Industrial relations Finance and Accounting

5 9

International business General and Strategy

Fig. 4.4  Distribution of papers by discipline

16 17 81

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may be found in the area of entrepreneurship and of operations research, management science, production, and operations management, with one published paper each. The label “other” includes two journals (Food Policy, Simulation and Gaming) that, besides not being listed in the Journal Quality List used to allocate journals to the different subject areas, have aims and scope that do not show a clear match with the subject areas proposed by Harzing. In addition to an overview of the distribution of papers by year of publication, journal, and discipline, it is worth examining the most influential contributions, that is, those papers that have been mostly cited (Fig. 4.5). Among these, Barkema and Vermeulen’s (1998) work on a learning perspective applied to the choice between greenfield investments and acquisitions for international expansion represents the most cited paper. It is interesting to note that Jemison and Sitkin’s (1986) paper, which immediately follows with 1478 citations, is the only conceptual study in the list proposed in Fig. 4.5, while all the other papers are of an empirical nature. An additional element that is worth noting is that all these papers are in the general and strategy subject area. Indeed, both contributions by the authors Barkema and Vermeulen (1998) and Vermeulen and Barkema Villalonga and McGahan (2005) Pennings et al. (1994) Haleblian et al. (2009) Li (1995) Haunschild and Beckman (1998) Shimizu et al. (2004) Pablo (1994) Baum et al. (2000) Beckman and Haunschild (2002) Hayward (2002) Hennart and Reddy (1997) Zollo and Singh (2004) Haleblian and Finkelstein (1999) Haunschild and Miner (1997) Hitt and Tyler (1991) Haunschild (1993) Vermeulen and Barkema (2001) King et al. (2004) Jemison and Sitkin (1986) Barkema and Vermeulen (1998)

470 491 652 654 685 686 688 755 800 840 858 975 1179 1195 1197 1207 1242 1256 1478 0

200

400

600

800

1000

Number of citations

Fig. 4.5  Most cited papers

1200

1400

1600

1800

1873 2000

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(2001) are in the Academy of Management Journal, 4 papers in both Administrative Science Quarterly (Haunschild 1993; Haunschild and Miner 1997; Haleblian and Finkelstein 1999; Baum et al. 2000) and the Strategic Management Journal (Hitt and Tyler 1991; Hennart and Reddy 1997; Hayward 2002; Zollo and Singh 2004), and the conceptual paper by Jemison and Sitkin (1986) published on the Academy of Management Review.

References Aktas, Nihat, Eric De Bodt, and Richard Roll. 2009. Learning, Hubris and Corporate Serial Acquisitions. Journal of Corporate Finance 15: 543–561. Barkema, Harry G., and Mario Schijven. 2008. How Do Firms Learn to Make Acquisitions? A Review of Past Research and an Agenda for the Future. Journal of Management 34: 594–634. Barkema, Harry G., and Freek Vermeulen. 1998. International Expansion through Start-Up or Acquisition: A Learning Perspective. Academy of Management Journal 41: 7–26. Baum, Joel A.C., Stan Xiao Li, and John M.  Usher. 2000. Making the Next Move: How Experiential and Vicarious Learning Shape the Locations of Chains’ Acquisitions. Administrative Science Quarterly 45: 766–801. Degbey, William Y. 2015. Customer Retention: A Source of Value for Serial Acquirers. Industrial Marketing Management 46: 11–23. Fink, Arlene. 1998. Conducting Research Literature Reviews: From the Internet to Paper. Thousand Oaks: Sage Publications. Haleblian, Jerayr, and Sydney Finkelstein. 1999. The Influence of Organizational Acquisition Experience on Acquisition Performance: A Behavioral Learning Perspective. Administrative Science Quarterly 44: 29–56. Haleblian, Jerayr, Cynthia E. Devers, Gerry McNamara, Mason A. Carpenter, and Robert B.  Davison. 2009. Taking Stock of What We Know about Mergers and Acquisitions: A Review and Research Agenda. Journal of Management 35: 469–502. Harzing, Anne-Wil. 2018. Journal Quality List. 62nd ed. Haunschild, Pamela R. 1993. Interorganizational Imitation: The Impact of Interlocks on Corporate Acquisition Activity. Administrative Science Quarterly 38: 564–592.

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Haunschild, Pamela R., and Anne S. Miner. 1997. Modes of Interorganizational Imitation: The Effects of Outcome Salience and Uncertainty. Administrative Science Quarterly 42: 472–500. Hayward, Mathew L.A. 2002. When Do Firms Learn from Their Acquisition Experience? Evidence from 1990 to 1995. Strategic Management Journal 23: 21–39. Hennart, Jean-François, and Sabine Reddy. 1997. The Choice between Mergers/ Acquisitions and Joint Ventures: The Case of Japanese Investors in the United States. Strategic Management Journal 18: 1–12. Hitt, Michael A., and Beverly B.  Tyler. 1991. Strategic Decision Models: Integrating Different Perspectives. Strategic Management Journal 12: 327–351. Jemison, David B., and Sim B. Sitkin. 1986. Corporate Acquisitions: A Process Perspective. Academy of Management Review 11: 145–163. King, David R., Dan R.  Dalton, Catherine M.  Daily, and Jeffrey G.  Covin. 2004. Meta-Analyses of Post-Acquisition Performance: Indications of Unidentified Moderators. Strategic Management Journal 25: 187–200. Kolev, Kalin, Jerayr Haleblian, and Gerry McNamara. 2012. A Review of the Merger and Acquisition Wave Literature: History, Antecedents, Consequences, and Future Directions. In The Handbook of Mergers and Acquisitions, ed. David Faulkner, Satu Teerikangas, and Richard J.  Joseph, 19–39. Oxford: Oxford University Press. Larsson, Rikard, and Sydney Finkelstein. 1999. Integrating Strategic, Organizational, and Human Resource Perspectives on Mergers and Acquisitions: A Case Survey of Synergy Realization. Organization Science 10: 1–26. Petticrew, Mark, and Helen Roberts. 2006. How to Appraise the Studies: An Introduction to Assessing Study Quality. In Systematic Reviews in the Social Sciences: A Practical Guide, ed. Mark Petticrew and Helen Roberts, 125–163. Oxford: Wiley. Shimizu, Katsuhiko, Michael A. Hitt, Deepa Vaidyanath, and Vincenzo Pisano. 2004. Theoretical Foundations of Cross-Border Mergers and Acquisitions: A Review of Current Research and Recommendations for the Future. Journal of International Management 10: 307–353. Thorpe, Richard, Robin Holt, Allan Macpherson, and Luke Pittaway. 2005. Using Knowledge within Small and Medium-Sized Firms: A Systematic Review of the Evidence. International Journal of Management Reviews 7 (4): 257–281.

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Tranfield, David, David Denyer, and Palminder Smart. 2003. Towards a Methodology for Developing Evidence-Informed Management Knowledge by Means of Systematic Review. British Journal of Management 14: 207–222. Vermeulen, Freek, and Harry G. Barkema. 2001. Learning through Acquisitions. Academy of Management Journal 44: 457–476. Zollo, Maurizio, and Harbir Singh. 2004. Deliberate Learning in Corporate Acquisitions: Post-Acquisition Strategies and Integration Capability in US Bank Mergers. Strategic Management Journal 25: 1233–1256.

5 Conceptualization of Experience and Learning in Acquisitions: A Thematic Evolution

5.1 Evolution of the Conceptualization of Experience and Learning in Research on Acquisitions 5.1.1 T  he Point of Departure: The Learning Curve Perspective From a chronological point of view, experiential learning effects have been initially envisaged under the conceptual umbrella of learning curves. Originally identified by behavioral psychologists, following the observation that both the time to complete a task and the number of errors committed by individual subjects decrease with increasing experience performing that task (Argote 1993), learning curves were also found at the organizational level, with Wright’s (1936) study on the factors affecting the cost of airplanes representing one of the first published contributions. According to the learning curve perspective, knowledge acquired through learning-by-doing is proxied by the cumulative output and has the following standard form (Argote 1993):

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Equation 5.1 Standard form of the learning curve

y = ax − b

where: y = number of direct labor hours required to produce the xth unit; a = number of direct labor hours required to produce the first unit; x = cumulative number of units produced; b = progress rate. The cumulative number of units produced is the term in the equation that captures experience. This efficiency-based approach evidently retraces Thorndike’s (1874–1949) elaboration of learning as a trial-and-error process, which occurs gradually and incrementally following small systematic steps where learning increases as a function of successive trials (see Sect. 2.2.1.). Above all, the learning curve perspective has contributed to an inceptive edification of learning effects in organizations by identifying a ­“system component,” on the basis of which group and organizational learning do not result from the mere aggregation of individual learning curves (Argote 1993). However, it actually reduces the complex dynamics of learning to an unsophisticated function that conceptually subsumes three strong implicit assumptions: • Assumption 1: the effect of experience is always assumed to be linearly positive; • Assumption 2: the only relevant experience for the firm is its own experience, thus neglecting opportunities to learn from others; and • Assumption 3: no conceptual distinction exists between experience and learning. The learning curve perspective also “helped in gaining preliminary insight into the extent to which learning occurs in the context of acquisitions” (Barkema and Schijven 2008a, 597) and can be considered as a point of departure from which a theoretical evolutionary pattern rotating around the three assumptions has ensued. Indeed, the mixed evidence

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obtained from the empirical assessment of experiential learning effects in acquisitions has encouraged scholars to gradually challenge the validity of the learning curve and its underlying premises.

5.1.2 E  volutionary Trends in the Conceptualization of Experience The progressive acknowledgment of the inherently ephemeral nature and contingent value of experience per se represents a radical deviation from the original conceptualization proposed in learning curves. As a result, a huge number of contributions have emerged, raising objections to each of the three assumptions, thus signaling diverse, interconnected conceptual evolutions of the notions of experience and learning in acquisitions. Specifically, these evolutionary trends may be clustered into four groups.

5.1.2.1  Trend 1: General vs. Specific Acquisition Experiences A first trend that may be recognized from both a chronological and a conceptual point of view is a shift in focus from a general, homogeneous notion of experience, which was especially characteristic of early studies as a legacy of the learning curve perspective, to a more situation-specific approach to experience. Indeed, while most research has focused on the overall, undifferentiated stock of a firm’s acquisition experience, thus treating experience as a uniform and monolithic construct, scholars have gradually started to disentangle the aggregate archive of acquisition experience into single specific types of experience. This shift reflects an increasing awareness that experience of a given type may be a stronger and more accurate predictor both of acquisition strategy decisions and of performance outcomes (Gick and Holyoak 1987). Attention has therefore started to be directed to the examination of distinct types of acquisition experiences, ranging from experience at context level, including industry-specific (e.g., Haleblian and Finkelstein 1999; Peng and Fang 2010) and geographic-specific experience (Barkema et  al. 1996; Popli et  al. 2016; Chakrabarti and Mitchell 2016; Lahiri

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2017), transaction-specific acquisition experience in terms of geographic nature of acquisitions, that is, cross-border versus domestic (Nadolska and Barkema 2007; Collins et al. 2009; Galavotti et al. 2017a), deal size (Ellis et al. 2011), and financial attributes (Ismail and Abdallah 2013), to the more micro level of task-specific acquisition experience (Stylianou et al. 1996; Barkema and Schijven 2008b; DiCagno et al. 2017).

5.1.2.2  T  rend 2: Firm-Nested vs. Interorganizational Experiences A second trend stems from a double theoretical source and actually includes two different, although logically interconnected, orientations. The first orientation arose as a challenge to the learning curve perspective’s failure to consider potential opportunities for observational experience. Indeed, research focusing on both the stock of the overall acquisition experience and the more nuanced specificity-based approach actually share a common orientation toward learning-by-doing mechanisms. As a theoretical derivative of social learning and institutional theories, a trend in the literature has emerged based on the notion that observation of models may represent an additional source of experience beyond direct experience through learning-by-doing (DiMaggio and Powell 1983). Several scholars hence started to direct attention to the exploration of the extent to which diverse external actors, that is, organizations falling outside the focal firm boundaries but with which the focal firm has relations, may serve the function of models and determine acquisition decisions and outcomes (e.g., Haunschild 1993, 1994; Haunschild and Miner 1997; Haunschild and Beckman 1998; Beckman and Haunschild 2002; Delong and Deyoung 2007; Yang and Hyland 2012a, 2012b; Francis et  al. 2014a, 2014b). In particular, this trend draws on neo-­ institutional perspective and focuses on isomorphic forces to explore the extent to which the experience of firms that are relevant for the focal firm affects its acquisition decisions and outcomes. Potential models, intended as sources of imitation, include, in particular, peers, tied-to firms, and network partners.

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A second orientation derives from the long-standing debate on organizational anthropomorphism and from the consequent integrative efforts (Sect. 2.5.4), which claim that the phenomenology of learning is not restricted to a mere individual versus organization dichotomy but rather involves other levels. In particular, the realization that learning may also occur at an interorganizational level through formal collaborations (Holmqvist 2003) has led to an emerging interest among acquisition scholars in investigating potential learning effects that may arise from previous interfirm reciprocal experience. Among these studies, special attention has been devoted to the specific experience with a given advisor (Lee 2013; Francis et al. 2014b) and to the experience of the target firm gained through a previous alliance (Porrini 2004b; Zaheer et al. 2010). Collectively, the two orientations of observational experience and relational experience provide an enlarged perspective that goes beyond the focused firm-nested, intra-firm experience to include a type of experience that generates from interorganizational embeddedness.

5.1.2.3  T  rend 3: Delving into the Attributes of Experience and Experiential Processes As a response to the assumption implicit in the learning curve perspective that experience automatically generates learning, and in virtue of the long-established tradition in learning psychology of considering learning as a process in which numerous situational variables are at play, acquisition scholars have started to venture into the investigation of different qualitative traits of experience and of the experiential process. Indeed, scholars have increasingly acknowledged that interrelated dimensions of knowledge may influence whether and how such learned knowledge evolves and is transferred (Kogut and Zander 1992), which in turn determines the effectiveness of learning. This has opened the way to the exploration of the traits and the process-­ related dimensions of experience, which, from a theoretical point of view, may be considered as a direct reflection of the knowledge-based and the capability-based views.

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From a chronological point of view, the first qualitative trait of experience being explored relates to the time dimension of experience (e.g., Ingram and Baum 1997; Delong and Deyoung 2007; Kim and Finkelstein 2009; Kim et al. 2011; Meschi and Métais 2013), intended in terms of possible time-driven depreciation, with Ingram and Baum’s (1997) work representing the initial spark. In addition to possible experience depreciation, scholars have addressed the extent to which learning effectiveness may be affected by experience heterogeneity (Hayward 2002; Shipilov 2009; Zollo 2009), a research focus that may be considered in strong connection with the thematic progression toward the examination of experience specificity. As a further challenge to the assumption that experience automatically generates learning, two dimensions related to the experiential process have been investigated: deliberate codification of experience, considered to reflect firm-level learning investments (Zollo and Winter 2002; Zollo and Singh 2004; Zollo 2009; Heimeriks et  al. 2012), and the role of feedback from experience (Haleblian et al. 2006; Zollo 2009; Ismail and Abdallah 2013).

5.1.2.4  T  rend 4: Acquisition-Related vs. NonacquisitionRelated Experiences An additional trend may be detected which, differently from the evolutionary patterns previously identified, actually did not originate as a reaction to the learning curve perspective and rather may be considered as a natural consequence of the resource-based view approach and of its intellectual heritage in the knowledge-based and the capabilities-based views. This research trajectory shows a conceptual convergence toward the idea that, in addition to acquisition-level experiences, which logically provide the firm with a bundle of specific, relevant resources and capabilities that can be directly leveraged in successive acquisitions, other types of experiences, although not immediately related to acquisitions, may also equip the firm with a repository of resources and knowledge that may be valuable in an acquisition context.

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The exploration of nonacquisition-related experiences as potential sources of fungible knowledge and capabilities that can be functionally extended to acquisitions encompasses diverse types of experience, including experiences in strategic domains (Markides and Ittner 1994; Gerpott and Jakopin 2007; Riccobono et al. 2015; Mousa et al. 2016; Galavotti et  al. 2017b), experiences at the contextual level, that is, industry and geography (Hisey and Caves 1985; Hennart and Reddy 1997; Lee and Caves 1998; Uhlenbruck 2004; Custódio and Metzger 2013; Zhu et al. 2014; Muratova 2015), experiences in alternative governance modes (Vermeulen and Barkema 2001; Villalonga and McGahan 2005; Lin et al. 2009; Buckley et al. 2014; Bingham et al. 2015), and a number of functional and miscellaneous experiences (Hitt and Tyler 1991; Herrmann and Datta 2006; Huang et al. 2014; Maitland and Sammartino 2015). Although most scholars have alternatively focused on either acquisition-­ related experience or fungible nonacquisition-related experiences in a mutually exclusive way, a number of studies have directed attention toward mixed combinations of these two macro categories of experience (e.g., Pablo 1994; Vermeulen and Barkema 2001; McDonald et al. 2008; Zollo and Reuer 2010; Zhu 2013). A schematic representation of the macro-thematic areas related to the trends identified in this section is provided in Fig. 5.1. Throughout the next sections, each macro-thematic area will be analyzed in detail and further disentangled into themes and subthemes.

5.2 Firm-Nested Experience Firm-nested experience is an expression that is hereby purposely intended to capture experience that originates within the focal firm boundaries and hence to signal the distinction from experience that is of an interorganizational nature. Following the notion that experience relevant for a firm may be accrued at different levels within its boundaries, the units of analysis of experience reported in the next sections include experiences observed at the individual (CEO), group (TMT, directors), and more aggregate organizational level.

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CONCEPTUALIZATIONS OF EXPERIENCE IN ACQUISITIONS

Interorganizational experience

Firm-nested experience

Acquisition-related experiences

Overall stock of firm’s acquisition experience

Fungible nonacquisition experiences

Attributes of experience and experiential processes

Observational experience

Experience depreciation

Relational experience

Experience heterogeneity

Specificity of firm’s acquisition experience

Experience codification

Performance feedback

Fig. 5.1  Thematic evolution of the notion of experience in acquisitions

5.2.1 Acquisition-Related Experience The theme of acquisition-related experiences has attracted a huge interest among scholars and reflects an evolutionary path from a general to a specific notion of experience. As discussed at the beginning of this chapter, the investigation of the role played by acquisition experience in both acquisition choices and post-acquisition outcomes was initially grounded in the tradition of learning curve theories. Retracing this inherent efficiency-based approach to learning, initial attention was therefore directed to acquisition experience which was treated, both conceptually and empirically, as a homogeneous, aggregate construct (e.g., Kusewitt 1985; Fowler and Schmidt 1989; Bruton et al. 1994; Pablo 1995).

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This set of studies directs attention to the overall stock of a firm’s acquisition experience without making any explicit distinction in terms of types of experience, considering rather the undifferentiated overall bundle of a firm’s aggregate number of acquisitions. Although this approach may appear as an idiosyncrasy exclusive to the early studies on the topic, it actually represents a breathing position that has long dominated the discourse (e.g., McNamara et  al. 2008; Nadolska and Barkema 2014; Castellaneta and Conti 2017; Field and Mkrtchyan 2017). A recent evolution is found in studies that examine how acquirer-to-­ target experience differentials affect the extent to which more value is appropriated by one of the two (Cuypers et al. 2017) or determine post-­ acquisition risk change (Porrini 2015). The notion of experience is still the aggregate number of acquisitions executed but, instead of focusing solely on the acquiring firm, these studies also consider the experience of the target firm and analyze the two experiential pools with a comparative approach. Although fewer in quantity, studies adopting this dyadic approach may be considered as a reflection of and an explicit recognition that, because an acquisition inherently involves two entities, the appreciation of experience effects should be extended beyond the acquiring firm and embrace also the target. Figure 5.2 provides a thematic map of the main themes linked to firm-­ nested experiences. The first thematic level reflects what was identified as a fourth trend at the beginning of this chapter and will be analyzed in details in Sect. 5.2.2. This section is dedicated rather to an in-depth examination of the different approaches and themes emanating from the dichotomy between the aggregate versus the differentiated notions of experience. The academic appetite to deepen the knowledge on acquisitions as a phenomenon, especially stimulated by the evident discrepancy between the impressive failure rates of acquisitions on the one hand and the anomalously intense acquisition activity on the other, has translated into a gradual departure toward a less rough treatment of experience as a construct. It is especially from the 1990s that research more systematically started to draw fruitfully on a different yet functional set of disciplines, such as psychology and sociology, which provided a great contribution to the

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Context-specific acquisition experience

Industry-specific acquisition experience

FIRM-NESTED EXPERIENCE

Geographic-specific acquisition experience

Acquisition-related experiences

Cross-border vs. domestic acquisition experience

Stock of overall acquisition experience Specificity of acquisition experience

Transaction-specific acquisition experience

Financial attributes

Experience in strategic domains

Bargaining/negotiation experience

Contextual experience Fungible nonacquisition experiences

Experience in other governance modes

Deal size of previous acquisitions

Task-specific experiences

Functional and miscellaneous experiences

Organizational restructuring experience Experience in information systems integration

Fig. 5.2  Thematic areas on firm-nested experience

development of a more refined perspective on experience. Indeed, the increasing evidence that the stock of general acquisition experience may not represent a sufficient condition to generate acquisition capabilities has led to the emergence of a more refined view of experience, as testified by the gradual deviation from the consolidated learning curve tradition of considering experience as a unitary, undifferentiated, stock toward the appreciation of its heterogeneous facets. Studies have hence increasingly explored possible connections between specificity of experience and acquisition choices. Altogether, results indicate that acquisition experience of a specific type encourages subsequent acquisitions of the same type (Amburgey and Miner 1992; Baum et al. 2000; Collins et al. 2009) and simultaneously discourages acquisitions of different types (Yang and Hyland 2006), thus providing empirical evidence in support of acquisitions being subject to path dependence and repetitive momentum. Within the province of studies focused on post-acquisition performance, specificity has been investigated as an implicit precursor of ­similarity, which, in turn, determines the extent to which experience is appropriately generalizable. Building on the argument that the degree to

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which replication is appropriate is a function of the extent of similarity between the past and the present situation, acquisition scholars have started to explore how specific types of acquisition experience affect the performance outcomes of acquisitions of that same type (Haleblian and Finkelstein 1999; Finkelstein and Haleblian 2002; Ellis et al. 2011). As a challenge to the assumption implicit in the learning curve approach that past experience is always inherently positive, scholars indeed have suggested that routines, although conducive to efficiency in principle, may generate suboptimality in case they are “automatically transferred onto inappropriate situations” (Cohen and Bacdayan 1994, 554). A major step in this direction was taken by Haleblian and Finkelstein (1999), who borrowed from psychology the notion of transfer, or generalization, defined as the influence that past events exercise on the performance of a subsequent event, where the positive or negative nature of such transfers depends on whether a past behavior is correctly applied to the current event. In particular, experience transfer may become negative as a result of a three-stage process: (1) two events that have “significant underlying differences” (Finkelstein and Haleblian 2002, 38) are perceived as similar; (2) as a result of this perception, past behavior is applied to the current situation; (3) because of this misapplication, performance outcomes are poor. The different types of experience investigated in the literature may be broadly grouped into three main categories: context-specific acquisition experiences, transaction-specific acquisition experiences, and task-­specific acquisition experiences.

5.2.1.1  Context-Specific Acquisition Experiences A first line of research that originated from the conceptual evolution toward specific types of acquisition experience was focused on the contextual nature of experience, especially in terms of industry and geography. Context-specific acquisition experience includes industry-level acquisition experience, geographic-specific acquisition experience, and the interplay between the two.

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Industry-Level Acquisition Experience The resource-based view suggests that when a firm’s activities are related, there is a potential to generate value (Wernerfelt 1984). Building on this notion, strategy scholars have been concerned with the assessment of the role played by the firm’s knowledge of the target industry derived from previous acquisitions in affecting focal acquisition choice and performance. Industry-level acquisition experience reflects prior acquisitions carried out in the same target industry of the focal acquisition (Finkelstein and Haleblian 2002; Peng and Fang 2010). Focusing on the business relatedness of prior acquisition experience, Yang and Hyland (2006) build on the concept of repetitive momentum and suggest that the likelihood of an unrelated acquisition is positively associated with a firm’s experience in previous unrelated acquisitions while constrained if the firm’s experience is in related acquisitions. Bridging with transfer theory from learning psychology, Haleblian and Finkelstein (1999) find that acquisitions that are similar in terms of industry to prior acquisitions outperform acquisitions being dissimilar. However, because over time firms can learn how to identify underlying dissimilarities, Haleblian and Finkelstein (1999) suggest a U-shaped relationship between acquisition experience and performance, as highly experienced acquirers may be able to avoid misapplication of experience to following dissimilar acquisitions. In a subsequent study, Finkelstein and Haleblian (2002) find that second acquisitions underperform first acquisitions due to the misapplication of routines, except for those acquisitions characterized by target-to-target similarity, that is, in which the focal target is from an industrial environment similar to that of a previously acquired target.

Geographic-Specific Acquisition Experience Studies addressing the geographic specificity of acquisition experience mark a first element of interdisciplinarity, with notions from international business literature coming on the scene of research on acquisitions.

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Interest in the role played by the geographic context of prior acquisitions mirrors an attempt to address the unique challenges associated with cross-border acquisitions deriving from the diverse sources of distance, for example, economic, institutional, and cultural. Conceptually, the spectrum of differences that arise when seeking opportunities outside the domestic market has been theorized by international business scholars as a catalyzer of “liability of foreignness,” that is, the set of costs that a foreign entrant has to bear if compared to local players that already have familiarity with the context. However, because such liability progressively diminishes as the firm gains knowledge of and embeddedness in the host destination (Zaheer 2002), prior acquisition experience in a given geographic environment has been examined as a critical determinant of focal cross-border acquisitions in that same geographic context. Scholars have adopted a more or less narrow perspective depending on whether the focus is on the same host country (Barkema et  al. 1996; Huang et al. 2017; Lahiri 2017) or the same host region of the target firm (Basuil and Datta 2015; Chakrabarti and Mitchell 2016; Popli et  al. 2016). For instance, Barkema et  al. (1996) found that while international acquisition experience did not affect the performance and longevity of subsequent international acquisitions, experience in the same host country of the focal acquisition and experience in the same cultural region has a positive impact on performance. Popli et al. (2016) examined cultural distance as a key dimension affecting the success of international operations and found that the effect of cultural distance on the likelihood of abandoning a cross-border acquisition is reduced with increasing cultural experience reserve, which is gained through prior acquisition experience in the same target country or in culturally similar countries.

Mixed Industry- and Geographic-Specific Acquisition Experience Some scholars have focused on the joint effect exerted by both industry-­ specific and geographic-specific acquisition experiences. Basuil and Datta (2015) investigated the role of industry- and region-specific experiences

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on the performance of cross-border acquisitions. Their results indicate that these experiences are conducive to greater value creation for the acquiring firm’s shareholders, whereby industry-specific experience becomes more beneficial with increasing cultural similarity to the target country, and this effect is further intensified when the acquirer has previous experience in the same target region. Moving to the examination of context-specific experiences as drivers of acquisition propensity, Chakrabarti and Mitchell (2016) build on a sample of 1603 acquisitions announced by 724 US firms between 1980 and 2004 and suggest that the negative relationship between geographic distance and the likelihood of deal completion is greater for related than for unrelated acquisitions. This occurs because related acquisitions require more soft information, which is more difficult to gather at increasing distance. The authors, however, find positive moderating effects played by experience in related acquisitions and region-specific acquisition experience.

5.2.1.2  Transaction-Specific Acquisition Experiences Specificity of prior acquisition experience has been investigated in terms of deal-level characteristics of prior experiences, looking at the geographic nature and transaction size of previous acquisitions, as well as financial attributes.

Cross-Border vs. Domestic Acquisition Experience The international business literature has provided a key outlet for examination of the unique specificities associated with cross-border acquisitions, which are inherently different from acquisitions pursued in the domestic market (Shimizu et al. 2004). For this reason, a number of academics have ventured into the exploration of how the geographic dimension of acquisition experience affects the likelihood and performance of subsequent cross-border versus domestic acquisitions (e.g., Nadolska and Barkema 2007; Collins et al. 2009; Galavotti et al. 2017a).

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For instance, Collins et al. (2009) investigate whether domestic and cross-border acquisition experience affect the likelihood of a subsequent international acquisition and find that previous experience in cross-­ border acquisitions is a stronger predictor of subsequent cross-border activity if compared to domestic acquisition experience. Galavotti et al. (2017a) extend the conclusions of Collins et al. (2009) and find a U-shaped relationship between domestic acquisition experience and the likelihood of subsequent cross-border acquisitions while an inverted U-shaped relationship is found between cross-border acquisition experience and the likelihood of subsequent cross-border acquisitions. At low levels of domestic acquisition experience, there is momentum toward subsequent domestic acquisitions until the experience accumulated provides the firm with a repository of routines on the acquisition process that encourages it to embark on cross-border acquisition projects. Similarly, cross-border acquisition experience creates path dependence toward subsequent cross-border acquisitions, but only up to the point in which the increased coordination costs discourage further international expansion through acquisitions. Moving to the examination of performance outcomes, evidence was found that international acquisition experience has a positive impact on performance of cross-border acquisitions in terms of increased short-term abnormal stock returns (Markides and Ittner 1994) and reduced volatility of post-acquisition profitability (Lee and Caves 1998). However, Nadolska and Barkema (2007) find support for a U-shaped relationship between foreign and domestic acquisition experience and the success of subsequent international acquisitions, thus providing evidence of negative transfer effects when domestic acquisition experience is applied in the context of international acquisitions.

Deal Size of Previous Acquisitions Retracing the argument that similarity of experience affects the appropriateness of its generalization, the size of prior acquisitions has been examined as an additional determinant of transfer effects. Indeed, building on transfer theory, Ellis et al. (2011) explored how size-specific acquisition

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experience impacts on a focal acquisition performance. In light of the fact that firms tend to make small acquisitions more frequently than large acquisitions and that the integration of the former requires less complex processes and lower managerial capacity if compared to the latter (Seth 1990), Ellis et al. (2011) suggest that negative transfer effects occur when routines developed on the basis of experience in small acquisitions are applied to large acquisitions. Hence, acquirers with deal experience in small acquisitions develop acquisition routines that can serve as a blueprint for new acquisitions, but these routines are likely to be misapplied in the context of large acquisitions.

Financial Attributes of Previous Acquisitions Interestingly, acquisition experience has also provided room for contributions from finance scholars, who have started to connect their traditional territory of inquiry with organizational learning tenets to shed light on potential intersections (e.g., Billet and Qian 2008; Aktas et  al. 2009, 2011, 2013; Ismail and Abdallah 2013). Given the numerous financial aspects involved in acquisitions, the finance literature predictably boasts a long history of conversations in the broader field of acquisition research, but its appearance on the scene of conversations about acquisition experience is actually somewhat surprising in view of the considerable distance in research focus. Although most studies have focused on the effects of experiential learning in the context of serial acquirers (e.g., Billet and Qian 2008; Aktas et al. 2009, 2011, 2013)—analyzed in Sect. 6.6—with experience mostly observed as a homogeneous overall stock, it is worth noting that research efforts have also been made in the area of experience specificity. In particular, emphasis has been placed on the financial characteristics of previous acquisition experiences in terms of: mood of previous acquisitions, that is, hostile versus friendly; the type of ownership of the target firm, that is, whether public or private; and the payment method, that is, whether with cash or equity (Ismail and Abdallah 2013). Ismail and Abdallah (2013) find, for instance, that the choice of the payment method is positively related to the payment method of previous acquisitions and argue that an experience effect occurs in terms of decision about the target’s organizational form, that

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is, private versus public. Because the organizational form has substantial implications on the post-acquisition integration phase, they suggest that whether a private or public target is chosen is a function of the extent to which prior acquisition targets were private versus public. Overall, their findings suggest that path dependence also occurs in terms of persistence of financial characteristics of previous deals.

5.2.1.3  Task-Specific Acquisition Experiences The investigation of task-specific experiences, that is, experience in performing a specific task within the acquisition process, echoes back the foundations of the process perspective on acquisitions (Jemison and Sitkin 1986; Haspeslagh and Jemison 1991), in which a critical role is ascribed to the management of the entire process (see Sect. 3.2.4). A number of scholars have specifically focused on the focal firm’s prior experience in performing certain tasks of the acquisition process, including bargaining/negotiating (DiCagno et al. 2017), organizational restructuring (Barkema and Schijven 2008b), as well as experience in the integration of specific technological elements such as information systems (Stylianou et al. 1996). For instance, in their bargaining experiment, DiCagno et al. (2017) investigated the interplay between gender differences and experience in affecting the bargaining behavior in terms of acceptance of price offers, prices offered, and value messages. Based on a total of 30 rounds subdivided into three consecutive phases, DiCagno et al. (2017) contend that at increasing negotiation experience, there is a lower likelihood of accepting a price offer that yields a loss, decision times for price offers decrease, but buyers develop greater suspicion. Organizational restructuring has been acknowledged as a key determinant of the extent to which post-acquisition integration is successful (Stylianou et  al. 1996; Barkema and Schijven 2008b). Building on the behavioral theory of the firm, Barkema and Schijven (2008b) suggest that organizational restructuring may lead to experimentation with structural recombinations in search of better configurations and that it typically manifests as a second stage within the post-acquisition integration phase. Their focus is on both acquisition experience and restructuring experience:

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while acquisition experience may help with managing the integration at the level of a single acquisition, restructuring experience may provide the entire firm with integration and recombination capabilities that will more effectively unlock the acquisition synergistic potential. Overall, research addressing acquisition experience with an emphasis on its specificity follows two main trajectories. On the one hand, specific types of acquisition experience have been examined as to their influence on the likelihood of subsequent similar acquisitions, thus assessing the extent to which experience provides the basis for path dependence and contributes to reducing uncertainty. On the other hand, acquisition experience specificity has been explored in relation to similarity which, in turn, determines whether positive versus negative transfer effects are generated in the focal acquisition, with negative transfer somehow representing the other side of the coin of path dependence. Routines indeed are subject to inertial pressures and to semi-automatic replication mechanisms that may potentially create rigidities and act as a double-edged sword when they are identically and automatically transferred to dissimilar focal circumstances.

5.2.2 Fungible Nonacquisition-Related Experiences From an initial approach focused solely on acquisition-related experiences, either general or specific, scholars have gradually started to enlarge their research angle by addressing more “peripheral” experiences that, although not directly related to the execution of acquisitions, may still provide the firm with a repository of knowledge and resources that may be extended to acquisitions. A wealth of different experiences at various levels has hence started to be investigated, testifying to an increasingly broader perspective adopted by acquisition scholars. A schematic map of themes in the area of nonacquisition-related experiences is provided in Fig. 5.3. The exploration of possible fungible experiences orbits around the common idea that exposure to learning opportunities, although not specifically generated through acquisitions, may provide the firm with a valuable and fungible knowledge base that can be used when implementing an acquisition.

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FUNGIBLE NONACQUISITIONRELATED EXPERIENCES

Experience in strategic domains

Contextual experience

Experience in other governance modes

Functional and miscellaneous experiences

International experience

Region-level

Alliance experience

Work experience

Diversification experience

Host-country level

JV experience

Functional experience

Innovation experience

Industry-level

Greenfield investments experience

Investment banking experience

IPO experience

Fig. 5.3  Thematic map of nonacquisition-related experiences

Although at the beginning of the chapter the evolutionary pattern toward nonacquisition experiences was presented as the last trend, now the analysis of themes and contributions on nonacquisition-related ­experiences immediately follows the examination of acquisition-related experiences for two main reasons. First, nonacquisition-related experiences represent a conceptual extension of acquisition-related experiences; second, they both fall within the same realm of firm-nested experiences, as opposed to interorganizational experiences derived from interorganizational connections.

5.2.2.1  Experience in Strategic Domains Building on a sample of 276 US cross-border acquisitions during 1975–1988, Markides and Ittner (1994) find that firms having prior international experience are better able to create value from their international

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acquisition moves because international experience translates into a greater ability to manage and integrate newly acquired units. Piaskowska and Trojanowski (2014) examine the role played by the international orientation of the TMT in affecting the perception of environmental uncertainty: by unbundling the construct of international orientation into formative years’ international experience, foreign nationality, and international work experience, they argue that these elements positively affect the perceptions of cultural differences and host country risk. Moving to the examination of how experience in the strategic domain of innovation affects the choice among alternative governance modes for R&D external sourcing, Riccobono et al. (2015) claim that the preference toward acquisitions depends on the extent to which the firm has already developed R&D know-how, as acquisitions reduce the risk that valuable innovative resources and capabilities will be appropriated. Based on a sample of 135 IPO firms in the period 2001–2005, Mousa et al. (2016) adopted a capabilities-based view and investigated the role of several TMTs’ demographic characteristics on post-IPO acquisition activity. Their findings suggest the existence of a negative relationship between prior IPO experience and acquisition activity. This result is explained by the fact that experienced executives may have already witnessed some of the difficulties associated with acquisitions and may hence be more interested in developing exit strategies.

5.2.2.2  Contextual Experiences Contextual experiences are derived from the firm’s presence in the same host region (Lee and Caves 1998; Uhlenbruck 2004; Muratova 2015), host country (Hisey and Caves 1985; Hennart and Reddy 1997; Zhu et al. 2014), and target industry (Custódio and Metzger 2013) in which a focal acquisition is carried out. For instance, Custódio and Metzger (2013) analyze the impact of CEO industry expertise and knowledge on the performance of acquisitions and argue that CEOs who have experience in the target industry are equipped with greater negotiation skills compared to inexperienced CEOs.

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Looking at the geographic dimension, Galavotti et al. (2017b) suggest that the traditional distinction between cross-border and domestic acquisitions should be supplemented by the consideration that cross-border acquisitions differ in their liability of foreignness depending on whether the acquiring firm has previous experience in the target country. Building on this consideration, they propose a notion of target market unfamiliarity and include it in their unbundling of cross-border acquisitions. They hence distinguish between cross-border acquisitions for foreign market entry, which could be considered as “pure” cross-border investments characterized by high liability of foreignness, and cross-border acquisitions for foreign market consolidation, in which the liability of foreignness is, by definition, lower thanks to previous host-country experience, regardless of whether such experience has been gathered through acquisitions or other equity-based modes. Jointly examining both industry-level and geographic experiences, Shaver et al. (1997) found that country-specific experience leads to superior performance, further enhanced if the acquirer also has experience in the target industry. They also find that firms having country-specific experience but no industry-specific experience benefit from the experiences of previous foreign entrants, thus suggesting vicarious learning.

5.2.2.3  Experience in Other Governance Modes Acquisition experience has been compared with experience in alternative governance modes, including alliances (Porrini 2004a; Lin et al. 2009; Zaheer et  al. 2010; Orsi et  al. 2015), joint ventures (Nadolska and Barkema 2007), and greenfield investments (Vermeulen and Barkema 2001; Buckley et  al. 2014), as well as divestitures (Shimizu and Hitt 2005) and multiple alternatives jointly (Villalonga and McGahan 2005; Bingham et al. 2015). Experience in other governance modes has been considered as a possible fungible experience that may act either as a force driving the choice between acquisitions and other modes within a path dependence framework (e.g., Villalonga and McGahan 2005) or as a factor affecting performance (Porrini 2004a).

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On a decision-making level, Villalonga and McGahan (2005) build on organizational learning theory to examine how experience in a particular governance form (acquisition, alliance, and divestiture) affects the choice of the same form in successive governance decisions. Broadly, they find evidence of path dependence; however, while this finding is supported for both alliances and acquisitions, their results suggest that divestiture experience is positively associated with the choice of divestitures over alliances but not over acquisitions. This result unveils that experience spillovers may not be symmetric across governance forms in that the preference for replicating the same governance form may significantly outweigh another form but not necessarily all alternative forms. Moving to the examination of performance outcomes, Porrini (2004a) investigated the role played by previous alliance experience in determining the value created after an acquisition and found a positive association, explained by the fact that alliance experience can provide acquirers with capabilities in resource exchange and integration and with communication skills that may prove useful during the postacquisition integration phase. Experience spillovers from previous alliance experience have also been examined by Lin et  al. (2009), who bridge resource dependence theory and a network perspective to analyze acquisition activity. In particular, they emphasize that alliance experience may differentially affect acquisition activity depending on whether the prior alliance was directed at exploration or exploitation learning (see Sect. 6.2.4).

5.2.2.4  Functional and Miscellaneous Experiences These experiences typically relate to the individual dimension of CEOs, managers, and directors and capture how the individual background serves as an incentive in acquisition-level decision-making or as a useful asset in the management of the acquisition process. From a theoretical point of view, upper echelons theory represents the dominant framework: according to this theoretical perspective, firms are a reflection of their top management teams; hence, because strategic

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­ ecisions entail a behavioral component, they mirror the characteristics d and idiosyncrasies of decision-makers (Hambrick and Mason 1984). Upper echelon characteristics include both psychological aspects, for example, cognitive bases and values, which are by definition unobservable, and demographic observable characteristics, that is, age, functional tracks, other career experiences, education, socioeconomic roots, financial position, and group characteristics in terms of group heterogeneity. A range of different individual experiences have been investigated, including previous functional and general work experiences (Hitt and Tyler 1991; Haunschild et al. 1994; Herrmann and Datta 2006; Huang et al. 2014). Hitt and Tyler (1991) argue that the amount and type of managers’ experience play a role in determining the quality of evaluation of acquisition candidates and enable managers to assess more carefully the (dis) similarity between past acquisitions and the focal acquisition, thus avoiding misapplication of past routines and negative transfer effects. Examining both acquisition likelihood and short-term performance, Huang et al. (2014) focus on the role played by the presence of directors with investment banking experience and find a positive association with both the likelihood of completing an acquisition and cumulative abnormal returns. Some studies have adopted theoretical perspectives and constructs borrowed from psychology to identify some key decision-making characteristics and biases in acquisitions. For instance, by developing diverse measures of international and task experiences to capture learning encoded in decision-makers’ heuristics, Maitland and Sammartino (2015) highlight how diverse individual experience leads to profoundly different environmental assessments. Overall, studies addressing the influence exercised by nonacquisition-­ related experiences have contributed to extend the boundaries of research on the role of experience in acquisitions by including peripheral, potentially fungible experiences. In particular, although the types of experience being explored are diverse in nature, this set of studies shares a common, underlying research focus on experience spillovers that may propagate in acquisition moves, albeit not originated from previous acquisitions.

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5.3 Interorganizational Experience As opposed to firm-nested experience, whose locus resides inside the firm’s boundaries, interorganizational experience captures an experience that can derive from: (1) the entire set of relevant actors that may serve the function of models and that hence provide the locus for observational experience and (2) the micro context of those relevant actors with which the focal acquiring firm may have an interorganizational reciprocal relation.

5.3.1 Observational Experience Both neo-institutional theory and organizational learning theory suggest that, in addition to learning from direct experience, a learning process occurs from the experience of others thanks to the transfer of encoded experience and to imitation (DiMaggio and Powell 1983). Acknowledging that organizations learn in an environment largely consisting of other learning organizations (Levitt and March 1988) implies a learning ecology perspective. Retracing DiMaggio and Powell’s (1983) theory of isomorphism within the organizational field (see Sect. 1.2.9), mimetic processes through observation and imitation have been explored in the context of acquisitions as potentially enabling firms to engage in a form of exploratory learning without incurring any costs and risks (Miner and Haunschild 1995), to tap into the experience of other firms and, possibly, to learn to acquire more successfully (Delong and Deyoung 2007). From a conceptual point of view, this notion has been considered as a social explanation for acquisition choices (Haunschild 1993). Linkages appear evident with Bandura’s (1977) social theory on the role played by observational learning and imitation of modeled behavior.1 Haunschild and Miner (1997) identified different imitation modes in acquisitions—frequency-based imitation, trait-based imitation, and outcome-­based imitation—which have been later reexamined in a num In its original theorization, observational learning is defined as the process by which the observation of a modeled behavior generates new behaviors that would not have occurred if the observer had not been exposed to the model (Bandura 1969). 1

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ber of studies (e.g., Haunschild and Beckman 1998; Moatti 2009; Tseng and Chou 2011; Francis et al. 2014a). • Frequency-based imitation relates to the imitation of practices carried out by a large number of firms. • Trait-based imitation reflects the reproduction of some actions of those firms showing some peculiar characteristics (e.g., the largest firm in the industry). • Outcome-based imitation describes the mimesis of behaviors and processes that have apparently led to successful results in other firms. This body of research identifies potential sources of imitation in peers (Delong and Deyoung 2007; Tseng and Chou 2011; Francis et al. 2014a; Malhotra et al. 2015), network partners (Westphal et al. 2001; Beckman and Haunschild 2002), as well as in board interlocks (Haunschild 1993, 1994; Haunschild and Beckman 1998). Building on research on network ties (Granovetter 1983, 1985) and on resource dependence theory, management scholars have found the importance of ties in guiding acquisition behavior. Most research adopting a network perspective has directed attention to the role played by board interlocks. Indeed, a striking feature of corporate boards is interlocking directorates, intended as board members sitting on multiple boards (Davis 1996). Board interlocks have been traditionally considered as a means to pursue interorganizational collusion (Pfeffer and Salancik 1978) or bank control over corporate activities (Kotz 1978). However, since the beginning of the 1990s, research has started to find in interlocking an indicator of social embeddedness (Davis 1996): multiple board memberships, indeed, create the conditions for directors to exercise social influence over board decisions. As suggested by Davis (1996) in his analysis of the significance of board interlocks in the broader field of corporate governance, “decisions at one board become part of the raw material for decisions at other boards” (154), as they basically create both a normative and an informational context in which corporate decisions are taken (Granovetter 1985). In particular, attention has been devoted to exploration of the role played by the general acquisition activity (Delong and Deyoung 2007;

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Francis et  al. 2014a), as well as of specific types of acquisition experiences, for example, cross-border acquisition experience (Yang and Hyland 2012a), industry-level failure experience of cross-border acquisitions (Yang 2009), and industry-related versus unrelated acquisition experience (Yang and Hyland 2006). Another area that has attracted interest within studies examining the role played by interorganizational experience in acquisitions is related to the extent to which the premium paid in a focal acquisition is a reflection of the premiums paid by models in their previous acquisitions (e.g., Haunschild 1994; Beckman and Haunschild 2002; Malhotra et al. 2015). Finally, Haunschild and Miner (1997) moved attention toward whether and to what extent the use of a given investment bank as advisor by other firms influences the choice of that same advisor by the focal firm. A schematic representation of the sources activating observational experience and the contents of experience being observed is provided in Fig. 5.4.

5.3.2 Relational Experience The notion that the interorganizational level represents an additional tier at which learning may take place (Holmqvist 2003) is part of those inteSources of observational experience

Industry peers

Network partners

OBSERVATIONAL EXPERIENCE

Contents of observational experience Other organizations’overall acquisition activity

Overall cross-border acquisition experience

Other organizations’ acquisition experience specificity

Industry-level failure experience of cross-border acquisitions

Acquisitions vs. alternative governance modes

Related vs. unrelated acquisition experience

Premium experience Board interlocks

Other organizations’ advisor-specific experience

Fig. 5.4  Thematic map of sources and types of observational experience

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grative efforts aimed at reconciling the debate upon whether organizational learning should be intended as an individual or an organizational phenomenon (Sect. 2.5.4). Opportunities to learn from other organizations thanks to formal collaborations, such as strategic alliances, have been acknowledged in the literature as reflecting an additional level of learning along with the individual, group, and firm levels (Cangelosi and Dill 1965). Within this vein, acquisition scholars have started to address the role played by experience accrued from formal connections with other firms, particularly focusing on two categories of firms, that is, target firms and advisors, that are actually representatives of two critical and delicate stages in the acquisition process, that is, target selection and negotiation/due diligence, respectively. Knowledge of the target focal firm gained through previous formal collaborations (e.g., alliances) has attracted scholarly interest for its potential learning value for the acquiring firm (Porrini 2004b; Zaheer et al. 2010). For instance, Porrini (2004b) investigated the performance of 437 US targets between 1988 and 1997 and found that while the acquirer’s general acquisition experience had no significant impact, previous experience with the target of the focal acquisition through prior alliances positively affected performance. Similarly, Zaheer et  al. (2010) argue that partner-specific absorptive capacity generated from prior alliances leads to better acquisition performance, especially in the context of cross-border acquisitions. A second type of interorganizational experience that has received attention is the relational experience with a specific advisor (Lee 2013; Francis et al. 2014b). Indeed, previous collaborations with a given advisor, in terms of mutual knowledge derived from the fact of completing repeated transactions, may substantially shape the quality of the negotiation and the valuation phases while also possibly affecting information asymmetry. In particular, Lee (2013) focuses on how an established relationship with a given advisor, in terms of repeated exchanges, affects acquisition ­performance. His findings highlight both beneficial and harmful consequences: on the one hand, since acquisitions are causally ambiguous, embedded relationships through reiterated interactions may reduce information asymmetry and opportunism, but, on the other hand, they may produce organizational inertia that may lead to overpayment.

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Overall, the literature falling within what has been referred to as “inter-­ organizational experience” has enlarged the perspective by bringing into the picture the role played both by other firms with which the acquirer has connections and by the specific mutual experience with the target and the advisor, being crucial actors in the acquisition process. Thanks to the inclusion of observational and relational experiences, the conceptual evolution toward the inclusion of interorganizational experiences departs from the more focused tradition centered solely on the acquiring firm and provides additional interpretations of both acquisition choices and performance outcomes.

5.4 Q  ualitative Attributes of Experience and Experiential Processes The absence in the learning curve perspective of an explicit distinction between experience accumulation and learning has been at the basis of another set of studies that originated with the purpose of shedding light on the unexplained variance among results. In particular, building on the knowledge-based view of the firm, Zollo and Winter (2002) and Zollo and Singh (2004) propose that the lack of consistency among findings on the experience-performance relationship may be due to an incomplete treatment of organizational learning processes. This has led to a growing attention devoted to connotative aspects of experience, with acquisition scholars increasingly challenging the idea that the accumulation of experience per se may be a sufficient condition to develop capabilities in the management of the acquisition process (Barkema and Schijven 2008a). A number of qualitative and distinctive attributes of experience have hence fallen at the core of this territory of inquiry, including experience timing (Villalonga and McGahan 2005; Delong and Deyoung 2007; Kim and Finkelstein 2009; Kim et al. 2011; Muehlfeld et al. 2011; Meschi and Métais 2013), experience heterogeneity (Hayward 2002; Shipilov 2009; Zollo 2009; Aktas et al. 2013), deliberate codification of experience (Zollo and Singh 2004; Zollo 2009; Heimeriks et al. 2012), and performance feedback from prior experiences (Haleblian et al. 2006; Ismail and Abdallah 2013; Hutzschenreuter et al. 2014).

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5.4.1 The Time Dimension of Experience Organizational learning studies claim that accessibility to routines and retrieval of experience are strongly linked to time, as easiness to evoke routines is much greater in the case of recently used routines than in the case of older routines (Levitt and March 1988; Argote and Epple 1990). Building on this notion, the time dimension of experience has started to attract interest among acquisition scholars as an important attribute that may potentially affect the “value” of experience (Ingram and Baum 1997; Delong and Deyoung 2007; Kim and Finkelstein 2009; Shipilov 2009; Zollo 2009; Kim et al. 2011; Meschi and Métais 2013). Indeed, it has been suggested that “the benefits of prior experience may not increase monotonically with the amount of experience that an organization accumulates because old experience becomes less useful over time” (Haleblian et al. 2006, 361). This notion has determined the emergence of the idea that the value of experience may actually depreciate over time (Ingram and Baum 1997). In the broader field of organizational learning studies and with a specific focus on the amount of depreciation in production environments, Argote and Epple (1990) identified that recent production experience was a stronger predictor of current production vis-à-vis past experience. The recognition that the time aspect of experience may play a role in determining both the extent to which experience is still valid in its applicability and the easiness of its evocation has, in particular, resulted in a methodological evolution; that evolution will be dealt with in detail in Chap. 7, which is dedicated to methodological approaches to the empirical examination of experience and learning in acquisitions. This ­methodological maturation has culminated in the adoption, from an empirical point of view, of discount measures that capture potential experience depreciation over time. It is worth noting that the potential experience depreciation may be in strong connection with transfer. Indeed, Roscoe (1971) suggested that the effectiveness of transfer is not just a function of the similarity between tasks, but also of the extent to which experience is close in time and the distribution of prior practice, which makes the effectiveness a negatively decelerated function of the amount of practice. Following the argument proposed by Roscoe (1971), the concept of experience depreciation, primarily

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referred to the time/age of experience under the assumption that the time dimension is a driver of whether the experience can be easily evoked in the current situation, should be extended to encompass the fact that experience may lose its value, not only when it is difficult to remember, but also when it is no longer valid in the focal circumstances.

5.4.2 The Degree of Experience Heterogeneity From its definition, heterogeneity is qualified as an attribute or property that describes the extent to which an object is composed of dissimilar constituents. Consistently, the exploration of experience heterogeneity in the context of acquisitions has translated in the analysis of the degree to which a firm’s overall acquisition experience is intrinsically diverse. Findings on the effect of experience heterogeneity are, however, mixed. Zollo (2009) claims that experience heterogeneity can work as an antidote to competency traps as it avoids the myopia typically driven by homogeneity, while fostering creativity and a healthy skepticism (Keck and Tushman 1993). Indeed, he finds evidence that with increasing experience heterogeneity, especially if combined with investments in deliberate learning mechanisms, the negative effect of past success perceptions on performance outcomes is weakened (Zollo 2009). Shipilov (2009) examines experience heterogeneity in terms of scope and suggests that, in the context of collaborative networks, firms with wider experience scope have developed greater absorptive capacity and are hence better able to deal with heterogeneous information. On the contrary, Aktas et  al. (2013), focusing on learning gains in acquisition programs, that is, through repetitive acquisitions, found that too much heterogeneity may actually hamper learning and that CEO continuity makes learning even more salient. This result is consistent with Hayward (2002), who suggests that focal acquisitions benefit from prior acquisition experience that is neither too heterogeneous, as excessive bureaucratic costs may interfere with learning, nor too homogeneous, as “monochromatic” experience may prevent exploration and the firm may become subject to competency traps. Hayward (2002) indeed examined a sample of 214 acquisitions by 120 firms between 1990 and

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1995 and found that negative performance outcomes occur when prior acquisitions are either highly similar or highly dissimilar to the focal acquisition. This result is explained by the fact that while in case of high similarity, acquirers lack the generalist skills to appreciate a range of acquiring opportunities and to effectively select and implement nonconforming acquisitions, prior acquisitions that are highly dissimilar to one another imply that acquirers lack the specialist skills to extract gains from any type of acquisition.

5.4.3 D  eliberate Learning Through Experience Codification The theme of codification in research on experience effects in acquisitions is theoretically rooted in the knowledge-based view of the firm (Zollo and Winter 2002; Zollo and Singh 2004; Zollo 2009; Heimeriks et al. 2012; Muehlfeld e al. 2012). The fundamental argument upon which this research theme has evolved is that codification allows for turning knowledge that was previously implicit into explicit, thus creating the conditions for its transfer (Zollo and Winter 2002). Codification of experience is responsible for facilitating the dissemination of existing knowledge and reflects a learning investment aimed at improving the collective understanding of causal relationships (Zollo and Winter 2002). Although recognizing that experience accumulation is a key mechanism fostering learning-by-doing mechanisms, Zollo and Singh (2004) find that while tacit knowledge gathered through previous experience is nonsignificant in predicting acquisition performance, deliberate knowledge codification positively influences acquisition performance. This occurs because deliberate learning allows for capturing the tacit knowledge embedded in experience and increases the understanding of the whole acquisition process, thereby enhancing the learning of dynamic capabilities (Bingham et al. 2015). The cognitive efforts required by the codification of experience constitute the basis for a deliberate learning process, the extent of which is usually proxied in terms of the number of formal organizational tools that guide the management of specific tasks (Zollo and Winter 2002; Zollo and Singh 2004).

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As suggested by Zollo and Winter (2002), a firm’s learning is the result of a combination of both experience accumulation and deliberate knowledge codification processes, where the latter require greater cognitive effort if compared to experiential learning, since deliberate learning mirrors the conscious decision to devote resources and efforts to the codification and transfer of knowledge to improve subsequent performance. In their investigation of the underlying mechanisms of deliberate learning in the context of post-acquisition integration, however, Heimeriks et al. (2012) argue that routine codification acts as a double-­ edged sword because, if on the one hand it promotes efficiency and reduces causal ambiguity, on the other it entails organizational rigidity and inertia. To counteract the negative side of codification, Heimeriks et al. (2012) suggest that higher-order routines need to be developed to counterbalance the risk of myopically applying established codified routines to the new setting. A different theoretical perspective, grounded in institutional theory, is taken by Muehlfeld et al. (2012), who argue that in the specific context of cross-border acquisitions, the institutional unfamiliarity perceived by acquiring firms makes the need for deliberate learning more salient than in familiar contexts.

5.4.4 T  he Interaction Between Experience and Performance Feedback The role played by performance feedback in determining whether and how lessons from experience transform into learning and guide behavior may be traced to a number of psychological theories on the concept of reinforcement as well as to Norman’s law of information feedback, according to which the outcomes of an action are informative about its effectiveness. In particular, Norman (1976) emphasizes that causal relationships between actions and outcomes follow three laws: • The law of causal relationship, according to which an apparent causal relationship between a specific action and its outcome is necessary to learn their relationship;

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• The law of causal learning, according to which there is a tendency to repeat (avoid) those actions that have an apparent causal relationship with the desired (undesired) outcomes; and • The law of information feedback, according to which the outcome of an action provides information about the action’s effectiveness. As stated by Pennings et al. (1994, 609): “Organizations evolve as they accumulate experiences, incrementally adjusting their reactions to similar problems while absorbing feedback about past decisions.” In this view, experience accumulation represents the source that nurtures a process of incremental adaptation in which current responses to stimuli that share similarities with past stimuli are adjusted on the basis of the feedback received from past responses. Recalling the behavioral theory of the firm, in which performance feedback is considered as a key mechanism through which behavior is adapted (Cyert and March 1963), acquisition scholars have often linked the effect of prior experience to both performance feedback and organizational slack to explain acquisition behavior. For instance, Haleblian et al. (2006) find that the positive effect of acquisition experience on the likelihood of subsequent acquisitions is intensified when the acquirer has been rewarded by positive performance outcomes from prior ­acquisitions. The interaction effect between experiential routines and performance feedback is indeed found to act as a competency multiplier, in that acquisition routines developed through prior acquisition moves are reinforced when validated by positive performance feedback (Haleblian et al. 2006). From a performance perspective, however, as suggested by Zollo (2009), while the literature on organizational learning implicitly concerns the repetition of frequent and relatively homogeneous tasks, acquisitions actually represent fairly rare strategic events. He therefore argues that, due to the inherent causal ambiguity characterizing acquisitions, managers may not be able to reliably determine the performance outcomes of their past strategic decisions and may hence erroneously use their stock of experience as a proxy of their competence. Such experience, in turn, may have two negative effects on performance outcomes: first, it may lead to managers’ overconfidence in their capability to manage the acquisition process and, second, it may generate superstitious learning,

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which occurs when “the subjective experience of learning is compelling, but the connections between actions and outcomes are mis-specified” (Levitt and March 1988, 325). Superstitious learning implies subjective evaluations that are not sensitive to action due to post-outcome euphoria and adaptive aspirations. One additional possible consequence of superstitious learning is that while some routines are frequently used and reinforced, others are inhibited. This prevents any trial-and-error learning, a condition known as a “competency trap.” Shimizu and Hitt (2005) build on organizational inertia to analyze the likelihood of divesting a previously acquired unit as a function of the unit’s performance. Their findings indicate that while poorly performing units are more likely to be divested, the acquiring firm’s divestiture experience plays a moderating role on the relationship between the unit’s performance and the likelihood of divestiture: low or absent divestiture experience decreases the likelihood of divestiture, both because divestiture may not be considered as a legitimate alternative and because it may be more difficult to implement for inexperienced “divestors.” A further contribution on this theme derives from Hutzschenreuter et al. (2014), who explore the role of experience feedback in determining acquisition performance through the concept of mindfulness, intended as the fundamental human capacity of consciousness in terms of attention and awareness. Building on Langer’s (1989) work on mindfulness, Hutzschenreuter et al. (2014) argue that mindfulness is more likely encouraged by failure than success: when feedback from prior acquisition experience is positive, subsequent acquisitions will be more likely executed on the basis of habituated routines in the expectation of preserving the successful approach. This mindless adherence to established acquisition routines may, however, result in a lack of consideration of the potential dissimilarities between consecutive acquisitions. Failure, on the other hand, promotes a mindful approach that is open to new information and prone to adjustment of perceptions and schemata. The literature on the qualitative attributes of experience—that is, timing and heterogeneity—and of the experiential process—that is, codification and feedback—has provided insight into additional dynamics that interact in the learning process. Interesting implications derive from the

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evident interconnections of these attributes with two important notions of organizational learning theory, that is, superstitious learning and competency traps, which in turn show additional interconnections with overconfidence. Secondly, research on qualitative attributes of experience offers some confluences with transfer theory (e.g., Heimeriks et al. 2012; Hutzschenreuter et al. 2014).

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6 Thematic Analysis of Experience and Learning Effects in Acquisitions

6.1 Identification of the Macro-Thematic Areas The exploration of the implications of experience and learning in the context of acquisitions has centered upon three main thematic areas: acquisition-related strategy, acquisition process choices, and post-­ acquisition outcomes. While most studies have selectively focused either on experience as an antecedent condition driving acquisition choices or as a potentially causal force determining acquisition outcomes, academic attention has also been directed to their joint examination (e.g., Servaes and Zenner 1996; Vermeulen and Barkema 2001; Billet and Qian 2008; Nadolska and Barkema 2007, 2014; Aktas et  al. 2009; Arikan and McGahan 2010; Tseng and Chou 2011; Riviezzo 2013; Boschma and Hartog 2014; Francis et al. 2014a; Huang et al. 2014; Riccobono et al. 2015). In addition, an increasing interest has developed in the investigation of experiential effects in the specific research context of serial acquirers, defined as acquiring firms that engage in multiple acquisitions, thus possibly pursuing mutually interrelated deals (e.g., Zhang 1997; Billet and © The Author(s) 2019 I. Galavotti, Experience and Learning in Corporate Acquisitions, https://doi.org/10.1007/978-3-319-94980-2_6

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I. Galavotti EXPERIENCE IMPLICATIONS IN ACQUISITIONS

Acquisition process decisions

Acquisition-related strategy

Acquisition as a governance decision

Selection stage decisions

Negotiation stage decisions

Post-acquisition outcomes

Post-acquisition stage decisions

Economic performance outcome

Advisor selection

Integration design decisions

Payment

Ownership decision: equity participation

Contractual and regulatory decisions

Task-specific integration

Subsidiary-level effects

Acquisition behavior

Premium decision

Knowledge and capabilities development

Method of payment

Managerial effects amd directors’ role

Acquisition as a corporate scope decision

Target selection

Fig. 6.1  Thematic map of experience effects in acquisitions

Qian 2008; Laamanen and Keil 2008; Aktas et  al. 2009, 2011, 2013; Ismail and Abdallah 2013; Degbey 2015; Chao 2017). In the following subsections, the main themes and subthemes related to the thematic areas of experience implications in acquisitions will be analyzed. Figure 6.1 displays a thematic map of the different phenomena investigated in their relationships with experience.

6.2 Acquisition-Related Strategy: Governance Decisions, Corporate Scope Growth, Ownership, and Acquisition Behavior The study of how experience affects the acquisition strategy is focused on four main thematic areas:

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1. The choice of acquisitions as a governance mode decision, which includes two subthemes: (a) acquisitions as an alternative mode to other boundary-expansion modes, for example alliances and joint ventures (Villalonga and McGahan 2005; Moatti 2009; Arikan and McGahan 2010; Carayannopoulos and Auster 2010; Riccobono et al. 2015) or as a boundary-expansion mode vis-à-vis boundary-contraction modes, that is, divestiture (Villalonga and McGahan 2005), and (b) acquisitions as a foreign market entry mode, with a focus on both establishment and ownership mode decisions (Hennart and Reddy 1997; Barkema and Vermeulen 1998; Herrmann and Datta 2006; Slangen and Hennart 2008); 2. The decision about the type of acquisition in terms of trajectories of corporate scope growth along both the geographic and the product dimension (Hisey and Caves 1985; Yang and Hyland 2006; Rabbiosi et al. 2012; Alessandri et al. 2014; Galavotti et al. 2017a, 2017b); 3. The ownership decision, hereby intended as the choice about the degree of equity participation in the focal acquisition (Zhu et al. 2014; Piaskowska and Trojanowski 2014; Lahiri 2017); and 4. Acquisition behavior, considered as the overall observable pattern of acquisitions executed in terms of both acquisition propensity (Haleblian et  al. 2006; Dikova et  al. 2010; Peng and Fang 2010; Muehlfeld et  al. 2011, 2012; Francis et  al. 2014a; Chakrabarti and Mitchell 2016; Popli et al. 2016) and acquisition activity (Nadolska and Barkema 2007, 2014; Lin et al. 2009; Aktas et al. 2013; Zhu and Chen 2015; Mousa et al. 2016). Each of these thematic areas is further connected to a number of subthemes (Fig. 6.2) that will be unveiled in the following sections.

6.2.1 C  hoice of Acquisitions as a Governance Decision The first thematic area relates to the choice between acquisitions and alternative governance/foreign entry modes, for this decision logically appears as a preliminary choice within the broader decision of corporate growth.

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Choice of governance mode Acquisition as a governance decision

Acquisitions vs. alternative boundaryexpanding modes Acquisitions vs. boundary-contracting modes Choice of establishment mode

Choice of foreign market entry mode Choice of ownership mode

ACQUISITION RELATED STRATEGY

Geographic dimension

Cross-border vs. domestic

Product dimension

Diversifying vs. nondiversifying

Acquisition type

Ownership decision: Equity participation Likelihood of making a subsequent acquisition Acquisition propensity Likelihood of completing an announced acquisition Acquisition behavior

Aggregate number of acquisitions

Acquisition activity

Total value of acquisitions

Acquisition frequency

Fig. 6.2  Thematic areas related to the effect of experience on acquisition strategy

The literature in this area may be broadly distinguished according to the context in which acquisitions are investigated, that is, whether as a choice of governance mode or as a choice of foreign market entry mode.

6.2.1.1  A  cquisitions as a Governance Mode Choice: Boundary Expansion and Boundary Contraction Alternatives Studies in this thematic area explore acquisitions as an alternative governance mode if compared to alliances (Villalonga and McGahan 2005;

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Moatti 2009; Arikan and McGahan 2010; Carayannopoulos and Auster 2010), joint ventures (Riccobono et al. 2015), or divestitures (Villalonga and McGahan 2005). From a theoretical point of view, the majority of these studies interlace organizational learning with both the resource-based view and the connected knowledge-based/capabilities-based perspectives, as well as with transaction cost economics. Analyzing a sample of 9276 acquisitions, alliances, and divestitures between 1990 and 2000, Villalonga and McGahan (2005) bridge a host of different theoretical perspectives and, based on organizational learning arguments, claim that previous experience with a given governance form increases the likelihood that the firm will choose the same form in subsequent transactions. It is worth noting that the study by Villalonga and McGahan (2005) actually compares both boundary-expanding decisions, that is, acquisitions versus alliances, and boundary-contracting decisions, that is, divestitures. Carayannopoulos and Auster (2010) bridge TCE with the knowledge-­ based view to investigate the choice of the governance form in investments for external knowledge sourcing. They find that acquisitions are preferred over alliances at greater knowledge complexity, specificity, and value and that the likelihood of acquisitions is further strengthened at increasing knowledge similarity and digestibility. This finding provides evidence that uncertainty, asset specificity, and value of knowledge may substantially affect the choice of the governance form, especially in light of the potential for opportunistic behavior from exchange parties. In addition to knowledge characteristics, they also suggest that prior experience in a certain governance form is likely to lead the firm to replicate the same form in the future. This finding, which is consistent with path dependence arguments, is perfectly in line with Villalonga and McGahan (2005) as it basically suggests that experience discounts alternative courses of action. The same theoretical framework is used by Riccobono et al. (2015) in their examination of the acquisition versus joint-venture choice for ­external sources of R&D. Their results are consistent with the argument of appropriability from a knowledge-based perspective: firms with greater experience in innovation will more likely opt for a hierarchy-oriented governance mode, that is, will prefer acquisitions over shared ownership

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through joint ventures, with the ultimate purpose of protecting their valuable knowledge. A different theoretical framework is used by Moatti (2009), who observes the choice between acquisitions and alliances through the theoretical lens of mimetic processes and, especially, of frequency-based imitation. In particular, observing a sample of 83 firms in the global retail industry between 1984 and 2003, Moatti (2009) finds that the likelihood of acquisitions compared to alliances increases as a function of the number of acquisitions vis-à-vis alliances completed by competitors.

6.2.1.2  A  cquisitions as a Foreign Market Entry Mode: Establishment and Ownership Mode Decisions When the choice of acquisitions compared to other governance modes is investigated in the specific context of a foreign market entry, the focus naturally moves toward cross-border acquisitions. Foreign market entry mode includes three sets of choices (Klier et al. 2017). A first choice relates to whether to enter with an equity-based (acquisitions, greenfield, joint ventures) versus nonequity-based (export, licensing) mode. A second choice relates to the establishment mode, which captures the decision of whether to enter a foreign market by acquiring an existing firm or by organically creating a new subsidiary, that is, acquisitions versus greenfield investments. A third set of choices refers to the ownership mode, which implies a decision between controlling the foreign entity alone or jointly with a partner. Studies focusing on the role of experience in affecting the choice of the foreign market entry mode have addressed choices of establishment mode (e.g., Barkema and Vermeulen 1998; Slangen and Hennart 2008), choices related to the ownership mode (e.g., Hennart and Reddy 1997), and those involving both (e.g., Herrmann and Datta 2006). Examining 829 foreign expansion moves by 25 Dutch firms in the period 1966–1994, results obtained by Barkema and Vermeulen (1998) indicate that previous experience in the host country increases the likelihood of acquisitions in that country if compared to greenfield investments. A similar finding was also obtained by Slangen and Hennart

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(2008), who investigated the role played by international experience and host-country experience on the choice to enter a culturally distant country through an acquisition or a greenfield investment. Moving to the examination of the ownership mode, Hennart and Reddy (1997) examined a sample of 175 entries of Japanese manufacturing firms in the US market over the years 1978–1989 and found evidence that acquisitions are preferred over joint ventures when the Japanese entrant has developed a long experience with the US government. This result is motivated by the fact that because acquisitions tend to be less common in Japan, post-acquisition integration costs may be higher, thus driving an initial preference for joint ventures as a more immediately viable way to test the transfer of the Japanese system to the US context. Only after the Japanese investor has gained experience with the US market will this initial preference turn into a greater probability of an acquisition. Simultaneously examining establishment and ownership modes decisions, Herrmann and Datta (2006) compare acquisitions vis-à-vis greenfield investments and joint ventures and find that the choice of acquisitions is significantly influenced by CEO experiences. In particular, observing 380 foreign market entries by 78 firms between 1989 and 1997, they find that CEOs with less firm experience but with functional experience are more likely to prefer acquisitions, while greater international experience is associated with a preference for greenfield investments over acquisitions.

6.2.2 C  hoice of Acquisition Types for Corporate Scope Growth The exploration of the effect played by experience in affecting the choice of acquisition types has been focused on pairs of opposite options within a given vector of corporate growth, that is, cross-border versus domestic acquisitions (Galavotti et al. 2017a), related versus unrelated acquisitions (Yang and Hyland 2006), or both jointly (Hisey and Caves 1985; Rabbiosi et  al. 2012; Alessandri et  al. 2014; Galavotti et  al. 2017b).

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Building on the notion of strategic momentum, Galavotti et  al. (2017a) investigate the effects played by previous experience in cross-­ border and domestic acquisitions on the likelihood of a subsequent cross-­ border versus domestic deal. They find a U-shaped relationship between domestic acquisition experience and the likelihood of subsequent cross-­ border while an inverted U-shaped relationship between cross-border acquisition experience and the likelihood of subsequent cross-border acquisitions. This result is explained by the fact that although prior experience in cross-border acquisitions generates momentum for subsequent international deals, this path dependence generates a reactive sequence in terms of reduced propensity of subsequent cross-border acquisitions when the costs of coordination potentially outweigh the benefits of further international expansion. Experience in domestic acquisitions, on the contrary, creates momentum for subsequent domestic acquisitions; however, for great levels of domestic acquisitions experience, the progressive generation of routines and capabilities related to the management of the acquisition process encourages the firm to start pursuing cross-border acquisitions. Moving to the examination of acquisitions for growth along the product dimension, Yang and Hyland (2006) provide an explanation for the choice of unrelated over related acquisitions within the framework of interorganizational experience. Indeed, they find that the likelihood of unrelated acquisitions compared to related ones increases as a function of whether competitors have engaged in more unrelated acquisitions. In their reexamination of mimetic isomorphism, Yang and Hyland (2012b) suggest that isomorphism through vicarious learning may actually be incomplete because differences in idiosyncratic routines are likely to weaken the relationship between imitation and isomorphism. Examining a sample of 4881 acquisitions by 1424 US firms in the financial services industry in the period 1990–2008, Yang and Hyland (2012b) find that prior experience negatively moderates the relationship between the degree of similarity and the number of initiated acquisitions. Some studies have simultaneously addressed both the geographic and the industry relatedness choice (Alessandri et  al. 2014; Galavotti et  al. 2017b). An interesting contribution in this area stems from interlacing the behavioral perspective with the threat-rigidity hypothesis, according

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to which firms tend to become rigid when faced with potentially detrimental threats. For instance, Iyer and Miller (2008) find that when threatened by financial distress, firms are less inclined to take risks, and hence acquisition activity declines. Alessandri et al. (2014) extend this line of inquiry and find that during economic downturns firms with greater acquisition experience are more likely to continue pursuing riskier acquisitions, that is, cross-border, diversifying acquisitions relative to domestic, nondiversifying acquisitions, vis-à-vis less experienced firms. Building on the resource-based view and the notion of liability of foreignness, Galavotti et  al. (2017b) investigate the effects of fungible nonacquisition-­related experiences, that is, international and diversification experience, in shaping the extent to which the relationship between acquirer-to-target relatedness and the degree of unfamiliarity with the target country leads to substitute or complementary expansion moves. In particular, their findings suggest that acquiring firms tend to pursue alternative forms of balance, that is, they will execute acquisitions for greater relatedness at increasing unfamiliarity with the target country. However, diversification experience is found to provide the firm with a repository of geographically fungible resources and capabilities that encourage complementarity between growth along the product and geographic dimensions. Previous international experience, on the contrary, intensifies the substitution effect between the two trajectories of growth, thus providing support for a path-dependent effect in a firm’s international strategy.

6.2.3 Ownership Decisions: Equity Participation The degree of equity participation in acquisitions, intended in terms of percentage of stakes acquired, has been acknowledged as a crucial determinant of success, as the degree of equity participation along the continuum from minority to full ownership provides the acquiring firm with different control rights over the target firm but also requires varying equity commitment. The exploration of the role played by experience on ownership decisions is driven by the expectation that experience may play a role in moderating the effect of perceived uncertainty on equity participation (López-Duarte and Vidal-Suárez 2008; Piaskowska and Trojanowski 2014; Zhu et al. 2014; Lahiri 2017).

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The decision of ownership investment in acquisitions becomes even more salient in cross-border acquisitions because perceived uncertainty may potentially encourage acquiring firms to opt for loss-minimizing approaches based on low equity participation (Chari and Chang 2009). Zhu et al. (2014) represent the sole contribution on this theme coming from the finance literature. Their attention is directed to the role played by idiosyncratic volatility in the context of acquisitions in emerging countries with a particular emphasis on acquisition completion and time for completion, equity participation, and acquisition probability. Their results point to the fact that, because idiosyncratic volatility reflects stock price informativeness and transparency, the target firm’s idiosyncratic volatility positively affects the likelihood of acquiring a majority stake. Piaskowska and Trojanowski (2014) build on upper echelons theory and the international business literature and suggest that, while uncertainty perception, captured by cultural differences and host-country risk, leads to lower ownership stakes, the TMT international orientation, deriving from formative years’ international experience, foreign nationality, and international work experience, has a positive moderating effect. Examining a sample of 1447 cross-border acquisitions undertaken by US firms in BRIC countries, Lahiri (2017) adopts an institutional theory perspective to investigate how equity participation is affected by the target country governance quality, proxied by government effectiveness, rule of law, and control of corruption. Consistent with the premise that a negative association is expected between uncertainty and equity participation, he argues that greater ownership becomes more likely with increasing host-country governance quality, as the latter substantially reduces the threat of potential losses. In addition, bridging with Dunning’s OLI paradigm1 and with experiential learning theory, Lahiri (2017) also finds evidence of positive moderating effects from  Dunning’s (1988) OLI paradigm refers to three types of advantages: ownership, localization, and internalization. Ownership advantages are firm-specific advantages, either production based or marketing based, which compensate for a firm’s liability of foreignness. Localization advantages are location specific and therefore tend to be considered as a sort of precondition justifying the choice to enter a specific location over others. The choice between alternative modes for foreign market entry is usually explained in terms of internalization advantages, which manifest through the elimination of transaction costs associated as a result of the internalization of the foreign operations. 1

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host-country market potential and prior acquisition experience in the target country. Specifically, in line with the notion of strategic momentum, he contends that acquisition experience in the same host nation as the focal acquisition further intensifies the positive effect exercised by market potential on the relationship between government effectiveness and equity participation. Although using different theoretical perspectives, studies addressing the role of experience in the relationship between uncertainty and ownership have reached consensus upon the fact that experience, either of a general nature and not deriving from previous acquisitions (Piaskowska and Trojanowski 2014) or of a context-specific nature and generated by previous acquisitions (Lahiri 2017), reduces the degree of perceived uncertainty in the focal acquisition and hence encourages greater ownership commitment.

6.2.4 A  cquisition Behavior: Acquisition Propensity and Acquisition Activity The expression “acquisition behavior” is hereby intended to identify the overall observable pattern of acquisitions in terms of both acquisition propensity and acquisition activity.

6.2.4.1  Acquisition Propensity The thematic area of acquisition propensity embraces studies that explore the potentially predictive power of experience with respect to a firm’s proclivity toward acquisition-making. It refers to both the likelihood of making a subsequent acquisition (Haleblian et al. 2006; Peng and Fang 2010; Collins et al. 2009) and the likelihood of completing a previously announced acquisition (Dikova et al. 2010; Muehlfeld et al. 2011, 2012; Francis et al. 2014a; Chakrabarti and Mitchell 2016; Popli et al. 2016). The investigation of the relationship between experience and the likelihood of making a subsequent acquisition is grounded in the argument that persistence tends to be a pervasive force guiding organizational decisions. Studies on the theme of experience as a driver of the propensity to

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execute subsequent acquisitions indeed build on the notion of strategic momentum (Miller and Friesen 1980) to assess path dependence in acquisition likelihood. For instance, Haleblian et  al. (2006) suggest that prior acquisition experience leads to the development of routines associated with making acquisitions, which increases the likelihood of subsequent acquisitions. In addition, building on the behavioral theory of the firm, Haleblian et  al. (2006) investigated adaptation following feedback from acquisitions and found that higher levels of focal acquisition performance magnify the positive effect of acquisition experience on the likelihood of executing a subsequent acquisition. This occurs because positive feedback acts as a competency multiplier that reinforces routines, while poor performance feedback challenges the legitimacy and persistence of lessons from experience that proved to be unsuccessful. Similarly, Peng and Fang (2010) build on the momentum argument and, through a case-based study, find that acquisition experience not only increases the propensity toward making subsequent acquisitions but also contributes to a reduction of the time lapse between consecutive deals, thus enhancing acquisition frequency. With a different theoretical perspective, Tseng and Chou (2011) analyze the probability of deal completion as a function of institutional isomorphism with peers and find that greater likelihood of deal completion is associated with greater frequency of acquisitions executed by peers (frequency-based imitation), with the industry leader pursuing an acquisition (trait-based imitation), and with greater frequency of excess returns from acquisitions gained by peers (outcome-based imitation). A peculiar attention has been devoted to the examination of experience effects on acquisition propensity in the specific context of cross-­ border acquisitions, which may be considered as a subtheme within the more general theme of likelihood of making subsequent acquisitions. Exploring how organizational learning mechanisms affect the geographic scope of acquisitions, Collins et al. (2009) build on the notion of strategic momentum and find that both domestic and cross-border acquisition experience positively affect the likelihood of a subsequent international acquisition; however, previous experience in cross-border acquisitions is found to be a stronger predictor of subsequent cross-­border

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activity than domestic acquisition experience. In addition, they find that previous experience in the host country of the focal acquisition is more predictive of subsequent acquisitions in the same country compared to other nonhost-country specific experience. Another theme within the thematic area of experience as a driver of acquisition propensity is related to the examination of the likelihood of completion of a previously announced acquisition. Also within this theme, the context of cross-border acquisitions has received special interest (e.g., Dikova et al. 2010; Popli et al. 2016). A common assumption underlying studies focused on acquisition completion is that the completion of an announced deal is a signal of organizational effectiveness, especially in the last phases of acquisition preparation (Muehlfeld et al. 2012). Bridging experiential learning with institutional theory, Dikova et al. (2010) find that prior experience in cross-border acquisitions positively moderates the negative relationship between institutional differences and likelihood of completion, while also reducing the time lapse between announcement and completion. Interest in the linkage between the institutional environment and organizational learning mechanisms has also been extended to qualitative attributes of experience: Muehlfeld et  al. (2012), for instance, suggest that the perception of institutional unfamiliarity inherent in a cross-border acquisition may make acquirers more sensitive to the need for deliberate learning mechanisms. The complexity of cross-border acquisitions, and hence the additional challenges that may interfere with their completion, has naturally encouraged scholars to explore a beloved though contentious issue in the international business literature: cultural distance. Building on the argument that institutional differences negatively affect the likelihood of completion of cross-border acquisitions (Dikova et al. 2010), Popli et al. (2016) find that cultural experience reserve, that is, prior experience in countries that are culturally similar to the target country of the focal acquisition, reduces the likelihood that a cross-­border deal will be abandoned due to cultural friction. Abandonment of cross-border acquisitions has also been examined through the lenses of neo-institutional theory: in her investigation of the mechanisms through which institutional isomorphism occurs in the context of cross-border acquisitions by Chinese firms, Yang (2009) focuses

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on the role of failure experiences. Her results indicate that pressures for conformity lead firms to imitate the behavior of successful firms while avoiding mimicry of strategies and actions taken by failed firms. The degree of conformity, in terms of likelihood of abandoning an announced acquisition, is hence found to be positively associated with the number of incomplete acquisitions initiated by Chinese firms in the previous year.

6.2.4.2  Acquisition Activity Acquisition activity is expressed in terms of aggregate number of initiated acquisitions (Lin et al. 2009; Mousa et al. 2016), total value of acquisitions conducted in a given year (Zhu and Chen 2015), and frequency (Nadolska and Barkema 2007, 2014; Aktas et al. 2013). From a theoretical point of view, studies on this theme are grounded in upper echelons theory, with a special interest in the role played by the TMT experience (Nadolska and Barkema 2014; Mousa et al. 2016), personality psychology with emphasis on the interaction effects between CEO narcissism and experience (Zhu and Chen 2015), network theory (Lin et al. 2009), and economic geography (Boschma and Hartog 2014). Nadolska and Barkema (2014) analyze the effectiveness of the top management team in transferring prior experience and, hence, in identifying which lessons can be generalized and adaptively adjusted to the new setting. Their results indicate that past acquisition experience decreases the likelihood of misapplication while increasing the number of new acquisitions. In contrast, building on upper echelons theory to examine the impact of the TMT’s demographic characteristics on acquisition activity, Mousa et al. (2016) suggest that executives with prior IPO experience are less likely to engage in post-IPO acquisitions as they may have already witnessed some of the complexities associated with acquisition activity by newly public firms. However, they also find that the TMT functional background in terms of experience in senior-level management and in directorship are both positively related with post-IPO acquisition activity. This finding may be explained by the fact that executives with senior-level management and directorship experiences are more likely to pursue aggressive growth strategies and may be more knowledgeable about expansion opportunities.

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The notion of directorship experience used by Mousa et  al. (2016), which is intended in terms of number of other firms’ boards on which an executive serves, stands in an implicit conceptual connection with the notion of board interlocks. While the majority of studies adopting an institutional or a network perspective focus on embeddedness derived from board interlocks, Lin et al. (2009) build on resource dependence theory and analyze how network embeddedness impacts on acquisition activity. In particular, they focus on alliance experience as potentially having a spillover effect on subsequent acquisitions and suggest that acquisition choices may be driven by two key constructs of network embeddedness: • The firm’s centrality, that is, the extent to which the firm occupies a central position in the network with respect to other network members; and • The firm’s structural hole position, that is, the firm’s brokerage location between two firms in the network, which in turn determines its ability to monitor information flows. Comparing observations from the United States and China as two institutional environments that differ in their level of development, Lin et  al. (2009) find that acquisition activity is differentially affected by whether previous alliances emphasized exploration vis-à-vis exploitation learning. Specifically, their results suggest that market inefficiencies characterizing less developed institutional settings lead to greater acquisition activity in order to gain control of resources and markets, while the opposite occurs in developed institutional settings, where the lower risk level for opportunistic behavior encourages those firms that have experience in exploitation alliances to continue to rely on alliance relationships instead of pursuing acquisitions. A different perspective is taken by Boschma and Hartog (2014) in their examination of the acquisition activity of the Dutch bank industry in the period 1850–1993 as a driver of spatial clustering mechanisms. Specifically, building on economic geography, they analyze the spatial evolution of the banking industry in the Amsterdam region as a result of acquisition activity and claim that acquisition experience is one of the

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drivers of spatial clustering. In addition to the consideration that geographic proximity represents an incentive toward spatial agglomeration, Boschma and Hartog (2014) suggest that because cluster firms are more likely to acquire noncluster firms, they progressively gain more experience in executing acquisitions, which, in turn, translates into greater acquisition activity within the cluster. Acquisition activity has also been regarded in terms of “acquisition emphasis,” defined as the total value of acquisitions conducted in a given year (Zhu and Chen 2015). Building on personality psychology, Zhu and Chen (2015) examine the impact of CEO narcissism and prior experience on the imitation of corporate strategy in terms of both acquisition emphasis and international diversification. Their findings suggest that when deciding upon the firm’s acquisition emphasis, narcissistic CEOs tend to be more influenced by their own prior experiences if compared to the experiences of other directors. This occurs because narcissism leads individuals both to interpret their past behavior very positively to maintain their high self-esteem—that is, motivational aspect of narcissism— and to believe that they can learn more than others from the same learning opportunity, that is, the cognitive aspect of narcissism.

6.3 Acquisition Process Choices The acquisition process has been recognized as a key factor affecting acquisition outcomes (Jemison and Sitkin 1986; Haspeslagh and Jemison 1991). The acquisition process, during both the pre-acquisition and post-­ acquisition phases, involves various technically complex tasks that disguise potential impediments to successful implementation of the acquisition due to the segmented nature of activities, escalating momentum to completion, ambiguity during negotiation, and possible misapplication of management systems during the integration (Jemison and Sitkin 1986). Research on the role played by experience in affecting decisions throughout the different steps of the acquisition process has directed attention to a wealth of decision-making issues, which can be broadly grouped into three main themes corresponding to three macro-phases.

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One theme comprises decisions taken during the selection stage and involves the mechanisms underlying the assessment and selection of the target firm in a focal acquisition (Hitt and Tyler 1991; Haunschild et al. 1994; Maitland and Sammartino 2015). A second theme is concerned with the intermediate phase of negotiation and focuses on a number of decisions, including the selection of the advisor (Servaes and Zenner 1996), contractual and regulatory choices (Reuer et  al. 2004; Ormosi 2012), as well as the premium to the target firm’s shareholders (Beckman and Haunschild 2002; Zhu 2013) and the payment method (Ismail and Abdallah 2013). A third, final theme corresponds to the post-acquisition phase and is concerned with integration-level decisions in terms of both general design decisions (Pablo 1994, 1995) and task-specific integration decisions (Ivarsson and Vahlne 2002).

6.3.1 Selection Stage Decisions Among the different decision-making aspects within the acquisition process, target selection has been acknowledged as a crucial preliminary phase, whose quality and accuracy may profoundly affect acquisition outcomes (Jemison and Sitkin 1986). Research in this thematic area has resulted in a fertile production of contributions aimed at exploring both the cognitive and the behavioral dynamics that intervene during the target selection phase (Hitt and Tyler 1991; Haunschild et  al. 1994; Baum et  al. 2000; Maitland and Sammartino 2015; Zakaria et al. 2017). Starting from the theoretical perspectives of rational normative choice and external control, Hitt and Tyler (1991) incorporate the upper echelons perspective of strategic choice to develop an understanding of whether and how cognitive models reflected in managers’ personal characteristics shape the strategic evaluation of acquisition candidates. Among the wide array of characteristics examined—that is, age, educational background, experience, level of executive, cognitive complexity, and risk orientation—Hitt and Tyler find that both the amount and type of managers’ experience play a role in the evaluation of acquisition candidates and enable managers to assess more carefully the (dis)similarity between past acquisitions and the focal acquisition.

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The cognitive dynamics characterizing executives’ judgment have also been examined with respect to the assessment of a potential international acquisition candidate located in a politically hazardous environment (Maitland and Sammartino 2015). Maitland and Sammartino (2015) argue that, faced with a high-stakes strategic decision such as an acquisition, and especially when this decision involves a highly uncertain environment, managers show a tendency to form small-world representations, that is, decision-enhancing heuristics that enable decision-makers to reach a final decision. An interesting point in the work by Maitland and Sammartino (2015), with respect to the core interest of this thematic analysis, is the deliberate choice of focusing on an acquiring firm that did not have prior experience, with the intention of isolating the sole individuals’ judgment processes. This methodological decision may be interpreted as an implicit conceptual recognition that routines and capabilities developed from prior experience may potentially alter or reshape the heuristics used to assess a potential target, especially under conditions of environmental uncertainty. Moving to studies focused on behavioral responses, Haunschild et al. (1994) investigated several factors that may be responsible for different levels of overcommitment toward acquiring a particular target. Recalling Jemison and Sitkin’s (1986) suggestion that CEOs who lack acquisition experience may feel inadequate, Haunschild et al. (1994) contend that lack of experience may generate escalating momentum and overcommitment to acquiring a particular target firm and, hence, to completing the acquisition regardless of its ultimate benefit to the acquiring firm’s shareholders. Building on the literature on escalation and on Roll’s (1986) hubris hypothesis, Haunschild et  al. (1994) examined three sources of commitment before the acquisition is completed: managerial personal responsibility in terms of time and effort invested in the acquisition process, competition for the target during the bidding process, and whether there is public awareness of the acquisition decision. Using a computer-­ based simulation administered on 238 graduate business students, Haunschild et al. (1994) concluded that, altogether, managers’ personal responsibility, along with the circumstance in which other firms are interested in acquiring the same target and the public disclosure of the decision to acquire, positively affect the level of managerial commitment.

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Interestingly, despite their expectation that individual differences in work and acquisition experiences should affect participants’ behavior, no significant moderating effect was actually found. Extending Haunschild et al. (1994), Hayward and Shimizu (2006) investigated the conditions in which managers decommit to an acquisition after its completion: while controlling for divestiture experience as an indicator of the extent to which divestiture may represent a routine, the authors found that the likelihood of divesting from a poorly performing acquired unit increases as an inverse function of the degree to which CEOs are held personally responsible for the acquiring decisions (Hayward and Shimizu 2006). It is worth noting that personal responsibility is also strongly connected with attribution theory: indeed, the personal causal responsibility for the effects of a given action profoundly affects the motivational dynamics underlying inferential processes of causal linkages. In terms of location decisions, Baum et al. (2000) found evidence that the preferred targets are near to those recently acquired by competitors: by studying chains’ spatial expansion decisions, they specifically focused on trait-based imitation and suggested that chains are likely to mimic location choices related to the most recent acquisitions by comparable chains.

6.3.2 Negotiation Stage Decisions The negotiation phase requires that the two parties involved in the deal identify and manage several aspects including the selection of whether to rely on an advisor and which advisor to select, contractual issues, the premium, and the method of payment.

6.3.2.1  Advisor Selection A first decision that acquiring firms encounter is whether to rely on an advisor. Some studies have addressed the theme of the extent to which experience affects this decision as well as the specific choice of the advisor (Servaes and Zenner 1996; Haunschild and Miner 1997; Francis et al. 2014b). From a theoretical point of view, studies within this thematic

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area have adopted either a transaction cost perspective (Servaes and Zenner 1996) or a neo-institutional approach (Haunschild and Miner 1997; Francis et al. 2014b). Servaes and Zenner (1996) investigate the determinants of the choice to rely on the advice of an investment bank by focusing on the effect played by three categories of costs, that is, transaction costs, contracting costs, and asymmetric information costs. In particular, they find that higher transaction costs brought about by the deal’s complexity lead to a greater propensity to rely on a financial intermediary. This occurs by virtue of the ability of a financial intermediary to provide advantages in terms of economies of specialization, scale economies in the acquisition of information, and reduction in search costs. However, according to Servaes and Zenner (1996), the choice to opt for an investment bank’s advice diminishes with growing acquisition experience, as experienced acquirers may spread the fixed costs of executing acquisition moves over a greater number of transactions. Studies adopting a neo-institutional perspective have focused on the advisor selection decision as a reflection of interorganizational imitation (Haunschild and Miner 1997) or as a function of a reciprocal relational experience with a given advisor (Francis et al. 2014b). Looking at peers as the locus in which an interorganizational experience in the use of an advisor lies, Haunschild and Miner (1997) argue that the likelihood that an acquiring firm will rely on the advice of an investment bank is positively associated with the extent to which other firms have used it in the past, that is, frequency-based imitation, and their size and success, that is, trait-based imitation, while it is negatively associated with the average premium they paid, that is, outcome-based imitation. Francis et al. (2014b) implicitly adopt a network approach to examine the role of relational embeddedness. In particular, they direct attention to whether and how prior reciprocal experience with a given financial advisor affects the advisor selection decision in the focal acquisition. Their findings indicate that previous banking relationships are predictive of the decision to keep (vs. switch) the financial advisor in the focal deal but only to the extent that the acquiring firm has previous acquisition experience. In addition, they also find that experienced acquirers retaining their established financial advisor in the focal acquisition are rewarded with more positive market reactions around the announcement.

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6.3.2.2  Contractual and Regulatory Decisions This thematic area includes decisions related to contractual details (Reuer et  al. 2004) and to the management of efficiency claims and remedies (Ormosi 2012). While the first is internal to the transaction-specific negotiation and most common within acquisitions, the second tends to be more salient within mergers and relates to the dimension of merger control, that is, the control exercised by the competition authority in terms of protection against anticompetitive mergers. Contractual details have been examined in terms of performance-­ contingent payout contracts, that is, contracts that yield higher or lower payment to the target depending on whether the deal is more or less successful (Reuer et  al. 2004). This type of contract is considered as an instrument that acquiring firms may adopt to protect against asymmetric information and to mitigate the risks of a distorted target’s valuation. This problem is significant in the context of cross-border acquisitions, where such remedies can be particularly effective. Indeed, Reuer et  al. (2004) suggest that contingent payouts may represent a way to reap the benefits of alternative entry modes while still selecting the acquisition entry mode. Their results provide evidence that acquirers not having experience in either cross-border or domestic acquisitions show a greater propensity toward contingent payouts. Consistently, they find that previous international acquisition experience provides firms with better valuation and negotiation capabilities, thus reducing the need for these hazard-mitigating contracts. For what concerns merger control, Ormosi (2012) addresses two issues. First issue is the efficiency defense, intended as the expected efficiencies identified by the merging firms, which determine whether the merger is approved by the competitive authority. Such approval follows an evaluation in terms of whether the expected efficiencies are able to outweigh the anticompetitive effects brought about by the merger. Second issue, merger remedy, is intended as a settlement package put forward by the merging firms that may allow the approval of an anticompetitive merger by the competitive authority even in the absence of efficiency gains. In particular, they find that the experience of legal advisors plays a significant role in affecting whether efficiency claims are made:

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because prior experience with efficiency claims makes advisors more aware of their potential consequences in terms of delays in the procedure, experienced legal advisors are less willing to advise acquiring firms to make efficiency claims.

6.3.2.3  Premium Decisions Premium decisions represent a crucial aspect that significantly affects the potential for value creation after an acquisition move. From a conceptual point of view, studies investigating the driving factors of premium decisions have mostly directed attention to the group as unit of analysis (Haunschild 1993; Beckman and Haunschild 2002; Zhu 2013). Bridging corporate governance research with the social psychology literature and examining a sample of 541 premium decisions by 199 firms between 1995 and 2006, Zhu (2013) analyzes the dynamics of group decision-making processes with a specific focus on group polarization. The phenomenon of group polarization is said to occur when the average position of group members before a meeting is amplified in the group collective decision after the meeting (Isenberg 1986). Zhu (2013) finds that the focal acquisition premium is significantly influenced by prior premium experience in a way that the focal premium chosen tends to be above or below the prior average premium when such premium is relatively high or low, respectively. Because a primary source of group polarization is bias in information exchange and processing, Zhu (2013) also finds that the degree to which the group of directors is demographically homogeneous reduces group polarization thanks to easier communication among board members. An additional issue generating group polarization is the “poor representation of minority opinions during group decisions” (Zhu 2013, 806). However, when the minority has greater acquisition experience than the majority group, minority directors may have more opportunities to express their opinions during board meetings and the potential persuasiveness deriving from their acquisition experience may weaken the prevailing position and reduce group polarization about premium decisions.

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Interorganizational relationships based on interlocking directorates have been recognized as a potential driver of the acquisition premium. For instance, Haunschild (1993) suggests that premium paid tend to be related to those paid by interlock partners. The influence exercised by directors over premium decisions has been also modeled as a function of the premium experience and heterogeneity of interlock partners (Beckman and Haunschild 2002): better—lower—premium decisions are contingent upon the degree of diversity among network partners’ experiences, thus suggesting that premium decisions are subject to mimetic processes. In view of the interdisciplinary interest in the topic, it is worth mentioning that research attention has also derived from the finance literature. For instance, Zhu et al. (2014) investigate how acquisition premium is affected by idiosyncratic volatility, taken as a proxy of asymmetric information. Their analysis on the two subsamples of experienced and inexperienced acquirers suggests that inexperienced acquirers tend to pay higher premiums at greater idiosyncratic volatility and are in a disadvantaged position relative to experienced acquirers in terms of greater costs for information collection about the target firm.

6.3.2.4  Method of Payment The choice of the method of payment has received attention especially among finance scholars, for it provides the market with different signals about acquisition-related expectations: typically, because cash payment is chosen when stock is not overvalued, cash-financed deals tend to signal expectations of greater post-acquisition performance; on the contrary, stock-financed deals may signal that the acquiring firm believes its stock is overvalued and the decision of this payment method may hence be penalized by the stock market (Loughran and Vijh 1997; Abhyankar et al. 2005). In their study on the use of contingent payouts in cross-border acquisitions, however, Reuer et al. (2004) contend that, in case a stock-financed deal involves asymmetric information, it may be rewarded by the stock market because the benefits of mitigating the effects of information

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asymmetry outbalance the potential adverse signals about the acquiring firm’s stock. Although the theoretical arguments used to explain the choice of the payment method mostly derive from the finance literature and are therefore inherently less connected with experiential learning mechanisms, an interesting contribution comes from Ismail and Abdallah (2013), who observe the choice of the method of payment through the lenses of path dependence. In particular, they find that a momentum exists in the method of payment, as the choice to use cash versus equity is positively related to the frequency of using the same method of payment in previous acquisitions.

6.3.3 P  ost-Acquisition Phase: Integration Design and Task-Specific Integration In addition to strategic factors that drive the potential for value creation, it has been increasingly acknowledged that the process through which this synergistic potentiality is realized represents an equally crucial determinant of acquisition success (Datta 1991), thus channeling academic attention toward the examination of post-acquisition interorganizational integration. Indeed, the complexities underlying the consolidation and management of interdependencies have encouraged several scholars to investigate the factors that drive integration decisions along the continuum from autonomy to absorption (e.g., Haspeslagh and Jemison 1991; Zaheer et al. 2013), and some consensus has been reached upon the idea that both over- and under-reconfiguration have the potential to be equally detrimental (Pablo 1994). Studies focused on the role exercised by experience in affecting integration-­related decisions have explored: integration design decisions, in terms of degree of integration and of post-acquisition change in technical, administrative, and cultural configuration (Pablo 1994, 1995); task-specific integration decisions, for example in terms of technology integration and coordination (Ivarsson and Vahlne 2002); as well as the interaction effects between experience and integration (Puranam and Srikanth 2007).

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Through policy-capturing research on 56 acquiring firms, Pablo (1994) investigated how CEOs’ general acquisition experience and industry-­ specific experiences influence decisions about integration design decisions. The results indicate that the level of integration chosen and the relative importance given to the situational features of power differentials, multiculturalism, organizational task, and interorganizational compatibility of acquisition visions are a function of the acquiring firm’s overall acquisition experience and industry-related contextual experiences. In particular, Pablo (1994) found that the importance of multiculturalism, that is, the degree to which cultural diversity is valued and encouraged (Nahavandi and Malekzadeh 1988), is discounted when acquirers have previous acquisition experience, which therefore suggests that with increasing acquisition experience more emphasis tends to be placed on integration implementation rather than on integration design. Ivarsson and Vahlne (2002) explore how CEOs’ general experience in managing foreign operations affects decisions of coordination and technology integration of foreign affiliates after an acquisition event. Through a case-based study on acquired foreign-owned manufacturing affiliates in Sweden in 1993, they claim that experience plays a fundamental role in building the R&D and technology knowledge bases, whose preservation is substantially challenged by geographic dispersion. Their findings indicate that an initial low propensity toward integration turns into a greater likelihood of technology coordination and transfer as a consequence of experience accumulation. In addition, following Zollo and Singh’s (2004) focus on post-deal integration, Puranam and Srikanth (2007) contend that the integration strategy implemented in the acquisition affects the value of past experience; they find that experience is especially useful in mitigating the effect of loss of autonomy brought about by integration.

6.4 Post-Acquisition Outcomes Probably reflecting the need to gain insights into the reasons behind the impressively high failure rates of acquisitions, post-acquisition performance outcomes have represented by far the most actively studied topic

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in research on mergers and acquisitions (Keil et al. 2012), with a massive volume of contributions coming from the strategic management, corporate finance, and organizational behavior literatures (Zollo and Meier 2008). In their conceptual examination of the notion of acquisition performance, Zollo and Meier (2008) propose a classification of acquisition performance outcomes based on the level of analysis, and hence distinguish among task-level, transaction-level, and firm-level performance. Task-level performance is defined as “the degree to which the targeted level of integration has been achieved across all of its task dimensions in a satisfactory manner” (56). Transaction-level performance reflects “the amount of value, in cost efficiencies and revenue growth, generated by the complete transaction process” (56). Firm-level performance is considered in terms of “variation in firm performance that occurred during the period of relevance for the execution of the business plan connected to the acquisition” (57). In addition to the level of analysis, Zollo and Meier (2008) suggest that the time horizon, that is, whether short term or long term, represents another important dimension on the basis of which acquisition performance is regarded. Studies linking experience to post-acquisition outcomes have directed attention to a diverse range of domains across the levels of analysis proposed by Zollo and Meier (2008): from a thematic point of view, research focus has converged upon economic performance outcomes, premium paid, effects in terms of subsidiary survival and development, knowledge-­ based outcomes, as well as managerial effects. Figure 6.3 shows the thematic areas identified in the literature focusing on post-acquisition outcomes.

6.4.1 Economic Performance Outcomes Over the decades, economic performance outcomes have certainly attracted the utmost academic attention. The different levels of analysis adopted by scholars, that is, task-, transaction-, and firm levels, have resulted in a varied spectrum of performance measures, including: financial measures —for example, cumulative abnormal returns, excess returns,

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POSTACQUISITION OUTCOMES

Economic performance outcome

Financial performance

Accounting performance

Payment

Premium

Subsidiary-level effects

Knowledge and capabilities development

Managerial effects and directors’ role

Survival

Knowledge & capability leverage

CEO compensation/stock option exercise

Subsidiary development/evolution

Development of absorptive capacity

CEO board seat opportunities

Innovation

TMT turnover

Market performance

Perceptual performance

Board vigilance

Fig. 6.3  Thematic map of post-acquisition outcomes

expected stock price, and Tobin’s Q; accounting measures—for example, ROA and industry-adjusted profit change; along with market-based measures, at both task level, for example customer retention (Riviezzo 2013; Degbey 2015), and firm level, for example market share; and perceptual measures based on a subjective evaluation of outcomes. These studies have actually shown an impressively variegated and inconclusive set of results on the effect of experience on post-acquisition economic performance, ranging from positive (Fowler and Schmidt 1989; Bruton et al. 1994; Barkema et al. 1996) to nonsignificant (Porrini 2004a; Zollo and Singh 2004), U-shaped (Haleblian and Finkelstein 1999), inverted U-shaped (Hayward 2002), and negative (Kusewitt 1985; Lee and Caves 1998). Recalling the provocative challenge put ­forward by Zollo and Meier (2008), the different approaches to acquisition performance may actually capture different underlying constructs and may hence be partly responsible for the lack of uniform findings. This becomes even more salient if one also considers that experience has been measured in a huge variety of ways (Barkema and Schijven 2008a).

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A detailed examination of the methodological approaches to the operationalization of experience and their implications will be provided in Chap. 7.

6.4.2 Payment-Related Outcomes Although premium has been considered as an important decision-­making aspect, scholars have also identified a significant connection between acquisition premium and acquisition outcome, for it drives the potential for value creation as greater premiums make it more difficult to extract potential synergies from the acquisition (Hunter and Jagtiani 2003; Krishnan et al. 2007). Several studies have therefore directed attention to the effects of experience on acquisition premiums, regarded in this context not as a decision-making aspect but rather as a proxy capturing post-­ acquisition performance along the continuum from value creation to value destruction (Kim et al. 2011; Lee 2013). Payment has been examined mostly in terms of overpayment, in turn considered as a signal of managerial overconfidence: because overconfident managers tend to become overly committed to acquisitions, they are more exposed to the risk of overpayment for targets, thus executing value-­ destroying acquisitions (Hayward and Hambrick 1997). It is, however, worth noting that the idea of hubris and self-interest being the sole drivers of payments has actually been disputed. Sirower (1997), for instance, suggested that an additional reason for overpayment may be found in unfamiliarity due to lack of experience with the primary elements involved in the management of an acquisition. Contributions on this theme have observed premium through a social lens, thus modeling premium as a function either of social pressures (Kim et  al. 2011) or of a relational experience with a specific advisor (Lee 2013). Building on a sample of 2949 acquisitions by publicly traded commercial banking institutions between 1994 and 2005 in the United States, Kim et  al. (2011) found that when relative organic growth is low and when there is a dependence on acquisitions for growth, the acquiring firm is subject to desperation for growth and becomes more vulnerable to

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overpayment. In addition, while they did not find any support for their hypothesis that the firm’s acquisition experience helps to moderate desperation for growth, they did find a statistically significant moderating effect for the acquisition experience of advisors. The role played by the advisor has also been recognized by Lee (2013), who directs attention to the examination of the effects played by relational experience in terms of previous collaborations with a given advisor. His results provide evidence that while embedded relationships through reiterated interactions may reduce information asymmetry and opportunism, they may at the same time lead to overpayment due to organizational inertia. Payment, typically measured either as premium paid (Haunschild 1993; Lee 2013; Zhu 2013; Zhu et al. 2014) or as the premium paid minus stock market performance (Beckman and Haunschild 2002; Kim et al. 2011), raises some ambiguities. First, the notion of acquisition premium has been alternatively used either as a measure of a decision-making aspect (Beckman and Haunschild 2002; Zhu 2013) or as a proxy of acquisition performance (Kim et al. 2011; Zhu et al. 2014). In other words, the issue lies in whether the premium paid, which is actually the result of a negotiation process between acquiring and target firms, whose respective bargaining powers may play a key role, is an expression of a decision-making process having repercussions on post-acquisition performance on a transitive basis or is truly and directly indicative of performance. Second, given that the literature highlights that higher premiums are paid in conditions of managerial self-interest, hubris, and board interlocks, it would then seem somehow questionable to explore the role played by experience and learning, since the initial motivation for the acquisition is not related to value creation. Specifically, the relevance of examining experience effects on premiums therefore appears to hold as long as a preliminary distinction is made between overpayment motivated by agency and overpayment driven by valuation mistakes and decision biases, where only this latter case leaves reasonable room for research on experience implications. One further issue that needs to be acknowledged is that because in most cases target firms already have an observable market price, whenever the valuation during the due diligence phase results in a price that is

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below the market price, the target firm’s shareholders may not be willing to accept and hence, preliminarily, no offer will probably be made (Roll 1986). This, in turn, also raises the question of whether the gap between the premium paid and the target’s market price, usually intended as overpayment, is actually the result of the acquiring firm’s willingness to ensure that the target firm will accept the offer.

6.4.3 Knowledge and Capabilities Development The theme of knowledge and capabilities development has been explored through the theoretical lenses of the knowledge-based and the ­capabilities-­based views, with an emphasis on knowledge assimilation and dynamic capabilities (Bingham et al. 2015; Orsi et al. 2015, 2016) as well as on firm-level long-term innovation performance (Riccobono et al. 2015). Within this theme, scholars have examined the effect of experience in terms of knowledge spillovers that catalyze the development of concurrent learning (Bingham et al. 2015) and of absorptive capacity (Orsi et al. 2016), and that affect the degree of knowledge assimilation (Orsi et al. 2015). For instance, Orsi et al. (2015) find that both acquisition and alliance experience play a role in determining the degree of acquisition-related knowledge utilization, where the positive effect of alliance experience is ascribed to the fact that it may improve the acquirer’s ability to exploit complementary sources of knowledge and to more effectively communicate and share knowledge. It is worth noting that the topic of knowledge spillover effects deriving from alliance experience has also been connected to acquisition activity (Lin et al. 2009). An interesting contribution comes from Bingham et al. (2015), who, if compared to previous studies where different dynamic capabilities had typically been examined in isolation, propose a framework that explains the development of concurrent learning capabilities while also providing insights in the dynamics of experience transfer. In particular, they suggest that positive transfer effects may occur not just from previous acquisition

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experience but also transversally from experiences with other governance modes, for example joint ventures and divestments. In addition, they find that extreme codification of experience, intended as the case in which codified knowledge is overly scripted, may actually generate negative transfer effects because it engenders semiautomatic replication of behavior, which may actually be inappropriate in the focal acquisition. Riccobono et  al. (2015) adopt a knowledge-based perspective to explore both the antecedents and implications of the governance mode choice for external R&D sourcing and suggest that a positive association exists between innovation experience and post-acquisition innovation performance. This supports the argument that absorptive capacity derived from experience in innovation boosts the firm’s subsequent innovation capability. Conceptually, this result mirrors the importance of prior related experience in shaping the knowledge base upon which absorptive capacity is developed (Cohen and Levinthal 1990).

6.4.4 Subsidiary-Level Effects: Survival and Evolution A number of studies have addressed the theme of post-acquisition consequences on the acquired subsidiaries. Following Zollo and Meier (2008), effects on subsidiary have been mostly considered as a long-term transaction-­level performance outcome. With the vast majority of research directing attention to value creation for and appropriation by acquiring firms, the theme of subsidiary-level effects appears as particularly promising in terms of room for further contributions. Studies addressing the effects on the acquired subsidiaries have variously explored the survival (Li 1995; Vermeulen and Barkema 2001; Hébert et  al. 2005; Shimizu and Hitt 2005; Nadolska and Barkema 2007, 2014; Boschma and Hartog 2014) or the evolution (Uhlenbruck 2004) of the acquired units, with a specific focus on the case of foreign affiliates. Within this thematic area, some studies have also taken a broad approach by connecting subsidiary-level effects with other thematic areas, for example, acquisition amount (Nadolska and Barkema 2007, 2014),

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foreign market entry mode (Vermeulen and Barkema 2001), and target selection (Boschma and Hartog 2014). For instance, using a hazard rate model to analyze the likelihood of survival of foreign investments in the United States in the pharmaceutical and computer industries in the period 1974–1989, Li (1995) highlights that exit rates are higher for first-time investors, that is, if the investor does not have any previous experience in the United States, or, in case the commitment of resources to the subsidiary is not continued over time through additional investments. Linking upper echelons theory to transfer theory, Nadolska and Barkema (2014) use longitudinal data on 2036 acquisitions by 25 listed Dutch companies from 1966 to 2006 and suggest that both team diversity and the educational diversity of a team’s members enhance the probability that the acquired unit is retained (vs. divested), because team diversity fosters information exchange, discussion, and elaboration, and hence past experience may be more correctly interpreted and errors more easily detected. Adopting the subsidiary evolution and the capabilities-based views, Uhlenbruck (2004) argues that prior experience in the target country provides acquiring firms with a number of benefits, including reduction of operating challenges, mitigation of the competitive disadvantage vis-à-­ vis local competitors, better valuation of the target firm and development of specific resources that can be transferred to the local subsidiary, in function of which the subsidiary itself may evolve and develop over time. The importance of transfer, especially of knowledge bases, has also been recognized by Hébert et al. (2005), who build on the knowledge-­ based perspective and find support for the significant role played by expatriates in transferring knowledge to the foreign subsidiaries, thus enhancing their survival probability. The task-level performance of knowledge transfer is hence increased by expatriates acting as facilitators of transfer, which has a positive effect on the long-term transaction-level performance intended through the lenses of subsidiary survival. In their analysis of acquisition activity in the Dutch banking industry in the period 1850–1993, Boschma and Hartog (2014) carried out a survival analysis of acquired subsidiaries in the Amsterdam region. Their findings point to a virtuous cycle, where geographic proximity encourages acquisition activity, which logically generates experience that both

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triggers further acquisitions and increases the chances of survival. It is also worth noting that spatial agglomeration phenomena have been found to play a role as an incentive toward post-acquisition integration and coordination of technology (Ivarsson and Vahlne 2002). The use of subsidiary survival versus divestment as a proxy of acquisition performance (Li 1995; Hébert et al. 2005; Shimizu and Hitt 2005; Boschma and Hartog 2014), however, raises two main concerns. First, although divestiture is typically regarded as a signal of acquisition failure, not all divested units are actually the result of a “correcting” decision to adjust an acquisition catastrophe (Hitt et al. 2012). Indeed, businesses may be divested on account of an inclination to appropriate key resources from the formerly acquired target and then sell at a p ­ remium those resources and assets that are redundant. In this case, the divestiture would be motivated by strategic reasons that have nothing to do with the performance of the acquired units but rather might generate returns for the selling firm in the form of premium received for the divested assets. Second, from a conceptual point of view, considering subsidiary divestiture as a measure of performance actually seems to unveil a contradiction with studies equating divestitures with other governance modes, that is, studies focused on the decision between boundary-expansion versus boundary-contraction choices (Villalonga and McGahan 2005). Indeed, if one accepts the view that divestiture represents a boundary-contracting governance choice alternative to boundary-expanding governance choices such as acquisitions, then it would be quite hard to find a conceptual reconciliation with the notion that divestiture from a subsidiary is an approximation of performance. In addition, even when adopting this boundary-expanding versus boundary-contracting view, caution should be used, as they actually represent two opposite strategic decisions, since governance mode choice inherently implies an investment.

6.4.5 Integration-Level Performance The acknowledgment that organizational restructuring is a delicate and complex task (Barkema and Schijven 2008b) has nurtured a growing academic interest in the performance of post-acquisition integration, with a

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peculiar focus on general dynamics within the integration process (Parola et al. 2015), on microtask-level integration performance (Stylianou et al. 1996), and on the role played by the establishment of a dedicated function (Trichterborn et al. 2016). An interesting pattern that recurs in studies within this thematic area is the exploration of a possible connection between post-acquisition integration performance and deliberate learning through the theoretical lens of the knowledge-based view (Zollo and Singh 2004; Heimeriks et  al. 2012; Riviezzo 2013; Parola et al. 2015). In a study on the role played by TMT diversity in determining performance during pre- and post-integration, Parola et al. (2015) suggest that gender diversity within the TMT group affects the performance during the transaction period in different ways. Indeed, TMT gender diversity is beneficial to the pre-integration performance, because a heterogeneous TMT is better able to scan the complex environment and the multiple potential targets than a homogeneous TMT group. However, it becomes detrimental to the post-integration performance, as diversity leads to both greater power decentralization, which dilutes the time needed for decision-making, and greater conflicts and debates that determine interruptions along the integration phase. Stylianou et  al. (1996) direct attention to the microtask level and investigate the specificities brought about by the post-acquisition integration of information systems (IS), considered as an extremely complex task especially when the information system to be integrated is new or even noncompatible. The conceptual model developed by Stylianou et al. (1996) suggests that a number of factors intervene in determining the success of IS integration, including organization-level and IS-level attributes, IS integration management, and organizational merger management. In particular, their results show that prior merger management and IS participation in the merger planning play a fundamental role: previous merger experience is a crucial element determining the success of integrating IS systems because experienced firms have already benefited from prior opportunities of IS integration, from which they have drawn a task-­ specific knowledge about how to execute IS integration. Building on the knowledge-based view, substantial research efforts have been put into the examination of the effects played by experience

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codification on post-acquisition integration performance. Zollo and Singh (2004) explored the relationship between experience accumulation and codification on post-acquisition performance as a function of the level of integration chosen. Observing a sample of 288 acquisitions in the US banking industry, they found evidence that the extent of experiential knowledge codification has a positive effect on acquisition performance, further intensified when a high, rather than low, level of integration is chosen. This positive moderating effect derives from the argument that at increasing intended integration, task complexities, interdependencies among decisions, and the number of units and departments involved increase proportionately, making the effect of knowledge codification even more decisive. Riviezzo (2013) identifies in experience codification an important tool that supports the speed of the integration process and its outcome in terms of target firm’s employee and customer retention. In addition, he finds that teamwork plays an important role in facilitating integration because it implies an immediate involvement of key professionals of the target firm, and that an entrepreneurial orientation toward exploration provides dedicated professionals with behavioral and cognitive discretion, that is, autonomy, which is conducive to solving customer issues, generating innovative interpretations of external events, and, in turn, facilitating integration. Parola et al. (2015), however, find that the lack of strategic consensus during the integration stage is mitigated by acquisition experience: previous acquisition experience—indeed, especially when codified into formalized tools—substantially improves the speed and quality of decision-making while also facilitating strategic consensus among the TMT. Contrary to previous findings, Heimeriks et al. (2012) build on the knowledge-based view and the capabilities-based view by specifically focusing on spillovers from knowledge codification and dynamic capabilities on integration performance, measured as the perceived degree to which projected synergies have been realized in the focal acquisition. Their study suggests that experience codification may engender rigidity and inertia which, unless counterbalanced by higher-order routines, may create obstacles to effective post-acquisition integration.

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6.4.6 Managerial Effects and Directors’ Role Because acquisitions have implications on managerial compensation and power, several studies have observed the effects of acquisition experience on post-acquisition consequences for CEOs or TMTs, in terms of stock option exercise after the acquisition (Marsh et al. 2015), TMT turnover (Krug 2009), board seat opportunities (Harford and Schonlau 2013), as well as the firm’s adoption of performance-contingent compensation policies for their CEOs (Westphal et al. 2001). Marsh et al. (2015) examine the likelihood that CEOs exercise stock options following an acquisition and find that overconfident CEOs who have executed a great number of acquisitions are more likely to delay the exercise of stock options motivated by the hubristic expectation that they will increase in value. Stock options, along with restricted stock and performance incentives (e.g., shares), represent long-term, performance-contingent incentives to CEOs within their total direct compensation that serve the purpose of aligning the CEOs’ interests to those of the firms’ shareholders. In a longitudinal study by Westphal et al. (2001) on 500 firms in the five-year period 1990–1994, the adoption of performance-contingent compensation policies for CEOs was found to follow a second-order imitation process, that is, imitation of the mimetic behavior of tied-to firms. Additionally, Harford and Schonlau (2013) find that CEOs’ future prospects in the director labor market in terms of board seat opportunities are greater for those with acquisition experience if compared to CEOs without acquisition experience, and, surprisingly, this positive correlation seems to occur independently from whether those acquisitions in the CEOs’ experiential stock generated positive or negative results for shareholders. Moving the analysis to the group level, Krug (2009) investigated the rates of target firms’ TMT turnover following an acquisition, and, in the specific context of cross-border acquisitions, he found that acquiring firms having general contextual experience in the host country show increased TMT turnover if compared to acquiring firms investing for the first time.

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The direct implications that acquisitions have on managerial compensation and power make the potential for agency and opportunistic behavior particularly salient. In particular, the observation of the high failure rates of acquisitions has led some scholars to focus on agency issues that may destroy value for shareholders (Kroll et  al. 2008). According to agency theory, directors’ independence is fundamental as it allows for more effective monitoring of managers’ decisions. Research on the role played by directors has, however, suggested that whether a board’s members are experienced or not is predictive of the effectiveness of their vigilant role in an acquisition. Jemison and Sitkin (1986) indeed argue that when the board’s members do not have experience with acquisitions, the board’s approval and deliberation processes may slow down the a­ cquisition momentum while being more focused on financial issues rather than encouraging operational analyses that are equally significant to predict post-acquisition outcomes (Jemison and Sitkin 1986). Huang et al. (2014) find that the presence of directors with investment banking experience is associated with better acquisition performance thanks to an improved target selection, more efficient vigilance, and better negotiation. Due to the conflicts of interest implied in any contractual arrangement, Kroll et al. (2008) claim that the presence of outside board members is expected to increase the effectiveness of the control exercised over managerial decisions in order to protect shareholders’ interests, and that such effectiveness is amplified when the board includes experienced members. Indeed, the presence of vigilant directors with appropriate experience has a positive impact on acquisition outcomes as they are better monitors and more useful advisors to top management. Examining boards’ effectiveness, McDonald et al. (2008) focus on the effects of outside directors’ prior acquisition experience at other firms, with an emphasis on the positive effects played by their expertise in creating the conditions for analogical reasoning and in improving the quality of decision-making. McDonald et al. (2008) argue that directors’ experience with acquisitions has a positive impact on the acquiring firm’s focal acquisition performance, with the greatest benefits arising when the acquiring firm’s board is independent from management, because increasing independence enables directors to exercise greater influence over the

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firm’s decisions. The implications in terms of effectiveness deriving from group decision-making dynamics have also been explored with reference to group polarization on premium decisions (Zhu 2013), where the role of corporate elites in exerting power on strategic decisions has also been considered as to the relationship between experience-driven expertise and improved quality of group decision-making (see Sect. 6.3.2).

6.5 Cross-Thematic Effects of Interorganizational Experience Interorganizational experience, which in Chap. 5 was disentangled into observational and relational experience, has been examined as to its potential role in shaping acquisition-related strategy, acquisition process decisions, and performance outcomes. The two main thematic areas and the themes and subthemes in which they are articulated are shown in Fig. 6.4.

6.5.1 T  ransversal Effects of Mimetic Processes from Observational Experience A wealth of studies has addressed mimetic processes deriving from interorganizational experience across a number of different thematic areas within acquisition-related strategy and acquisition process decisions, as extensively described in the previous dedicated sections. Mimetic processes in the thematic area of acquisition-related strategy have been examined in terms of • imitation of foreign market entry mode (Moatti 2009), with the choice between acquisitions and alliances being driven by whether competitors have executed acquisitions vis-à-vis alliances; • imitation of acquisition type both at product level, for example whether vertical versus horizontal versus conglomerate (Haunschild 1994) or related versus unrelated (Yang and Hyland 2006), and in terms of size and location (Yang and Hyland 2012a, 2012b);

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EFFECTS OF INTERORGANIZATIONAL EXPERIENCE

Observational experience

Acquisition-related strategy

Acquisition process decisions

Imitation of governance mode

Imitation of target selection decisions

Imitation of acquisition types

Imitation of negotiation stage decisions

Relational experience

Economic performance

Target-specific experience

Advisor-specific experience

Imitation of acquisition behavior

Fig. 6.4  Effects of interorganizational experience

• imitation of acquisition activity, related to both acquisition amount (Haunschild and Beckman 1998) and likelihood of completion (Francis et al. 2014a) or abandonment (Yang 2009); • post-acquisition economic performance following mimetic processes (Tseng and Chou 2011; Francis et al. 2014a). Mimetic processes within the thematic area of acquisition process decisions have been examined in terms of imitation in both the advisor selection (Haunschild and Miner 1997) and the premium decisions (e.g., Haunschild 1993, 1994; Malhotra et al. 2015). For instance, Haunschild (1994) argues that the imitation of the premium by a focal firm relying

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on the financial advice of an investment bank is positively related to premium decisions of other firms using the same investment bank. Focusing on 539 acquisitions between 1988 and 1993, Haunschild and Miner (1997) investigated the three imitation modes of frequency-­ based, trait-based, and outcome-based imitation in relation to the use of a given investment banker as advisor and found that the three modes may occur simultaneously. In a further examination of trait-based imitation, size similarity has been found to lead the acquiring firm to anchor its acquisition premium decision to the premium paid by other firms that recently acquired in the same market, especially when the acquirer lacks experience in the target market (Malhotra et al. 2015). Moving past first-order imitation, which consists of the imitation of a model’s behavior, a step forward has been taken by the identification of a second-order imitation, the imitation of the imitative behavior of either interlock partners (Westphal et  al. 2001) or competitors (Baum et  al. 2000; Yang and Hyland 2006). Westphal et al. (2001) indeed argue that with increasing similarity in the acquisition behavior between interlock partners and their competitors, the similarity in the acquisition behavior of the focal firm and its competitors tends to increase as well. Using neo-­ institutional and social learning perspectives, Westphal et al. (2001) find evidence of intra-industry imitation of business strategy in terms of number of resource-allocation decisions. Interorganizational experience has also been examined as to the extent to which it influences post-acquisition performance (Tseng and Chou 2011; Francis et  al. 2014a). For instance, examining a sample of 543 deals by US acquirers in 43 developing countries during 1993–2010, Francis et al. (2014a) find evidence that the observation of other acquiring predecessors, and specifically of industry peers, helps firms to make better acquisition decisions, thereby generating positive post-deal performance. Interestingly, the examination of the effect of interorganizational experience on post-acquisition performance has been interlaced with arguments reflecting qualitative attributes of experience. Some studies indeed have found evidence that greater benefits occur at increasing levels of

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heterogeneity of the experiences emulated (Beckman and Haunschild 2002) and positive spillovers also coming from operational experience (Ingram and Baum 1997).

6.5.2 E  ffects of Interorganizational Relational Experience Relational experience captures the type of interorganizational experience that derives from a reciprocal relational embeddedness with a given ­advisor (Lee 2013; Francis et al. 2014b) or with the focal target (Porrini 2004b; Zaheer et al. 2010). Relational experience with a specific advisor is intended in terms of exchange history with the same advisor (Lee 2013; Francis et al. 2014b). As suggested in Sect. 6.3.2, indeed, previous collaborations and the repeated transactions completed with the same advisor generate a mutual knowledge that may shape the quality of the negotiation and of the valuation phases. Lee (2013), however, finds that, while, on the one hand, reiterated interactions contribute to reducing information asymmetry, on the other hand they may result in organizational inertia and, ultimately, overpayment. Studies on relational experience with the target firm of the focal acquisition are interested in examining how previous knowledge of that target firm affects post-acquisition economic performance, both of accounting (Porrini 2004b) and financial nature (Zaheer et al. 2010). Both studies show consensus upon the argument that formal collaborations with the target firm in a focal acquisition generate the conditions for greater value creation thanks to its potential learning value for the acquiring firm (Porrini 2004b; Zaheer et al. 2010). For instance, Porrini (2004b) investigated the performance of 437 US targets between 1988 and 1997 and found that while the acquirer’s general acquisition experience had no significant impact, previous experience with the target of the focal acquisition through prior alliances positively affected performance. Similarly, Zaheer et al. (2010) argue that partner-specific absorptive capacity generated from prior alliances leads to better acquisition performance, especially in the context of cross-border acquisitions.

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6.6 A  Specific Research Context: Serial Acquirers and Acquisition Programs With the majority of academic research focusing on individual acquisition events, the recognition that acquisition sequencing and timing do play a role (Haleblian and Finkelstein 1999; Hayward 2002) has resulted in an increasing interest in the peculiar research context of serial ­acquirers. The commonly used expression of “serial acquirer” denotes that particular type of acquiring firm that engages in multiple acquisitions, eventually realizing an acquisition program in case the pursued deals are mutually interrelated (Laamanen and Keil 2008). From a methodological point of view, serial acquirers have been defined as those acquirers who executed at least two acquisitions in five years (Billet and Qian 2008) or at least four acquisitions in ten years (Laamanen and Keil 2008; Chao 2017). Within the specific context of serial acquirers, which by definition are experienced acquirers, attention has been directed to the exploration of whether experiential learning is beneficial in terms of ability to perform progressive adjustments to the valuation and bidding processes, or detrimental by engendering overconfidence and increasingly irrational decision-making. Contributions may be broadly distinguished depending on whether the focus is on serial acquirers (Zhang 1997; Degbey 2015) or on series of acquisitions (Billet and Qian 2008; Laamanen and Keil 2008; Aktas et al. 2009, 2011, 2013). As to their disciplinary positioning, studies in this research context mainly derive from strategic management (Laamanen and Keil 2008; McNamara et al. 2008; Hutzschenreuter et al. 2014; Chao 2017) and the finance literature (e.g., Zhang 1997; Billet and Qian 2008; Aktas et al. 2009, 2011, 2013; Ismail and Abdallah 2013), supplemented by a nascent conceptual contribution from the marketing management field (Degbey 2015). From a conceptual point of view, four main focal points fall at the core of this set of studies (Fig. 6.5): • Acquisition frequency relates to the time distribution of deals, expressed as the time gap between successive deals (Aktas et  al. 2009, 2013; Ismail and Abdallah 2013; Chao 2017).

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Acquisition frequency

Acquisition sequencing

Experience-related dimensions investigated in research on serial acquirers

Acquisition rate

Type-specific acquisition activity

Fig. 6.5  Experience-related dimensions analyzed in studies on serial acquirers and acquisition programs

• Acquisition sequencing captures the deal order of consecutive acquisitions if compared to the first deal (Billet and Qian 2008; Ismail and Abdallah 2013). • Acquisition rate captures acquisition activity in terms of average number of acquisitions per year within the focal and the two previous years (Laamanen and Keil 2008), the number of deals in a two-year time window (Aktas et  al. 2011), the natural logarithm of one plus the number of acquisitions under a given CEO in a five-year time frame (Billet and Qian 2008), or in relative terms compared to the total number of acquisitions executed during a wave (McNamara et  al. 2008). • Type-specific acquisition activity, considered as a relative measure of acquisitions of a specific type on the overall number of acquisitions performed (Ismail and Abdallah 2013; Chao 2017). Interesting considerations may be made related to conceptual intersections among studies on the specific context of serial acquirers. Laamanen and Keil (2008), for instance, analyze both acquisition rate, measured as the average number of acquisitions performed during the focal year and the two previous years, and acquisition rate variability,

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measured as the standard deviation of the yearly number of acquisitions. Their findings suggest that acquisition experience has a positive moderating effect on the negative relationship between the acquisition rate and its variability and post-acquisition performance. Indeed, while increasing acquisition rate is associated with time compression diseconomies and acquisition rate variability with managerial limitations deriving from the unpredictability of the acquisition rate, the authors argue that acquisition experience may help acquirers to develop capabilities that allow them to digest larger numbers of acquisitions simultaneously. From a conceptual point of view, it is worth noting that what they label as acquisition rate variability is actually the time dispersion of acquisition rate within the time window of observation and may hence also be considered as a proxy for acquisition frequency. Moving into the disciplinary territory of financial studies, interest has been devoted to whether prior acquisition experience may serve as a catalyzer or a negative moderating force of managerial overconfidence, drawing on Roll’s (1986) hubris hypothesis as a theoretical frame of reference. Billet and Qian (2008) examine self-attribution bias from the psychology and behavioral economics literatures as a source of overconfidence in acquisition programs and find that, while first deals by CEOs with no prior acquisition experience exhibit nonnegative announcement returns, subsequent acquisitions generate negative announcement effects. In addition, as long as the firm shows positive post-acquisition performance, CEOs may become overconfident and engage in value-destructive subsequent acquisitions. As opposite, in a study on 2589 CEOs over the period 1992–2002, Aktas et al. (2009) propose a learning hypothesis, according to which learning outcomes from previous acquisition experiences may help to mitigate hubris because, thanks to experience, hubris-infected CEOs show a tendency toward cautious bidding. In particular, they consider learning as a Bayesian updating process that occurs incrementally from each completed deal as a function of the market informativeness, that is, the precision of market reaction signals about potential synergies around the acquisition announcement. Aktas et  al. (2009) propose a model of prospective learning in which the precision of the signal about

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the focal acquisition is modeled as a function of the variance of the ex-­ post CEO’s estimate of the signal precision and of the incremental variance of the signal precision estimate in successive acquisitions. Basically, in their proposed model, learning is defined as an asymptotic prospective phenomenon. If compared to the previously analyzed studies, two contributions actually raise the need for separate considerations, that is, Zhang (1997) and Degbey (2015). These two studies, although coming from two different fields, that is, finance (Zhang 1997) and marketing (Degbey 2015), share a common emphasis on serial acquirers rather than on series of acquisitions. Zhang (1997) examines returns for serial acquirers in a bank acquisition context as a function of whether the focal acquisition is assisted, that is, auctions with simultaneous and multiple acquirers, or nonassisted, that is, a two-party negotiation. In Zhang (1997), the emphasis is not on acquisition programs but rather on the extent to which serial acquirers can extract more benefits from assisted versus nonassisted acquisitions. In his work, the condition of serial acquirer is equated with being experienced and, in turn, with having information. Based on this conceptual analogy, he proposes an experience/information effect, which is however only significant in assisted acquisitions. This result is explained by the fact that, as opposed to assisted acquisitions, in nonassisted acquisitions the acquiring firm cannot exploit any experience/information asymmetry vis-à-vis multiple, simultaneous acquirers. Similarly, Degbey (2015) focuses on serial acquirers rather than series of acquisitions and conceptualizes a framework where the firm-level performance in terms of customer retention is a function of the serial acquirer’s acquisition experience and customer experience, in addition to managerial overconfidence, customers’ behavior, technological context, and customer relationships. In his propositions, he recognizes that acquisition frequency may have an effect on the positive relationship between acquisition experience and customer retention, and such effect is moderated by the acquired firm’s customer experience in terms of scope and characteristics.

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7 Methodological Approaches to the Empirical Examination of Experience and Learning in Acquisitions

7.1 R  esearch Methodologies on Experience Constructs in Acquisitions The empirical investigation of experience in the context of acquisitions has mostly converged toward a preference among researchers for quantitative methodological approaches, while only few academic contributions have adopted a qualitative methodology based on case studies (Kreiner and Lee 2000; Harris 2007; Riviezzo 2013; Bingham et  al. 2015; Maitland and Sammartino 2015). Among studies selecting a quantitative research methodology, two main directories may be identified: one group of studies uses statistical modeling, in which experience is operationalized as a predicting variable; another group of studies analyzes experience effects on the basis of sampling strategies and subsampling procedures. In addition, few studies have relied on experimental, laboratory analysis (Haunschild et al. 1994; Thavikulwat et al. 2013; DiCagno et al. 2017). The majority of academic contributions adopting a quantitative methodology follow the first directory and, hence, explicitly investigate experience or an experience-related construct in empirical models where the © The Author(s) 2019 I. Galavotti, Experience and Learning in Corporate Acquisitions, https://doi.org/10.1007/978-3-319-94980-2_7

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experience variable is hypothesized as having either an independent or a moderating effect. A list of these studies is provided in Table 7.1, where contributions are categorized depending on whether experience-related variables are modeled as an independent or a moderating variable. Studies falling in both columns are those in which experience-related constructs have been treated both as an independent and as a moderating variable (e.g., Belderbos 2003; Aktas et al. 2011). If compared to the previous approach, the studies analyzing experience effects on the basis of sampling strategies do not operationalize experience or an experience-related construct as a predictor within a statistical model, but rather draw conclusions on the role of experience through sampling and subsampling procedures. Within this approach, researchers adopting subsampling typically split the overall sample of acquiring firms into two (López-Duarte and Vidal-Suárez 2008; Krug 2009; Zhu et al. 2014) or more subpopulations (Laabs and Schiereck 2010), on the basis of the acquiring firm’s experience. For example, López-Duarte and ­Vidal-­Suárez (2008) and Krug (2009), both interested in the role played by the acquiring firm’s host-country experience, create two subsamples depending on whether the acquiring firm is a first-time investor or already operates subsidiaries in the target country. Laabs and Schiereck’s (2010) work is the sole study in which subsampling is based on three groups: the group of single bidders, which executed only one acquisition between 1980 and 2007; the group of multiple bidders, which were active more than once in the period of observation; and a subgroup of the multiple bidders group, which includes those multiple bidders who executed more than five acquisitions in the period of observation. A slightly different approach is adopted by those studies that do not execute any subsampling procedure, but rather make a specific, deliberate choice in terms of sampling strategy to isolate the effect of experience (Zhang 1997). Zhang (1997) investigates the effect of experience on post-acquisition financial performance in assisted acquisitions, that is, auctions with simultaneous and multiple acquirers, versus nonassisted acquisitions, that is, two-party negotiations. His sampling strategy is based on the criterion that all acquiring firms in the sample are

Experience constructs as moderating variables

Hitt and Tyler 1991; Pablo 1994; Haunschild Kusewitt 1985; Fowler and Schmidt 1989; Haunschild 1993, 1994; et al. 1994; Dunne and Ndubizu 1995; Pablo Markides and Ittner 1994; Bruton et al. 1994; Li 1995; Servaes and 1995; Belderbos 2003; Reuer et al. 2004; Zenner 1996; Hennart and Reddy 1997; Haunschild and Miner 1997; Shimizu and Hitt 2005; Hébert et al. 2005; Haunschild and Beckman 1998; Barkema and Vermeulen 1998; Lee Puranam and Srikanth 2007; McNamara et al. and Caves 1998; Haleblian and Finkelstein 1999; Baum et al. 2000; 2008; Barkema and Schijven 2008b; Kroll et al. Vermeulen and Barkema 2001; Westphal et al. 2001; Beckman and 2008; Slangen and Hennart 2008; Kim and Haunschild 2002; Hayward 2002; Finkelstein and Haleblian 2002; Finkelstein 2009; Zollo 2009; Dikova et al. Belderbos 2003; Porrini 2004a, 2004b; Uhlenbruck 2004; Zollo and 2010; Aktas et al. 2011; Kim et al. 2011; Yang Singh 2004; Villalonga and McGahan 2005; Meschi and Métais 2006; and Hyland 2012a, 2012b; Buckley et al. 2014; Haleblian et al. 2006; Yang and Hyland 2006; Herrmann and Datta Vaara et al. 2014; Francis et al. 2014b; 2006; Gerpott and Jakopin 2007; Delong and Deyoung 2007; Piaskowska and Trojanowski 2014; Malhotra Nadolska and Barkema 2007; McDonald et al. 2008; Billet and Qian et al. 2015; Parola et al. 2015; Popli et al. 2008; Laamanen and Keil 2008; Aybar and Ficici 2009; Collins et al. 2016; Chakrabarti and Mitchell 2016; 2009; Moatti 2009; Yang 2009; Lin et al. 2009; Shipilov 2009; Arikan Galavotti et al. 2017b; Huang et al. 2017; and McGahan 2010; Carayannopoulos and Auster 2010; Zollo and Lahiri 2017; Zakaria et al. 2017 Reuer 2010; Peng and Fang 2010; Zaheer et al. 2010; Aktas et al. 2011; Muehlfeld et al. 2011; Ellis et al. 2011; Tseng and Chou 2011; Ormosi 2012; Rabbiosi et al. 2012; Muehlfeld et al. 2012; Heimeriks et al. 2012; Hasan et al. 2012; Riviezzo 2013; Harford and Schonlau 2013; Custódio and Metzger 2013; Meschi and Métais 2013; Aktas et al. 2013; Ismail and Abdallah 2013; Zhu 2013; Lee 2013; Alessandri et al. 2014; Boschma and Hartog 2014; Hutzschenreuter et al. 2014; Huang et al. 2014; Francis et al. 2014a; Nadolska and Barkema 2014; Porrini 2015; Orsi et al. 2015; Marsh et al. 2015; Bingham et al. 2015; Basuil and Datta 2015; Malhotra et al. 2015; Zhu and Chen 2015; Muratova 2015; Riccobono et al. 2015; Cuypers et al. 2017; Orsi et al. 2016; Mohite 2017; Mousa et al. 2016; Castellaneta and Conti 2017; Chao 2017; Galavotti et al. 2017a

Experience constructs as independent variables

Table 7.1  Positioning of quantitative studies as a function of the experience variables’ role in modeling

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serial acquirers: these acquirers are suggested to have, by definition, experience in performing acquisitions; therefore, the performance differentials between the assisted versus nonassisted subsamples are interpreted by Zhang (1997) on the basis of experience as common denominator.

7.2 Operationalization Approaches to Experience and Conceptual Implications 7.2.1 M  ethods for the Operationalization of Focal Firm Experience: Dichotomous and Discrete Measures

MEASURES OF EXPERIENCE

Studies adopting a quantitative methodology based on statistical modeling have used a wealth of different measurement approaches, which can be clustered into two main categories: dichotomous measures and discrete measures, where the latter include both counts and proportions. Each operationalization approach actually both hides latent assumptions and carries significant conceptual implications (Fig. 7.1).

Dichotomous measures Counts Discrete measures

Fig. 7.1  Measures of experience

Proportions

Number of times the firm has engaged in the strategic activity under observation Number of years since the firm first engaged in the strategic activity under observation

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7.2.1.1  Dichotomous Measures Studies capturing experience through a dichotomous variable (e.g., Hitt and Tyler 1991; Markides and Ittner 1994; Dunne and Ndubizu 1995; Li 1995; Lee and Caves 1998; Porrini 2004b; Herrmann and Datta 2006; Gerpott and Jakopin 2007; Kroll et al. 2008; Aybar and Ficici 2009; Zaheer et al. 2010; Muehlfeld et al. 2011; Tseng and Chou 2011; Rabbiosi et al. 2012; Custódio and Metzger 2013; Harford and Schonlau 2013; Buckley et  al. 2014; Huang et  al. 2014; Muratova 2015; Chakrabarti and Mitchell 2016) have considered experience in its effect on: acquisition-­related strategy, in terms of both completion (Muehlfeld et  al. 2011; Huang et  al. 2014) and acquisition types (Muratova 2015), acquisition process decisions (Hitt and Tyler 1991), economic performance (e.g., Markides and Ittner 1994; Porrini 2004a, 2004b; Custódio and Metzger 2013; Buckley et al. 2014), and subsidiary survival (Li 1995). Operationalizing experience through a variable of a binary nature provides several benefits, mostly in terms of data collection convenience, as it simply produces a static and clear-cut dichotomy that does not need a backward-moving data collection. However, this type of measurement captures a rudimental form of experience, this being considered in terms of the presence or absence of any amorphous stock of the observed experience at the moment in which the focal acquisition is executed. While this measurement approach clearly provides a rapid and easily attainable way to capture experience, it does not entail information on quantity of experience. This, in turn, implies that the adoption of dichotomous measures does not enable one to appraise the effects brought forth by experience accumulation. Probably in the awareness of the very general and crude approximation of experience implied in binary measures, some researchers have used them in conjunction with discrete measures (Hitt and Tyler 1991; Haunschild et al. 1994; Li 1995; Herrmann and Datta 2006; Gerpott and Jakopin 2007; Kroll et al. 2008; Aybar and Ficici 2009; Zaheer et al. 2010; Tseng and Chou 2011; Rabbiosi et al. 2012; Harford and Schonlau 2013; Chakrabarti and Mitchell 2016). For instance, Hitt and Tyler

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(1991) direct attention to managers’ functional experience, captured by both a dichotomous variable and the number of years of experience in a given function.

7.2.1.2  Discrete Measures: Counts and Proportions Compared to a dichotomous operationalization, discrete measures demand greater efforts in terms of data collection since they are inherently retrospective, that is, lagged with respect to the time of the focal acquisition, but offer the main advantage of making it possible to appreciate variances in the impact of experience as a function of its accumulation. Discrete measures used in studies analyzed in this literature review include both counts and proportions. Counting measures, in turn, are based on two approaches. One approach directs attention to the duration of experience and is, hence, based on counting the number of years since the firm first engaged in the observed strategic activity. This operationalization proves to be rather uncommon, its use being restricted to only few papers (e.g., Hitt and Tyler 1991; Haunschild et al. 1994; Hennart and Reddy 1997; Belderbos 2003; Hébert et  al. 2005). The experiences observed through this approach range from the number of years since the first establishment abroad (Belderbos 2003), since the first entry in the target country (Hennart and Reddy 1997; Hébert et al. 2005) or in the target industry (Hébert et  al. 2005), to the number of years since the firm’s first acquisition (Hébert et al. 2005). A slightly different angle of observation has been taken by Hitt and Tyler (1991) and by Haunschild et al. (1994), who direct attention, respectively, to the TMT members’ number of years of functional experience and CEO work experience. A definitely more popular measurement approach among studies operationalizing experience through counts captures the reiterative nature of a strategic activity. According to this methodological orientation, experience is measured as the number, or the log-transformed number of times a firm engaged in the strategic activity observed (e.g., Reuer et al. 2004; Billet and Qian 2008; Slangen and Hennart 2008; Ellis et  al. 2011; Riccobono et al. 2015).

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Counting measures of experience, while providing greater insights into the effects deriving from experience accumulation, raise some considerations. Indeed, the general convergence on a counting measure of experience has an important implication in terms of lack of conceptual distinctiveness between experience and a “crude version of the rate or speed at which a firm engages in a strategic activity” (Barkema and Schijven 2008a, 628). In other words, operationalizing experience in a strategic activity through the number of times the firm has engaged in that strategic activity implies equating experience with the pace with which a given strategic activity has been performed. In this respect, no conceptual difference seems to exist among acquisition experience, acquisition activity, and acquisition rate/frequency. Indeed, within a given time interval, the sole number of acquisitions automatically becomes itself an indicator of acquisition rate/frequency/activity/experience. Hence, although studies typically seem to point to different constructs, they are actually using the same measures. Among discrete measures, proportions have been used as a sort of variant to counting measures to operationalize the relative portion of a specific experience on the entire experience stock (Gerpott and Jakopin 2007; Ismail and Abdallah 2013; Chao 2017). In particular, this type of measure has been applied both to acquisition experience, in terms of ratio between acquisitions of a given type and the total number of acquisitions executed by the firm (Ismail and Abdallah 2013; Chao 2017), and to international experience, in terms of ratio between foreign sales and total sales (Gerpott and Jakopin 2007). For instance, Ismail and Abdallah (2013) build “characteristics-based” experience variables through the portion of deals with a given characteristic on the total number of deals. Characteristics observed include previous experience in acquiring public targets, previous experience in purely cash versus purely equity acquisitions, previous experience in the acquisition of privately held targets, and prior experience in acquisitions in the same industry. Similarly, in his examination of financial performance of serial acquirers, Chao (2017) examines the portion of related acquisition experience measured by two-digit SIC codes on the total acquisition activity by serial acquirers, with the expectation that related acquisition experience should

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positively affect the focal acquisition performance because relatedness facilitates the redeployment of fungible resources along with the transfer and integration of knowledge bases.

7.2.2 Methods for the Operationalization of Interorganizational Experience Measures of interorganizational experience are aimed at capturing an experience that, totally or partially, resides outside the focal firm boundaries, where “totally” or “partially” depends upon whether the experience examined is of an observational or a relational nature, respectively. Indeed, while observational experience refers to mimetic processes that occur through different imitation modes, that is, frequency-based, trait-­ based, and outcome-based, relational experience captures the existence of a reciprocal relationship with a relevant actor in the acquisition process, that is, the target firm or the advisor. Within the area of studies on interorganizational experience, a relatively greater number of studies has focused on observational experience (Haunschild 1993, 1994; Haunschild and Miner 1997; Haunschild and Beckman 1998; Baum et  al. 2000; Westphal et  al. 2001; Beckman and Haunschild 2002; Yang and Hyland 2006, 2012a, 2012b; Delong and Deyoung 2007; Yang 2009; Tseng and Chou 2011; Ormosi 2012; Francis et al. 2014a; Zhu and Chen 2015). From a conceptual point of view, these studies examine the effects of observational experience in terms of activation of mimetic processes by focal firms across the macro-thematic areas of acquisition-related strategy and acquisition process decisions and how this isomorphism, in turn, affects performance. The effect of observational experience on acquisition-related strategy has been examined in terms of: governance mode choice (Moatti 2009), acquisition types for corporate scope growth (Yang and Hyland 2006, 2012a, 2012b; Yang 2009), ownership decisions (Yang 2009; Yang and Hyland 2012a), and acquisition behavior (Haunschild 1993; Haunschild and Beckman 1998; Tseng and Chou 2011; Francis et al. 2014a). The investigation of observational experience as a force driving imitation in

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acquisition behavior is mostly related to the examination of what Haunschild and Miner (1997) referred to as imitation modes (see Chap. 5). In particular, acquisition propensity and activity by peers or by tied-to firms are used as a predicting variable of frequency-based imitation. From a methodological point of view, the number of acquisitions executed or announced by competitors or by firms tied to the focal firm through board interlocks proxies the experience of the model, and the number of acquisitions initiated by the focal firm or the likelihood that the acquiring firm will complete or abandon an announced acquisition captures the extent to which frequency-based imitation occurs (Haunschild 1993; Haunschild and Miner 1997; Yang 2009; Tseng and Chou 2011). Acquisition process decisions under investigation include the target selection in terms of location (Baum et  al. 2000), the premium paid (Haunschild 1994; Haunschild and Miner 1997; Beckman and Haunschild 2002; Lee 2013; Malhotra et al. 2015), and the advisor selection (Haunschild and Miner 1997). Among acquisition process decisions, a significant interest has been devoted to the extent to which the premium paid by other firms influences the premium paid by the acquiring firm in the focal acquisition. As far as measurement is concerned, premium experience of other firms is operationalized using board interlocks as a unit of analysis and as either the average premium paid by tied-to firms in the three years prior to the focal acquisition (Haunschild 1994) or the standardized coefficient of variation, where the coefficient is the standard deviation of the partner premiums divided by the mean partner premium (Beckman and Haunschild 2002). Further extending Haunschild (1994) and Beckman and Haunschild (2002), Malhotra et al. (2015) propose a new approach to capture the predicted focal premium on the basis of prior premiums and the anchoring effect. Anchoring represents a cognitive heuristic that consists in relying on a piece of information that appears before a given decision is made and that serves as a reference point for the decision. In the face of an anchor, decision-makers engage in a confirmatory search where information that may disconfirm prior beliefs about the anchor is likely ignored. The predicted premium is operationalized by Malhotra et al. (2015) as follows:

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Equation 7.1 Predicted acquisition premium



Pt = µπ t + δ ( Pt −1 − π t −1 ) + λ ( Pt −1 − π t ) +t    Vicarious learning

Anchoring effect



where: the first term captures the effect of control variables, the second term is the unexplained residual of the deal premium at t−1, and the third term captures the anchoring effect after controlling for potential vicarious learning and observable characteristics. This empirical approach to the modeling of anchoring in the context of acquisition premium decisions provides an insightful examination of anchoring as a heuristic on which decision-makers rely as a function of the salience and compatibility of the reference point used as an anchor and the focal task. Indeed, because the acquisition premium is characterized by great uncertainty, the premium paid by other firms is likely to become the anchor to which the premium paid by the focal firm tends to stick. Unlike observational experience, which rests on the observation of an experience that resides outside the focal firm’s boundaries, relational experience is of a reciprocal nature as it involves a relationship between the focal firm and a third party. This type of experience has been observed in terms of experience with a given advisor (Lee 2013; Francis et  al. 2014b), operationalized in terms of “exchange history,” that is, the number of transactions completed with that financial advisor (Lee 2013) and experience with the focal target (Porrini 2004b; Zaheer et  al. 2010). Both of those latter studies on relational experience with the target firm of the focal acquisition are interested in examining how previous knowledge of that target firm affects post-acquisition economic performance. From a methodological point of view, they both measure relational experience with the target firm through a dichotomous variable capturing whether the acquiring firm has had a prior alliance with the target in the four (Porrini 2004b) or five (Zaheer et al. 2010) years before the focal acquisition. Table  7.2 provides a synthesis of research produced on interorganizational experience.

Thematic area (dependent variable)

Experience as independent variable

Observational experience Number of acquisitions and Haunschild (1993) Acquisition-­related number of acquisitions of a strategy: acquisition specific type (horizontal, activity and acquisition vertical, conglomerate) by type (horizontal, vertical, conglomerate) tied-to firms Average premium paid by Haunschild (1994) Acquisition process tied-to firms decisions: premium decision Frequency: number of other Haunschild and Acquisition process firms using any of the 63 Miner (1997) decisions: premium decision, use of advisor investment banking firms sampled; trait: average profitability (ROE) of firms using any of the 63 investment banking firms; outcome: acquisition premiums associated with each of the 63 investment banks Number of acquisitions by Haunschild and Acquisition-­related interlock partners Beckman (1998) strategy: acquisition activity

Authors

3 years

3 years

Focal year + 3 previous years

–

–

–

(continued)

Focal year + 3 previous years

Time horizon

–

Experience as moderating variable

Table 7.2  Role and measures of experience and learning in empirical research on interorganizational experience

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249

Acquisition process decisions: probability of acquiring a particular target

Thematic area (dependent variable)

Acquisition-­related strategy: acquisition activity Beckman and Acquisition process Haunschild (2002) decisions: premium decision

Westphal et al. (2001)

Baum et al. (2000)

Authors

Table 7.2 (continued) Experience as moderating variable

Premium experience of network partners; heterogeneity of interlock partners (premium, size, industry, network diversity)

–

– Euclidean distance to measure the proximity between the focal target and the last prior acquisition within the chain; Euclidean distance between the focal target and the chain’s prior acquisition closest to the target; separate variable for the most recent acquisition within the chain (natural log of the number of months since the most recent acquisition within the chain) Number of acquisitions made by competitors

Experience as independent variable

3 years

2 years

(continued)

Not specified

Time horizon

250  I. Galavotti

Yang (2009)

Moatti (2009)

Yang and Hyland (2006)

Authors

Experience as independent variable

Acquisition type: related Observational experience: number of related vs. vs. unrelated unrelated acquisitions acquisition undertaken by other firms in the same focal product market area and by other firms outside the focal product market area but which chose to enter the focal product market area; firm’s experience: number of related vs. unrelated acquisitions completed by the focal firm Number of acquisitions and Acquisition-­related alliances executed by other strategy: choice of firms in the sample governance mode (acquisition vs. alliance) Number of cross-border Acquisition-­related acquisitions announced in strategy: acquisition the industry that have not type (both product been completed and geographic dimension), ownership decision; transaction size

Thematic area (dependent variable)

Table 7.2 (continued)

2 years

Not specified

–

–

–

(continued)

Time horizon Up to t−1

Experience as moderating variable

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251

Yang and Hyland (2012a)

Tseng and Chou (2011)

Authors

Experience as independent variable

Experience as moderating variable Time horizon

(continued)

– Not specified Observational experience: Acquisition-­related frequency-based strategy: acquisition (percentage of peers that propensity; have announced an performance outcome: acquisition), trait-based cumulative abnormal (dummy variable 1 if the return largest firm in terms of market share has announced n acquisition before the focal firm’s acquisition), outcome-based (excess returns of peers in a 41-day window around their announcements); firm’s own experience: number of acquisitions executed before the announcement Up to t−1 Acquiring firm Imitation power: number of Acquisition-­related acquisition cross-border deals strategy: acquisition experience: number completed by other Chinese type (both product of cross-border firms in the same and geographic acquisitions industry*clarity of the most dimension), ownership popular choice in a specific decision cross-border acquisition decision

Thematic area (dependent variable)

Table 7.2 (continued)

252  I. Galavotti

Francis et al. (2014a)

Yang and Hyland (2012b)

Authors

Experience as independent variable

Number of deals initiated by Acquisition-­related other firms in the financial strategy: acquisition service industry type (both product and geographic dimension), ownership decision; transaction size Learning-by-doing Acquisition-­related experience: number of strategy: acquisition acquisitions in the same completion; target country; performance outcome: observational learning: cumulative abnormal frequency-based (number return of acquisitions made by other firms in the same target country), trait-based (number of acquisitions by firms in the same two-digit industry and/or US origin), outcome-based (number of financial press releases about the outcomes of acquisitions in the target country)

Thematic area (dependent variable)

Table 7.2 (continued) Time horizon

(continued)

Learning by doing: 2 years; learning by observing: 5 years

Up to t−1 Acquiring firm acquisition experience: number of acquisitions initiated by the focal firm

Experience as moderating variable

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253

Malhotra et al. (2015)

Authors

Acquisition process decisions: premium decision

Thematic area (dependent variable)

Table 7.2 (continued)

2 years Time between the focal and the preceding deal: reversed number of days between the focal and the directly preceding deal; size similarity: percentage difference between the deal values of the focal and the preceding deal; experience in related acquisitions: number of related vs. unrelated acquisitions; acquisition rate: average number of acquisitions

Acquisition premium paid in the preceding deal by another firm in the same country and in the same four-digit industry

(continued)

Time horizon

Experience as moderating variable

Experience as independent variable

254  I. Galavotti

Thematic area (dependent variable)

Experience as independent variable

Experience as moderating variable

Zhu and Chen (2015)

– CEO acquisition experience: Acquisition-­related log of the mean of the strategy: acquisition adjusted values of all activity (total value of acquisition decisions by acquisitions completed firms tied to the CEO; board in a given year) acquisition experience: log of the mean of the acquisition decisions by other directors of the focal board (both adjusted for recency and employer firm effects) Relational experience Acquirer’s alliance experience – Porrini (2004b) Performance outcome: with the target firm: change in return on dichotomous variable coded assets (ROA) from the 1 if the acquirer had an year prior to the alliance with the target acquisition to year prior to the acquisition following the acquisitions Prior alliance with the target: – Zaheer et al. (2010) Performance outcome: dichotomous variable coded cumulative abnormal 1 if the acquirer had an return alliance with the target prior to the acquisition

Authors

Table 7.2 (continued) Time horizon

(continued)

Not specified for alliance experience with the target; 5 years for the control variable of acquisition experience

4 years

3 years

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255

Performance outcome: cumulative abnormal return

Acquisition process decision: retention of the financial advisor with which the acquiring firm had a prior relationship measured as “keep ratio,” that is, number of acquiring firms that retain their banks as financial advisors in the focal acquisition as a percentage of the total number of observations within a given group of acquiring firms; performance outcome: abnormal return

Francis et al. (2014b)

Thematic area (dependent variable)

Lee (2013)

Authors

Table 7.2 (continued) Experience as moderating variable

– Exchange history with the advisor: number of transactions completed with the advisor Subsampling procedure into Number of acquisitions three groups: “issued equity,” that is, firms that only issued IPOs or SEOs or both; “conducted M&A,” that is, firms that only conducted M&A; “both activities,” that is, firms that conducted both equity issuance and M&A

Experience as independent variable Time horizon

5 years

5 years

256  I. Galavotti

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257

7.2.3 Time Horizon of Experience The operationalization of experience and experience-related constructs requires the preliminary identification of a time horizon of observation. Although several studies have not specified any time window for the collection of experience data (Haunschild et al. 1994; Stylianou et al. 1996; Belderbos 2003; Herrmann and Datta 2006; Meschi and Métais 2006; Yang and Hyland 2006; Slangen and Hennart 2008; Yang 2009; Zollo 2009; Arikan and McGahan 2010; Carayannopoulos and Auster 2010; Dikova et  al. 2010; Peng and Fang 2010; Hasan et  al. 2012; Ormosi 2012; Yang and Hyland 2012a, 2012b; Aktas et  al. 2013; Ismail and Abdallah 2013; Lee 2013; Boschma and Hartog 2014; Nadolska and Barkema 2014; Vaara et al. 2014; Marsh et al. 2015; Orsi et al. 2015; Parola et al. 2015; Mousa et al. 2016), the majority of contributions have identified a specific retrospective time window for the observation of experience. In particular, three main groups of time window choices may be identified: studies selecting a bounded time horizon in terms of number of years before the focal acquisition, studies that operationalize experience since the firm’s inception, and studies that select a given year as initial date of observation of the analyzed activity. Actually, however, these different time windows reflect subjective choices for the observation of experience, along the continuum from short-term to long-term perspectives. Studies selecting a bounded, retrospective time horizon have focused on the following time spans for measuring the experience in the activity under investigation: • one year (Muehlfeld et al. 2011); • two years (Westphal et  al. 2001; Moatti 2009; Aktas et  al. 2011; Malhotra et al. 2015); • three years, either including the focal year (Laamanen and Keil 2008) or excluding the year of the focal acquisition (Haunschild 1994; Haunschild and Miner 1997; Beckman and Haunschild 2002; Shimizu and Hitt 2005; Delong and Deyoung 2007; Collins et al. 2009; Muehlfeld et al. 2012; Alessandri et al. 2014; Zhu and Chen 2015);

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• four years, either including the focal year (Haunschild 1993; Haunschild and Beckman 1998) or excluding the year of the focal acquisition (Fowler and Schmidt 1989; Bruton et al. 1994; Porrini 2004b; Ellis et al. 2011; Zhu 2013; Porrini 2015; Trichterborn et al. 2016; Galavotti et al. 2017a); • five years (Hayward 2002; Uhlenbruck 2004; Billet and Qian 2008; Kroll et  al. 2008; Lin et  al. 2009; Zaheer et al. 2010; Francis et al. 2014a; Basuil and Datta 2015; Mohite 2017); • six years (Orsi et al. 2016); • nine years (Heimeriks et al. 2012); • ten years (Kusewitt 1985; Servaes and Zenner 1996; Reuer et al. 2004; Cuypers et al. 2017; Chao 2017; Field and Mkrtchyan 2017); • eleven years (Huang et al. 2014); • fifteen years (Meschi and Métais 2013); • twenty years (Finkelstein and Haleblian 2002; Bingham et al. 2015); • twenty-three years (Hutzschenreuter et al. 2014); or even • twenty-seven years (Laabs and Schiereck 2010). Most studies, especially those selecting a short time span, assume that recent experience is more relevant and/or valuable than past experience, which recalls the idea that due to either forgetting or the reduced relevance of experience in current circumstances, the value of experience may depreciate. Those studies that have operationalized experience since the firm’s inception (Rabbiosi et al. 2012; Chakrabarti and Mitchell 2016) may provide a more comprehensive picture of a firm’s stock of experience throughout its whole life; however, they have all performed robustness checks based on three incremental, retrospective thresholds, that is, three, five, and seven years. The execution of a robustness test in studies ­analyzing experience since the firm’s inception suggests an awareness that more recent experience may be more easily recollected or more valuable than old experience. Finally, some researchers have selected a given year as a starting point (e.g., 1966), mostly reflecting the first year from which data are available (Haleblian and Finkelstein 1999; Vermeulen and Barkema 2001; Zollo

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and Singh 2004; Villalonga and McGahan 2005; Haleblian et al. 2006; Zollo and Reuer 2010; Nadolska and Barkema 2007; Barkema and Schijven 2008b; Kim and Finkelstein 2009; Kim et al. 2011; Harford and Schonlau 2013; Riccobono et al. 2015). The next two tables provide the distribution of studies in terms of time horizons selected by studies using both dichotomous measures (Table 7.3) and discrete measures (Table 7.4). No agreement exists on the point in time from which experience starts to be too old to be recollected; therefore, the time windows used in the analyzed studies simply reflect arbitrary choices. In their review of the literature on the role played by experience on acquisition performance, Barkema and Schijven (2008a) suggest that both short- and long-time windows may entail several implications because, while using short time frames may represent an underestimation of a firm’s ability to retrieve past events, using long time frames may imply an overestimation of such ability. Actually, however, even categorizing some time windows as either short or long time spans seems quite arbitrary: while agreement may exist upon the fact that a window of one year prior to the focal acquisition represents a short time frame for observing experience, studies using other time windows may be harder and more controversial to categorize as short or long. One additional issue related to the time horizon for measuring experience that remains open concerns the potential implications of considering versus excluding the focal year: while some studies (e.g., Yang and Hyland 2006, 2012a, 2012b) explicitly exclude the focal year from the operationalization process of experience variables, other studies (e.g., Haunschild 1993; Haunschild and Beckman 1998; Gerpott and Jakopin 2007; Laamanen and Keil 2008) do take into account the year of the focal acquisition. This highlights an additional area in which, from an empirical point of view, there is a lack of consensus. Indeed, while ­including acquisitions executed in the focal year enables one to account for very recent experience, such recent acquisitions may have not yet provided lessons about the firm’s effectiveness in their management.

4–6 Years

Porrini 2004b; Zaheer et al. 2010

3 Years or less

Gerpott and Jakopin 2007; Muehlfeld et al. 2011

Kroll et al. 2008

7–10 Years Since inception

Rabbiosi et al. 2012; Harford and Chakrabarti and Schonlau 2013; Mitchell 2016 Huang et al. 2014

>10 Years

Hitt and Tyler 1991; Haunschild et al. 1994; Markides and Ittner 1994; Dunne and Ndubizu 1995; Li 1995; Lee and Caves 1998; Herrmann and Datta 2006; Aybar and Ficici 2009; Tseng and Chou 2011; Custódio and Metzger 2013; Buckley et al. 2014; Muratova 2015

Not specified

Table 7.3  Time horizons selected by studies adopting dichotomous measures of experience

260  I. Galavotti

Counts

4–6 Years

7–10 Years

>10 Years

Since inception

Since the first time

Hitt and Rabbiosi Haleblian and Kusewitt Fowler and Haunschild Tyler 1991; et al. 2012; Finkelstein 1999; Schmidt 1989; 1985; and Miner Chakrabarti Haunschild Vermeulen and Servaes Haunschild 1997; et al. 1994; and Barkema 2001; and 1993; Bruton Westphal Hennart Mitchell Finkelstein and Zenner et al. 1994; et al. 2001; and Reddy Haleblian 2002; Zollo 2016; 1996; Shimizu and Haunschild 1997; Galavotti and Singh 2004; Reuer and Beckman Hitt 2005; et al. 2017b Belderbos et al. 2004; Villalonga and Gerpott and 1998; 2003; McGahan 2005; Heimeriks Hayward Jakopin Hébert et al. 2012; Haleblian et al. 2006; 2002; 2007; et al. 2005; Nadolska and Cuypers Uhlenbruck Laamanen Herrmann et al. 2017; Barkema 2007; 2004; Billet and Keil and Datta Chao 2017; Puranam and 2008; Collins and Qian 2006 Srikanth 2007; Field and 2008; Kroll et al. 2009; Moatti 2009; et al. 2008; Lin Mkrtchyan Barkema and Schijven 2008b; Kim 2017 et al. 2009; Aktas et al. and Finkelstein 2009; Zaheer et al. 2011; Laabs and Schiereck 2010; Ellis Muehlfeld 2010; Zollo and et al. 2011; et al. 2012; Reuer 2010; Kim Zhu 2013; Alessandri et al. 2011; Harford Francis et al. et al. 2014; and Schonlau 2013; 2014a; Basuil Malhotra Hutzschenreuter and Datta et al. 2015; et al. 2014; Huang 2015; Porrini Zhu and et al. 2014; Bingham 2015; Orsi Chen 2015 et al. 2015; et al. 2016; Riccobono et al. Galavotti 2015; Popli et al. et al. 2017a; 2016 Mohite 2017

3 Years

Table 7.4  Time horizons selected by studies adopting discrete measures of experience

(continued)

During the Not study period specified – McNamara et al. 2008; Castellaneta and Conti 2017; Lahiri 2017

Proportions Gerpott and Jakopin 2007

3 Years

Table 7.4 (continued)

– Haleblian and Finkelstein 1999; Chao 2017

–

>10 Years

7–10 Years

4–6 Years –

Since inception –

Since the first time –

Meschi and Metais 2006; Aybar and Ficici 2009; Ismail and Abdallah 2013

During the Not study period specified

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7.2.4 Measures of Qualitative Aspects of Experience Paralleling the theoretical maturation around a more sophisticated notion of experience that takes into account not just the stock of general or specific experiences but also their qualitative features, such as experience timing/recency, heterogeneity, codification, research has witnessed an empirical evolution in the measurement approaches to experience.

7.2.4.1  T  ime Dimension of Experience: Measures of Experience Depreciation The time dimension has been acknowledged as an important driver of the value of experience, since “the benefits of prior experience may not increase monotonically with the amount of experience that an o­ rganization accumulates because old experience becomes less useful over time” (Haleblian et al. 2006, 361). As a matter of fact, among organizational learning studies it has been claimed that accessibility of routines and retrieval of experience are strongly linked to time, as easiness to evoke routines is much greater in the case of recently used routines than it is in the case of old routines (Levitt and March 1988; Argote 1993). As anticipated in Chap. 5, the recognition that the time dimension of experience may play a critical role has worked as a catalyzer of a methodological refinement, culminating in the empirical testing of experience depreciation. Ingram and Baum (1997) proposed four different discount measures to account for experience depreciation. Their methodology is based on the age of experience: first, they assume no depreciation in the value of experience and set the discount equal to 1; second, assuming that experience may depreciate more slowly than linearity, the discount is set equal to the square root of the age of experience; third, they set the discount equal to the age of experience on the assumption that the value of experience depreciates linearly; finally, the discount is set equal to the age of experience squared, assuming that depreciation of experience is more

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rapid than linearity. Their findings indicate that the value of experience depreciates more slowly than linearity. A graphical conceptual representation of the four discount measures of experience is provided in Fig. 7.2. Although evidence has been gathered that experience devalues, discounting is actually a rarely used practice in most empirical studies, with the sole exceptions of Delong and Deyoung (2007), Kim and Finkelstein (2009), Shipilov (2009), Kim et  al. (2011), and Meschi and Métais (2013). Delong and Deyoung (2007) build a weighted variable of “learning by observing,” in which greater weight is assigned to more recent experience based on a logistic distribution. Meschi and Métais (2013) propose a distinction between what they call “gross experience,” that is, a score that captures the stock of acquisition experience, and discounted experience

No depreciation: Y=1

Discount

Depreciation slower than linearity: Y=√X

ne

d ar

Li

iat

ec

r ep

: ion

X

Y=

Depreciation quicker than linearity: Y=X2

Age of experience Fig. 7.2  Conceptual representation of discount factors for experience depreciation

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265

following the age discount methodology proposed by Ingram and Baum (1997) and Baum and Ingram (1998). Meschi and Métais (2013) operationalize experience timing in terms of temporal distance between the focal acquisition and previous acquisition experience to capture the effect of organizational forgetting. It is worth noting that their operationalization of organizational forgetting actually coincides with measures of acquisition frequency, thus further contributing to the vagueness in terms of lack of unequivocal combinations between constructs and measures. Kim and Finkelstein (2009), in addition to an age discount effect, also weight their measure of out-of-market experience by the geographic distance between acquirer and target in order to assign more value to experience in acquiring a distant versus a proximate target.

7.2.4.2  Experience Heterogeneity Experience heterogeneity captures the degree to which a firm’s experience is intrinsically diverse. In this context, a critical distinction should be made between studies focused on experience heterogeneity in strategic domains, for example international experience and product diversification experience, and those centered on the heterogeneity of acquisition experience. Indeed, studies addressing the heterogeneity of experience in strategic domains may adopt discrete measures, both counts and proportions, also to capture the scope of experience. For instance, diversity of international experience has been measured as the number of countries in which a firm operates or as the ratio between foreign sales and total sales. Similarly, product diversification experience has been operationalized as the number of industries on the basis of a selected number of digits for industry aggregation. As opposite, when addressing the specific construct of acquisition experience, the measurement of heterogeneity requires more complex methodological approaches. Two interesting examples come from Shipilov (2009) and Zollo (2009). Shipilov (2009) considers the level of experience heterogeneity in terms of scope through a variant of the Herfindahl index based on industries and countries of the acquiring firms (banks).

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I. Galavotti

Equation 7.2 Experience heterogeneity



2  n=10  sec 2     j  + nc =9  Cou j    ∑ j=1   ∑ j=1  k    ki   i    Scopei = 2

where: ki is the number of deals in which bank i participates in a given time period, n is the number of sectors in which deals are made by all banks within the network, nc is the number of countries of origin of acquiring firms, Secj is the number of deals in industry j in which bank i participates, and Coujc is the number of deals that bank i from country jc facilitates during period t. In addition, Shipilov (2009) suggests that a measure of experience scope/heterogeneity should incorporate not only the firm’s current scope, but also its past experience. Therefore, building on Ingram and Baum (1997), Shipilov proposes the following operationalization of experience scope where the discount is set equal to the four discount factors based on the age of experience. Equation 7.3 Discounted experience scope



n Dt   Scope of experienceit = ∑   t =1  Discount 

In the equation of experience scope proposed by Shipilov (2009), Dt is the market presence index for each period t resulting from the previous equation (Scopei), n is the number of periods a given firm has been active in the United Kingdom, and Discount is one of the four discount factors following Ingram and Baum (1997). A different measure of heterogeneity, although still applied to a sample of banks as acquiring firms, is the one proposed by Zollo (2009). Examining 29 US acquiring banks completing 167 acquisitions in the commercial

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267

banking industry between 1985 and 1995, Zollo (2009), in addition to a counting measure for general acquisition experience, proposes a measure of experience heterogeneity defined as the average difference between all past acquisition events on the basis of a quality judgment. The quality judgment is the assessment by respondents of the pre-­acquisition quality in terms of profitability of the target firm on a five-­point Likert scale. Equation 7.4 Experience quality heterogeneity Experience Heterogeneity =

1 ∑ Qualityi − Quality j  n  i≠ j   2

where: i and j represent two acquisitions in the acquiring firm’s stock of acquisition experience, and n   is the total number of acquisition combinations. 2 The two measures of experience heterogeneity actually capture different aspects of heterogeneity, that is, geographic and industry scope of experience (Shipilov 2009) and quality differences across acquisitions in a firm’s stock of acquisition experience (Zollo 2009). It therefore seems that the concept of heterogeneity of experience is actually by itself heterogeneous and multifaceted.

7.2.4.3  Codification of Experience Codification of experience has been considered as a process that enables turning implicit into explicit knowledge, thus facilitating the dissemination and transfer of existing knowledge. Experience codification reflects a learning investment aimed at improving the collective understanding of causal relationships (Zollo and Winter 2002). The measurement of codification of acquisition experience is inherently in line with discrete measures of experience, in that it is operationalized in terms of number of tools for the management of the acquisition process

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I. Galavotti

developed by the acquiring firm at the moment of the focal deal, for example documents, manuals, quantitative models, and project management tools (Zollo and Singh 2004; Zollo 2009; Heimeriks et al. 2012). Because codification of experience plays an important role in activating learning (Zollo and Winter 2002; Zollo and Singh 2004), quantifying deliberate learning in terms of number of formalized codified tools seems to be based on some strong conceptual assumptions. First, the view of codification as a deliberate investment in learning may suggest that codification is only a function of the willingness to turn experience from tacit to explicit. In other words, it seems to imply that it is always possible to codify knowledge derived from experience as long as the firm is willing to invest time and resources in this formalization process. However, while the decision to codify experiential knowledge may reflect a deliberate and conscious investment in learning, the extent to which such knowledge is ultimately codified may not necessarily be a direct function of the firm’s efforts. Indeed, the ultimate number of codification tools may be the result of additional factors that are not directly related to the choice of codifying, for example difficulties in codifying implicit knowledge, especially when deriving from intuitive synthesis, complexities in finding agreements about which knowledge to codify and how to verbalize it. Second, reasoning on the previous point leads us to recall the constructivist theory of learning developed by Ausubel (1962), according to which a distinction exists between mechanical and meaningful learning (Chap. 2). In particular, Ausubel suggested that while mechanical learning is useful to retrieve knowledge in the exact form in which it was originally acquired, meaningful learning implies that new information interrelates with preexisting concepts in the cognitive structure through an interactive association process. A question therefore arises as to the extent to which experience codification leads to mechanical learning in that it creates routines and procedures that simply serve as ready-to-use instructions in a focal acquisition or whether it constitutes the equivalent of conceptual maps subject to integrative reconciliations that take into account the specificities of the focal circumstances. Following this distinction, the extent to which codification leads to the first or the second type of learning is actually not just a function of codification per se but rather of a combination of learning efforts by organizational key members and additional contingencies.

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269

7.2.5 M  easures of Experiential Dimensions in Acquisition Programs and Methodological Implications of the Definition of Serial Acquirers Studies focusing on the specific context of serial acquirers and acquisition programs typically direct attention to the frequency, sequencing, and rate of previous acquisitions. Acquisition frequency, alternatively referred to as acquisition velocity, is measured as the number of days between successive deals (Aktas et  al. 2013; Ismail and Abdallah 2013; Chao 2017). Acquisition sequencing, or deal order, is operationalized as the progressive number of acquisitions executed (Billet and Qian 2008; Ismail and Abdallah 2013). Finally, acquisition rate, or activity, is measured as the average number of acquisitions in the focal year and in the previous two years (Laamanen and Keil 2008), in the 24 months before the announcement of the focal acquisition (Aktas et al. 2011), or, alternatively, as the natural logarithm of one plus the number of acquisitions executed in a five-year time window (Billet and Qian 2008). These measures actually raise an important consideration in terms of an apparent lack of distinctiveness of acquisition rate/frequency relative to acquisition experience. Indeed, at both an empirical and a conceptual level, a distinction between what is typically intended as acquisition experience, at least in studies adopting a counting methodology, and acquisition rate seems to be blurry. A second issue emerges when considering the definitions of serial acquirers provided in the literature. As anticipated in Sect. 6.6, serial acquirers have been defined as those acquirers who executed at least two acquisitions in five years (Billet and Qian 2008) or at least four acquisitions in ten years (Laamanen and Keil 2008; Chao 2017). Although, from these two definitions, it may appear that they allow to capture the same average frequency of acquisitions, the adoption of one definition over the other actually entails implications in terms of sample selection. To exemplify such implication, let us consider the case of an acquirer performing two acquisitions in the last five years but executing only one acquisition in the previous five years. This acquirer would be selected as a serial acquirer if following the five-year time horizon definition, while it would not be sampled if adopting the ten-year time window definition.

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I. Galavotti

This, in turn, implies that the frequency of acquisitions may not represent, per se, a sufficient criterion to determine if a firm should be considered as a serial acquirer or not. This is due to the fact that frequency is a mean value and therefore does not provide information on the actual time distribution of single acquisitions in the elapsed time considered.

7.3 Insights from Qualitative Studies The choice of a qualitative methodology for the investigation of the role of experience and learning in acquisitions has been far less frequent compared to the adoption of quantitative methodologies (Kreiner and Lee 2000; Harris 2007; Riviezzo 2013; Bingham et al. 2015; Maitland and Sammartino 2015). Broadly speaking, the qualitative case study methodology enables one to explore a phenomenon within its context when boundaries between the phenomenon and the context are not clear and when the conditions to be covered are multiple. Among these studies, researchers have focused on either the analysis of a single case study (Kreiner and Lee 2000; Harris 2007; Bingham et al. 2015; Maitland and Sammartino 2015) or the comparative analysis of multiple case studies (Riviezzo 2013). Among contributions based on the in-depth analysis of a single case study, Bingham et al. (2015) explore the concurrent development of multiple dynamic capabilities and focus on an extended historical analysis of Dow Chemical Corporation, selected as a case study because over its history it has engaged not only in acquisitions, but also in joint ventures and divestitures. In their study, semi-­structured interviews were carried out with 16 key decision-makers who had been involved in the execution and formalization of these corporate activities. It is worth noting that the contribution by Bingham et al. (2015) is directed at theory building in terms of developing an emergent theoretical framework for the mechanisms through which firms develop concurrent dynamic capabilities. An opposite choice is found in the qualitative study by Maitland and Sammartino (2015). Their study is based on the single case of an Australian-headquartered acquiring firm assessing an acquisition candidate in Africa as a potentially hazardous environment. The case selection is based on the deliberate choice of an acquiring firm not having prior

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271

experience in FDI, reflecting the intent of isolating the sole dynamics and effects of judgment and decision-making heuristics, or using their words to “clearly discern relationships between individuals’ experience and their political hazard heuristics” (Maitland and Sammartino 2015, 1561). Moving to the examination of the sole qualitative study adopting a multiple case study approach, the selection of cases by Riviezzo (2013) was based on a two-step procedure. He first restricted the analysis to acquisitions executed in the Italian ICT industry in the period 1999–2009. In particular, the selection was directed at those Italian acquiring firms completing a horizontal acquisition either within the national boundaries (domestic acquisition) or in a foreign country (cross-border acquisition). As a second step, Riviezzo (2013) identified those frequent acquirers that had completed at least five acquisitions. The resulting four case studies were first individually analyzed and then transversally compared to examine the acquisition integration processes in relation to different dimensions: market orientation toward exploitation, entrepreneurial orientation toward exploration, the organizational model in terms of both organizational form and presence of project teams, and prior experience and expertise of management. What these studies all have in common is the adoption of an ad hoc theoretical/intentional case selection approach as a function of the specific “how” or “what” research question.

7.4 L ocus of Experience: Individual, Group, Firm, Interorganizational In line with the long-standing debate about whether experience and learning represent individual-level or organizational-level phenomena, the multiple integrative efforts put forward by several scholars and upon which, actually, no consensus has been reached in the academic community, have led to the identification of four potential levels of learning. Although the literature on mergers and acquisitions in many cases treats experience and learning as a sort of perfectly overlapping pairing, the initial chapters of this book have provided an extensive overview of why these two concepts, although profoundly interrelated, capture two very different constructs.

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In line with the four levels of learning identified in the organizational learning literature—that is, the individual, group, organizational, and interorganizational levels—here, this fourfold classification of units of analysis is proposed with a specific and purposeful focus on experience. In other words, we direct attention to the locus of experience, which does not necessarily mean that the source of experience reflects a learning process at that level. This argument is particularly relevant in the level of interorganizational experience: although there is a wide tendency, theoretically grounded in social cognitive theories of learning (e.g., Bandura 1977), to equate observational experience with vicarious learning, thus suggesting that experience gathered through the observation of the behavior of others generates a process by which learning occurs vicariously, such equation should be cautiously interpreted. Indeed, observation of models may potentially work as a generator of actions because, once a modeled behavior is replicated, it is, by definition, implemented by the replicator. When put into action, the specific contextual factors existing at the moment of its implementation require adaptive adjustments of the observed model to the current circumstances, which implies that learning is fully achieved when observation is complemented with direct implementation of actions. This consideration may be further extended to take into account that once the action is performed, the feedback on that modeled, replicated behavior may be only partially referred to the initial source of that modeled experience as, with implementation/replication, learning by doing takes place. This consideration carries potentially significant implications for research, which will be dealt with in detail in Chap. 8. A conceptual representation of experience loci is provided in Fig. 7.3. The figure is conceptually based on an incremental aggregation. The individual represents the most micro level for observing experience, and research on individual experience in acquisitions has focused on the CEO as the unit of analysis to explore the extent to which managerial characteristics and managerial experience have an impact on acquisition decisions and on post-acquisition performance (Billet and Qian 2008; Kroll et al. 2008; Aktas et al. 2009, 2011; Riviezzo 2013; Harford and Schonlau 2013; Steen et al. 2014; Vaara et al. 2014; Marsh et al. 2015). These studies build on the notion that executives determine the strategic directions taken by a firm and that their decisions strongly affect performance (Krug 2009).

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273

Individual experience Group experience Firm-level experience Interorganizational experience

Fig. 7.3  Conceptual representation of experience loci

As a sort of natural aggregate of the individual level of analysis, studies directing attention at the group level as locus of experience have regarded as relevant units of analysis either the top management team (Nadolska and Barkema 2014; Piaskowska and Trojanowski 2014; Mousa et  al. 2016) or the board of directors (Westphal et al. 2001; McDonald et al. 2008; Peng and Fang 2010; Zhu 2013; Huang et  al. 2014; Field and Mkrtchyan 2017). At a greater aggregation level, the organization level as locus of experience undoubtedly represents the most common and widely adopted approach for the observation of experience, and, from a chronological point of view, the focus on organizational experience has developed first, starting with studies by Hisey and Caves (1985), Kusewitt (1985), and Fowler and Schmidt (1989). The level of interorganizational experience captures the only experience locus that resides, totally or partially, outside the focal firm. From a theoretical point of view, this unit of analysis has been mostly regarded through the lenses of institutional and network theories. Studies dealing with interorganizational experience have been concerned either with the experience

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of other firms acting as sources of observational experience (e.g., Haunschild 1993, 1994; Haunschild and Miner 1997; Haunschild and Beckman 1998; Kim et al. 2011; Ormosi 2012; Francis et al. 2014a), or with interorganizational reciprocal experience with the target firm (Porrini 2004b; Zaheer et al. 2010) or an advisor (Lee 2013; Francis et al. 2014b). A positioning of studies as a function of the locus of experience is provided in Table 7.5. Those studies falling in more than one quadrant are those that either use more than one locus to investigate a given experience effect or, alternatively, given a selected locus of experience, explore how it affects different outcome areas, that is, acquisition-related strategy, acquisition process decisions, and post-acquisition outcomes, as defined in Chap. 6.

7.5 C  oncluding Remarks on Methodological Maneuvers for the Measurement of Experience The empirical investigation of testable, observable phenomena, while potentially contributing to theory building in an inductive way, raises some issues in a research field where the abstract constructs of knowledge, experience, and learning are, by definition, not observable. Indeed, the use of a wide variety of measures mainly reflects a lack of consensus upon how experience and learning constructs may be most properly ­operationalized, while also perhaps being partially responsible for the lack of uniform findings (Barkema and Schijven 2008a). The institutionalized praxis of measuring abstract concepts through a diverse set of concrete, observable measures may become a dangerous consuetude in a field in which there is no preliminary consensus upon how the construct itself should be intended. This raises doubts on measures’ appropriateness in terms of construct validity and on the possibility that some proxies, even if consolidated in empirical research, may actually capture only partial aspects of the phenomenon. Spender (1996) provides a clarifying example of these institutionalized methodological “maneuvers” by stressing that knowledge is frequently measured in terms of assets, although many aspects of knowledge seem

Group experience

Acquisition process decisions

Hitt and Tyler 1991; Haunschild et al. 1994; Pablo 1994; Riviezzo 2013; Maitland and Sammartino 2015; DiCagno et al. 2017

Pablo 1995; Zhu 2013

Acquisition-­ Herrmann and Datta Westphal et al. 2006; Billet and Qian 2001; Peng and related Fang 2010; Huang 2008; Aktas et al. strategy et al. 2014; 2009; Muratova 2015; Zhu et al. 2014 Nadolska and Barkema 2014; Piaskowska and Trojanowski 2014; Zhu and Chen 2015; Mousa et al. 2016

Individual experience

Interorganizational experience

(continued)

Haunschild 1993; Hisey and Caves 1985; Hennart and Reddy Haunschild and Miner 1997; Barkema and Vermeulen 1998; 1997; Haunschild and Vermeulen and Barkema 2001; Belderbos Beckman 1998; 2003; Shimizu and Hitt 2005; Villalonga and Westphal et al. 2001; McGahan 2005; Haleblian et al. 2006; Yang Yang and Hyland 2006; and Hyland 2006; Nadolska and Barkema Moatti 2009; Yang 2007; Slangen and Hennart 2008; Collins 2009; Tseng and Chou et al. 2009; Lin et al. 2009; Moatti 2009; 2011; Yang and Hyland Arikan and McGahan 2010; Carayannopoulos 2012a, 2012b; Zhu and and Auster 2010; Dikova et al. 2010; Peng Chen 2015 and Fang 2010; Muehlfeld et al. 2011, 2012; Tseng and Chou 2011; Rabbiosi et al. 2012; Yang and Hyland 2012a, 2012b; Aktas et al. 2013; Alessandri et al. 2014; Boschma and Hartog 2014; Francis et al. 2014a; Zhu et al. 2014; Riccobono et al. 2015; Chakrabarti and Mitchell 2016; Popli et al. 2016; Galavotti et al. 2017a, 2017b; Lahiri 2017; Zakaria et al. 2017 Haunschild 1994; Servaes and Zenner 1996; Baum et al. 2000; Haunschild and Miner Reuer et al. 2004; Ivarsson and Vahlne 2002; 1997; Beckman and Riviezzo 2013; Malhotra et al. 2015; Beckman Haunschild 2002; Baum and Haunschild 2002; Francis et al. 2014b; et al. 2000; Francis Zhu et al. 2014 et al. 2014b; Ormosi 2012; Malhotra et al. 2015

Firm-level experience

Table 7.5  Positioning of studies based on experience locus and macro-thematic area of experience outcomes

Billet and Qian 2008; Post-­ acquisition Kroll et al. 2008; Aktas et al. 2009, outcomes 2011; Custódio and Metzger 2013; Harford and Schonlau 2013; Steen et al. 2014; Vaara et al. 2014; Marsh et al. 2015; Orsi et al. 2016

Individual experience

Table 7.5 (continued) Firm-level experience

Interorganizational experience

Porrini 2004b; Delong Kusewitt 1985; Fowler and Schmidt 1989; Hunt McDonald et al. and Deyoung 2007; 1990; Bruton et al. 1994; Markides and Ittner 2008; Kroll et al. Zaheer et al. 2010; Kim 1994; Dunne and Ndubizu 1995; Li 1995; 2008; Huang et al. et al. 2011; Tseng and Servaes and Zenner 1996; Stylianou et al. 1996; 2014; Nadolska and Barkema 2014; Zhang 1997; Lee and Caves 1998; Haleblian and Chou 2011; Lee 2013 Finkelstein 1999; Vermeulen and Barkema Field and 2001; Finkelstein and Haleblian 2002; Hayward Mkrtchyan 2017 2002; Uhlenbruck 2004; Zollo and Singh 2004; Porrini 2004a; Hébert et al. 2005; Meschi and Métais 2006; Delong and Deyoung 2007; Gerpott and Jakopin 2007; Puranam and Srikanth 2007; Nadolska and Barkema 2007; Laamanen and Keil 2008; López-Duarte and Vidal-­Suárez 2008; Barkema and Schijven 2008b; McNamara et al. 2008; Aybar and Ficici 2009; Shipilov 2009; Zollo 2009; Kim and Finkelstein 2009; Krug 2009; Laabs and Schiereck 2010; Zollo and Reuer 2010; Arikan and McGahan 2010; Ellis et al. 2011; Kim et al. 2011; Heimeriks et al. 2012; Hasan et al. 2012; Meschi and Métais 2013; Ismail and Abdallah 2013; Riviezzo 2013; Hutzschenreuter et al. 2014; Francis et al. 2014a; Boschma and Hartog 2014; Buckley et al. 2014; Degbey 2015; Bingham et al. 2015; Basuil and Datta 2015; Orsi et al. 2015; Parola et al. 2015; Riccobono et al. 2015; Cuypers et al. 2017; Trichterborn et al. 2016; Huang et al. 2017; Castellaneta and Conti 2017; Chao 2017; Mohite 2017

Group experience

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277

inconsistent with an asset-based definition. Indeed, if we assume the definition of knowledge provided by Snyder and Cummings (1998)—as being composed by the three elements of skills, which include various kinds of expertise of organizational members; of cognitions, that is, the set of shared norms, values, information, and attitudes; and of systems, which include organizational structures, procedures, and processes—it appears questionable that these three inherently diverse elements could be appropriately captured by an asset-based measure of an accounting nature. An additional emblematic example of methodological maneuvers institutionalized in research on experience and learning comes from the literature on learning curves, in which knowledge acquired through learning by doing has been traditionally proxied by the cumulative number of outputs (Argote 1993). This approach, however, neglects the fact that behavioral outcomes at the organizational level may depend upon other factors than learning, and it erroneously uses learning outcomes to measure learning. In the specific context of experience effects on acquisitions, the existence of diverse measures for the same construct or, alternatively, the use of the same measure to capture different constructs, as is the case with acquisition experience/activity/rate-frequency/organizational forgetting, along with the arbitrariness of time windows selection, creates potential issues of construct validity while also contributing to an increasing methodological and conceptual fragmentation. One significant measurement issue that seems to have been long overlooked in most empirical studies, with only recent exceptions (e.g., Anand et al. 2016), is the inherent endogeneity implied in the notion of experience. To better clarify the argument of experience endogeneity, Anand et al. (2016) build on two considerations: first, that corporate development activities such as mergers and acquisitions are infrequent and causally ambiguous (Zollo 2009), and second, that there is a path-­dependent repetition tendency, especially of those activities that have generated positive outcomes (Greve 2003). Anand et al. (2016) therefore argue that experience accumulation in the context of corporate development activities such as acquisitions is not exogenously determined but rather results from endogenous decisions that have been previously taken with the expectation to achieve superior performance. Therefore, ignoring the possible circular causation that may potentially occur when observing the effect of experience on subsequent decision-making may lead to misleading interpretations.

DV

Volatility of postacquisition profits

Short-term abnormal stock returns and ROA

Acquisition premium paid and long-term abnormal stock returns

Short-term abnormal stock returns and ROA

Authors

Lee and Caves (1998)

Haleblian and Finkelstein (1999)

Beckman and Haunschild (2002)

Finkelstein and Haleblian (2002)

Effect of first acquisition on second acquisition

Number of years of experience with each subsidiary

Dummy: International acquisition experience, experience in the region of the focal acquisition Number of acquisitions since 1948

IVs

Negative effect of international acquisition experience and geographic experience on profit volatility

100+ international acquisitions

(continued)

449 acquisitions from U-shaped relationship 1980 to 1992 between acquisition experience and performance Positive relationship Acquisitions by 300 between heterogeneity US firms between of partners’ experience 1986 and 1997 and acquisition performance 192 acquisitions by 96 Second acquisitions underperform first acquirers between acquisitions, especially if 1970 and 1990 the second acquisition occurs in a different industry

Key findings

Sample

Table 7.6  Representative empirical studies on organizational experience in acquisitions

Appendix

278  I. Galavotti

Short-term abnormal stock returns

Change in acquirer ROA

Propensity to acquire

Abnormal returns at the announcement

Wright et al. (2002)

Zollo and Singh (2004)

Haleblian et al. (2006)

Uhlenbruck et al. (2006)

Key findings

(continued)

Nonsignificant effect of acquisition experience. Inverted U-shaped relationship between similarity of previous acquisition and performance Nonsignificant Dummy: acquisitions Acquisitions by 163 relationship between firms between 1993 in the preceding preacquisition and 1997 3 years or not experience and focal acquisition performance 228 acquisitions by Nonsignificant relationship Number of US banks between experience and acquisitions since performance. Positive founding, number effect of experience of codification tools codification Positive effect of 523 acquisitions by Number of acquisition experience 579 US banks acquisitions since on acquisition between 1988 and 1988 propensity, amplified by 2001 acquisition performance Negative effect of Number of previous 798 acquisitions by acquisition experience acquisitions publicly traded on acquisition internet firms performance in between 1995 and acquisitions of online 2001 firms by other online firms

214 acquisitions by Number of Short-term abnormal 120 firms in 6 acquisitions since stock returns and industries between perceptual performance 1985, industrial 1990 and 1995 relatedness of prior acquisitions

Sample

Hayward (2002)

IVs

DV

Authors

Table 7.6 (continued)

  Methodological Approaches 

279

Key findings

Collins et al. (2009)

Laamanen and Keil (2008)

Puranam and Srikanth (2007)

Survival probability

Number of acquisitions and alliances since 1966

(continued)

U-shaped relationship 1038 international between alliance acquisitions by 25 experience and firms between 1966 acquisition performance and 1998 Acquisition experience 97 technology Number of patents filed Number of positively moderates the acquisitions by 47 after the acquisition acquisitions since negative relationship acquirers between 1984 between structural 1988 and 1998 integration and acquirer’s efforts to leverage innovation capabilities Positive effect of Excess market returns to Acquisition rate and Acquisitions by 611 acquisition experience US firms between acquirer shareholders its variability, on variability of 1990 and 1991 acquisition acquisition rate experience Both recent domestic and Number of domestic 374 firms from S&P Dummy: the firm international acquisitions 500 firms in 2002 acquisitions in the acquired a target in the increase the likelihood of for a total of 19,072 United States, host country or not an international company-country number of acquisition. Recent combinations acquisitions outside international acquisitions the United States, are a stronger predictor. number of Positive impact of recent acquisitions in a acquisition experience in specific host a host country on the country likelihood to complete acquisitions in that country

Sample

Nadolska and Barkema (2007)

IVs

DV

Authors

Table 7.6 (continued)

280  I. Galavotti

Difference between ROA 3 years after the focal acquisition and ROA 1 year before the acquisition

Dummy variable for likelihood of completion of the acquisition

Ellis et al. (2011)

Muehlfeld et al. (2012)

(continued)

Positive effect of market 2204 acquisitions by Number of complementarity on 501 publicly traded acquisitions from acquisition performance US commercial 1988 to focal at higher levels of banks between acquisition made out-of-market 1989 and 2001 outside the state of experience primary operations Negative effect of prior 305 large related Number of large experience in small acquisitions by US related and small acquisitions on firms between 1995 related acquisitions performance in large and 1998 in the 4 years acquisitions, amplified preceding the in the presence of acquisition product and geographic dissimilarity Codified acquisition 4973 acquisitions in Number of M&As experience loses value the newspaper attempted by the when used in industry between larger partner in acquisitions in a 1981 and 2008 the deal prior to different institutional the focal M&A; context success vs. failure experience; experience along six contexts: cross-border vs. domestic, diversifying vs. intra-industry, friendly vs. hostile

Cumulative abnormal returns; Return on equity

Key findings

Kim and Finkelstein (2009)

Sample

IVs

DV

Authors

Table 7.6 (continued)

  Methodological Approaches 

281

Buy-and-hold abnormal returns

In-depth historical Development of multiple Number of acquisitions, JV, and analysis of Dow dynamic capabilities in Chemical divestitures parallel; qualitative Corporation between 1990 and measure of technical 2010 fitness; stock market returns for evolutionary fitness

Basuil and Datta (2015)

Bingham et al. (2015)

Number of acquisitions in the industry and in the region

222 cross-border acquisitions by US firms in the private sector

385 acquisitions in Number of Italy between 2007 acquisitions in the and 2010 three years preceding the focal deal

Type of acquisition: domestic nondiversifying, domestic diversifying, cross-border

Sample

Alessandri et al. (2014)

IVs

DV

Authors

Table 7.6 (continued) Acquisition experience positively affects the likelihood of crossborder, diversifying acquisitions compared to nondiversifying domestic acquisitions in periods of economic downturn The effect of industryspecific experience is contingent upon the degree of cultural similarity. The moderating effect of cultural similarity is intensified by regionspecific experience Knowledge codification helps effective experience transfer; testing out codified experience in one process implementation (e.g., acquisition) in related processes speeds experience accumulation; positive effect of experience on evolutionary fitness

Key findings

282  I. Galavotti

DV

Strategic decision model adopted for the evaluation of a potential target firm

Authors

Hitt and Tyler (1991)

Sample

122 top executives in 15 objective criteria: Southwestern diversification level, United States market share in primary leading to 1950 industry, annual sales, observations on 30 return on investments potential target (ROI), stock price, firms anticipated discounted cash flow, projected new products/services in the following 5 years, management talent, marketing capabilities, manufacturing capabilities, R&D capabilities, attractiveness of primary business, synergy with acquirer, acquisition price; Executives’ characteristics: risk propensity, cognitive complexity, demographic characteristics

IVs

Table 7.7  Representative empirical studies on individual and group experiences in acquisitions

(continued)

Objective criteria explain the greatest amount of variance in target evaluation; however, executives’ personal characteristics (e.g., amount and type of experience) impact on the evaluation of acquisition candidates

Key findings

  Methodological Approaches 

283

DV

Excess stock returns

Cumulative abnormal returns

Authors

McDonald et al. (2008)

Zollo (2009)

Table 7.7 (continued) Sample

Key findings

(continued)

1916 acquisitions by Outside director’s Outside directors’ prior experience positively 489 large and experience with decisions affects the focal medium-sized firms about acquiring firms in acquisition between 1989 and the same product market performance, 1998 of the focal acquisition; especially if the number of acquisitions board is completed by the focal independent of the firm in the previous eight management years Negative effect of 167 acquisitions by Number of prior perception of past 29 US banks acquisitions, average success on between 1985 and difference among past acquisition 1995 acquisitions performance, which is intensified by accumulated experience and weakened by experience heterogeneity and deliberate learning

IVs

284  I. Galavotti

Parola et al. (2015)

Kim et al. (2011)

DV

IVs

Sample

Preintegration market performance: cumulative abnormal returns around the announcement; post-integration market performance: Jensen’s α 3 years after the announcement

Number of domestic acquisitions of at least $100 million

310 acquisitions by Fortune 1000 companies

878 acquisitions in Purchase price per target Acquirer acquisition the US commercial experience: discounted share paid by the banking sector sum of the number of acquirer less the intra-industry acquisitions between 1994 and target’s preacquisition 2005 made since 1988; advisor stock price divided by acquisition experience: the preacquisition number of acquisitions stock price for which the advisor of the focal acquisition served as advisor in the commercial banking sector between 1988 and the date of the focal acquisition TMT experience with 2036 acquisitions Nadolska and Dummy for acquisition acquisitions made since 1966 by Barkema (2014) success depending on 25 nonfinancial whether the firms listed on the acquisition was Amsterdam stock subsequently retained exchange or not

Authors

Table 7.7 (continued)

Positive influence of TMT acquisition experience on acquisition success, moderated by TMT tenure and educational diversity Acquirer experience positively affects the negative relationship between TMT gender diversity and post-integration performance

Advisors’ acquisition experience has a more significant influence on the relationship between growth patterns and acquisition premiums compared to the acquirer’s acquisition experience

Key findings

  Methodological Approaches 

285

Similarity in acquisition activity between focal firm and its competitors

Propensity to make Number of related vs. 6465 acquisitions by 1762 US firms between unrelated related vs. 1981 and 2000 acquisitions by unrelated competitors acquisition Degree of Number of acquisitions 4881 acquisitions by 1424 US public firms in similarity initiated by other the financial services firms in the industry industry between 1990 at t−1, number of and 2008 acquisitions before the focal deal

Westphal et al. (2001)

Yang and Hyland (2006)

Yang and Hyland (2012b)

Propensity to acquire

Baum et al. (2000)

Sample

Number of acquisitions Acquisitions by 327 US firms between 1981 by tied-to firms, and 1990 number of acquisitions by the focal firm in the preceding 3 years Similarity measures 170 acquisitions by 32 Ontario nursing home chains between 1971 and 1996 Number of acquisitions 433 Fortune 500 firms between 1986 and made by competitors 1995 over 2 years

Haunschild (1993)

IVs

DV

Number of acquisitions in a given year

Authors

Table 7.8  Representative empirical studies on interorganizational experience in acquisitions

Positive effect of similarity in acquisition behavior between tied-to firms and their competitors and similarity in acquisition behavior between focal firm and its competitors Focal firm’s imitation of the industrial relatedness of competitors’ acquisitions Positive relationship between number of acquisitions at t−1 and degree of similarity. However, this relationship is negatively moderated by acquisition experience

Positive effect of acquirer experience on propensity to acquire. The focal firm tends to imitate the behavior of tied-to firms Greater propensity to acquire near the targets of rival firms

Key findings

286  I. Galavotti

  Methodological Approaches 

287

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291

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Ingram, Paul, and Joel A.C.  Baum. 1997. Opportunity and Constraint: Organizations’ Learning from the Operating and Competitive Experience of Industries. Strategic Management Journal 18: 75–98. Ismail, Ahmad, and Abed A. Abdallah. 2013. Acquirer’s Return and the Choice of Acquisition Targets: Does Acquisition Experience Matter? Applied Economics 45: 3770–3777. Ivarsson, Inge, and Jan-Erik Vahlne. 2002. Technology Integration through International Acquisitions: The Case of Foreign Manufacturing TNCs in Sweden. Scandinavian Journal of Management 18: 1–27. Kim, Ji-Yub, and Sydney Finkelstein. 2009. The Effects of Strategic and Market Complementarity on Acquisition Performance: Evidence from the US Commercial Banking Industry, 1989–2001. Strategic Management Journal 30: 617–646. Kim, Ji-Yub, Jerayr Haleblian, and Sydney Finkelstein. 2011. When Firms Are Desperate to Grow via Acquisition: The Effect of Growth Patterns and Acquisition Experience on Acquisition Premiums. Administrative Science Quarterly 56: 26–60. Kreiner, Kristian, and Kristina Lee. 2000. Competence and Community: Post-­ Acquisition Learning Processes in High-Tech Companies. International Journal of Technology Management 20: 657–669. Kroll, Mark, Bruce A.  Walters, and Peter Wright. 2008. Board Vigilance, Director Experience, and Corporate Outcomes. Strategic Management Journal 29: 363–382. Krug, Jeffrey A. 2009. Brain Drain: Why Top Management Bolts after M&As. Journal of Business Strategy 30: 4–14. Kusewitt, John B. 1985. An Exploratory Study of Strategic Acquisition Factors Relating to Performance. Strategic Management Journal 6: 151–169. Laabs, Jan-Peer, and Dirk Schiereck. 2010. The Long-Term Success of M&A in the Automotive Supply Industry: Determinants of Capital Market Performance. Journal of Economics and Finance 34: 61–88. Laamanen, Tomi, and Thomas Keil. 2008. Performance of Serial Acquirers: Toward an Acquisition Program Perspective. Strategic Management Journal 29: 663–672. Lahiri, Somnath. 2017. The Moderating Influence of Market Potential and Prior Experience on the Governance Quality–Equity Participation Relationship: Evidence from Acquisitions in BRIC. Management Decision 55: 203–217. Lee, Jeongsik Jay. 2013. Dancing with the Enemy? Relational Hazards and the Contingent Value of Repeat Exchanges in M&A Markets. Organization Science 24: 1237–1256.

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293

Lee, Tung-Jean, and Richard E. Caves. 1998. Uncertain Outcomes of Foreign Investment: Determinants of the Dispersion of Profits after Large Acquisitions. Journal of International Business Studies 29: 563–581. Levitt, Barbara, and James G. March. 1988. Organizational Learning. Annual Review of Sociology 14: 319–338. Li, Jiatao. 1995. Foreign Entry and Survival: Effects of Strategic Choices on Performance in International Markets. Strategic Management Journal 16: 333–351. Lin, Zhiang John, Mike Peng, Haibin Yang, and Sunny Li Sun. 2009. How Do Networks and Learning Drive M&As? An Institutional Comparison between China and the United States. Strategic Management Journal 30: 1113–1132. López-Duarte, Cristina, and Marta M.  Vidal-Suárez. 2008. Foreign Direct Investment through Partial Acquisitions: Hostage Effect or Conflicts Enhancement. Journal of Management & Governance 12: 287–308. Maitland, Elizabeth, and André Sammartino. 2015. Decision Making and Uncertainty: The Role of Heuristics and Experience in Assessing a Politically Hazardous Environment. Strategic Management Journal 36: 1554–1578. Malhotra, Shavin, Pengcheng Zhu, and Taco H. Reus. 2015. Anchoring on the Acquisition Premium Decisions of Others. Strategic Management Journal 36: 1866–1876. Markides, Constantinos C., and Christopher D.  Ittner. 1994. Shareholder Benefits from Corporate International Diversification: Evidence from US International Acquisitions. Journal of International Business Studies 25: 343–366. Marsh, John S., William J.  Wales, Rachel Graefe-Anderson, and Marshall W.  Pattie. 2015. Cashing-In: Understanding Post-Acquisition CEO Stock Option Exercise. Management Decision 53: 1953–1975. McDonald, Michael L., James D.  Westphal, and Melissa E.  Graebner. 2008. What Do They Know? The Effects of Outside Director Acquisition Experience on Firm Acquisition Performance. Strategic Management Journal 29: 1155–1177. McNamara, Gerry M., Jerayr J. Haleblian, and Bernadine J. Dykes. 2008. The Performance Implications of Participating in an Acquisition Wave: Early Mover Advantages, Bandwagon Effects, and the Moderating Influence of Industry Characteristics and Acquirer Tactics. Academy of Management Journal 51: 113–130. Meschi, Pierre-Xavier, and Emmanuel Métais. 2006. International Acquisition Performance and Experience: A Resource-Based View. Evidence from French Acquisitions in the United States (1988–2004). Journal of International Management 12: 430–448.

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Shimizu, Katsuhiko, and Michael A. Hitt. 2005. What Constrains or Facilitates Divestitures of Formerly Acquired Firms? The Effects of Organizational Inertia. Journal of Management 31: 50–72. Shipilov, Andrew V. 2009. Firm Scope Experience, Historic Multimarket Contact with Partners, Centrality, and the Relationship between Structural Holes and Performance. Organization Science 20: 85–106. Slangen, Arjen H.L., and Jean-François Hennart. 2008. Do Multinationals Really Prefer to Enter Culturally Distant Countries through Greenfields rather than through Acquisitions? The Role of Parent Experience and Subsidiary Autonomy. Journal of International Business Studies 39: 472–490. Snyder, William M., and Thomas G. Cummings. 1998. Organization Learning Disorders: Conceptual Model and Intervention Hypotheses. Human Relations 51: 873–895. Spender, J.-C. 1996. Making Knowledge the Basis of a Dynamic Theory of the Firm. Strategic Management Journal 17: 45–62. Steen, Adam, Keith Turpie, and Gee Wan Ng. 2014. Microcap M&A: An Exploratory Study. Australasian Accounting Business & Finance Journal 8: 52–70. Stylianou, Antonis C., Carol J.  Jeffries, and Stephanie S.  Robbins. 1996. Corporate Mergers and the Problems of IS Integration. Information & Management 31: 203–213. Thavikulwat, Precha, Jimmy Chang, and Douglas Sanford. 2013. Mergers and Acquisitions in a Business Game. Simulation & Gaming 44: 706–731. Trichterborn, Anja, Zu Knyphausen-Aufseß, and Lars Schweizer. 2016. How to Improve Acquisition Performance: The Role of a Dedicated M&A Function, M&A Learning Process, and M&A Capability. Strategic Management Journal 37: 763–773. Tseng, Jen-Jen, and Ping-Hung Chou. 2011. Mimetic Isomorphism and Its Effect on Merger and Acquisition Activities in Taiwanese Financial Industries. The Service Industries Journal 31: 1451–1469. Uhlenbruck, Klaus. 2004. Developing Acquired Foreign Subsidiaries: The Experience of MNEs in Transition Economies. Journal of International Business Studies 35: 109–123. Uhlenbruck, Klaus, Michael A. Hitt, and Matthew Semadeni. 2006. Market Value Effects of Acquisitions Involving Internet Firms: A Resource-Based Analysis. Strategic Management Journal 27 (10): 899–913. Vaara, Eero, Paulina Junni, Riikka M.  Sarala, Mats Ehrnrooth, and Alexei Koveshnikov. 2014. Attributional Tendencies in Cultural Explanations of M&A Performance. Strategic Management Journal 35: 1302–1317.

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Zhu, Pengcheng, Vijay Jog, and Isaac Otchere. 2014. Idiosyncratic Volatility and Mergers and Acquisitions in Emerging Markets. Emerging Markets Review 19: 18–48. Zollo, Maurizio. 2009. Superstitious Learning with Rare Strategic Decisions: Theory and Evidence from Corporate Acquisitions. Organization Science 20 (5): 894–908. Zollo, Maurizio, and Jeffrey J.  Reuer. 2010. Experience Spillovers across Corporate Development Activities. Organization Science 21: 1195–1212. Zollo, Maurizio, and Harbir Singh. 2004. Deliberate Learning in Corporate Acquisitions: Post-Acquisition Strategies and Integration Capability in US Bank Mergers. Strategic Management Journal 25: 1233–1256. Zollo, Maurizio, and Sidney G.  Winter. 2002. Deliberate Learning and the Evolution of Dynamic Capabilities. Organization Science 13: 339–351.

8 Implications for Research and Conclusions

8.1 A  Proposed Conceptualization of the Organizational Learning Process Learning within the organization is a complex, systematic, multistep process that consists of several interconnected subprocesses. The diverse epistemological orientations embraced by organizational learning scholars have contributed to a fragmented development of notions and leave still open the debate on whether organizational learning is an organizational or an individual phenomenon (see Chap. 2). With the purpose of providing a stimulus to scholars toward the adoption of a more nuanced, contingency-based approach and of identifying potential areas in need for examination, the following integrative perspective on the phenomenon is proposed (Fig. 8.1). First, organizational members at different levels tacitly accrue knowledge from direct or observational experience or from intuition. Such knowledge is first cognitively processed and individually interpreted on the basis of personal cognitive maps and schemata. Then, this knowledge is possibly shared within an organizational subgroup (either formal or informal), which is characterized by a specific surface and subinstitutional structure. Within the subgroup, such knowledge is collectively reinterpreted before resulting in a socially negotiated © The Author(s) 2019 I. Galavotti, Experience and Learning in Corporate Acquisitions, https://doi.org/10.1007/978-3-319-94980-2_8

299

Intervening effects

Confirmation

Revision

Interpretation based on personal cognitive maps and schemata

Individual knowledge

Tacit Individual Knowledge Inter sub-group

Explicit Collective Knowledge

Sub-institutional groups structure

Ex-post feedback interpretation

Judgment heuristics and group dynamics

Action implementation

Successive sharing and re-interpretation of a collective knowledge

Intra sub-group

Communication/ Sharing

Fig. 8.1  A proposed conceptual model of learning in the organization

Potential codification

• Direct experience • Interorganizational experience • Intuition

Sources of knowledge:

Socially negotiated collective new knowledge

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construction of an intendedly rational, plurally filtered, yet not necessarily unbiased knowledge, whose interpretation is potentially further negotiated with other organizational subgroups. This social process of gradual knowledge creation appears as particularly salient because, following Grant (1996), considering knowledge as an organizational phenomenon entails the danger that those organizational processes through which individuals engage in knowledge creation and deployment may actually be obscured. The situation-specific appropriateness of the resulting knowledge is verified once it is applied in a concrete situation and after receiving an ex-post feedback, which, in turn, is subject to an interpretation process guided by heuristics rules and group dynamics. The information provided by the feedback generates new knowledge related to the extent to which the previous knowledge has been situationally appropriate or to the extent to which it has been effectively implemented. In this sense, knowledge derived from feedback retroacts on the previous knowledge base through an interpretation process, that may lead either to a confirmation of the knowledge and action appropriateness or to a revision. Potentially, the final step is the codification of the resulting knowledge, which serves as a basis for interpreting subsequent sources of new knowledge. Within the deeply rooted debate on whether organizational learning is more than the mere sum of the learning of the organization’s individual members and whether no learning exists outside human minds, the missing link may be represented by the group, as the context within which relationships are established and a shared process of meaning-making takes place. The group may indeed act as the locus where facilitations or obstacles to the learning process occur. In this sense, the group is both the setting and the instrument for learning, as it enables a different comprehension of the object of knowledge.

8.2 Future Research Avenues The literature review at the core of this book highlights a number of potential research avenues in terms of both unexplored areas and controversial findings.

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8.2.1 Experience Loci and Knowledge Sources 8.2.1.1  F  rom the Individual to the Group Level: The Mediating Role of Communication and Effects on the Integration Process Knowledge sharing among an organization’s members is a key element transforming individual learning into collective leaning (Lam 2000). Communication is a sine qua non condition to allow individual learning to disseminate within the firm and is strictly intertwined with relational interactions among organizational members (Watzlawick et  al. 1967). Interpersonal systems may be considered as retroactive circuits, where the behavior of each individual within the system simultaneously influences and is influenced by the behavior of every other member.1 An essential condition that affects interpersonal perceptions and, consequently, the effectiveness of interactions, is the absence of imperviousness, for it allows the awareness and acceptance of the other’s point of view. A second possible factor that may influence the effectiveness and quality of the interaction is the model of interaction, that is, whether symmetrical or complementary. A symmetrical interaction implies that the relationship is based on a specular mimicry of behaviors, while in a complementary interaction a higher-order one-up position is faced with an inferior one-down position. Both models of interaction may become dysfunctional: symmetrical interactions are potentially subject to competitive dynamics that may even lead to escalation until stability is lost; complementary interactions, on the contrary, may become rigid and transform into a sort of collusion. Examining models of interactions, for instance within boards or TMT, may provide interesting insights in terms  A fundamental property of behavior is that it does not have any opposite, that is, absence of behavior conceptually does not exist. Therefore, if accepting that behavior in a context of human interactions such as organizations has the value of a message/communication, then absence of communication is impossible as well (Watzlawick et al. 1967). This represents a meta-communication axiom in the pragmatic of communication, as attested to by the acknowledged role of nonverbal communication. This axiom automatically implies that any communication includes both a “report” aspect, which reflects its content of information, and a “command” aspect, pertaining to the relationship between the “communicators.” 1

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of how they contribute to group polarization (Zhu 2013), groupthink, and other group dynamics. For instance, the retroactive attribute of communication leads to a potential dysfunctionality: the false prediction of a behavior causes a behavior that confirms the false prediction and makes it become true (Merton 1948). This is best known under the expression of “self-fulfilling prophecy,” which clearly generates major implications on the perception and understanding of cause-effect linkages (Watzlawick et  al. 1967). These aspects of communication play a role not only in the passage from individual to collective knowledge within the firm’s boundaries but potentially also in the interorganizational integration process following an acquisition. Indeed, single organizational groups and departments may have different experience bases and may hence learn in different ways from the same experience (Crossan et al. 1995; Holmqvist 2003). Similarly, from a cultural perspective, different organizational groups may be characterized by different subcultures, thus raising additional complications both to the acculturation process and to the creation of an atmosphere for capability transfer. Future research might hence investigate how both imperviousness and the interaction model may affect the atmosphere for capability transfer especially in terms of reciprocal understanding, willingness to cooperate, and capacity to transfer and receive knowledge and capabilities. In addition, it would also be interesting to explore whether aspects of communication affect whether the application of management systems is perceived as an imposition from the acquiring firm onto the subsidiary. The collective nature of groups also creates room for the exploration of whether experience mitigates the potential for the so-called multiple-­ personality disorder, a learning disorder in which multiple and competing invention perspectives are not coordinated and integrated with each other. This is particularly relevant in the context of acquisition decision-­ making research, where the existence of fragmented perspectives and multiple motivations (Haspeslagh and Jemison 1991) profoundly undermines the quality of the acquisition justification and drags behind unresolved issues that are potentially harmful for the integration process.

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8.2.1.2  Observational Experience Does Vicarious Learning in Acquisitions Really Exist? The Neglected Role of Self-Efficacy The inclusion of interorganizational experiences in research on the role of experience in acquisitions has provided additional interpretations of both acquisition choices and performance outcomes. However, the conceptual association between observational experience and vicarious learning is still obscure. Specifically, one question remains open: Does observation generate vicarious learning or should it be most properly seen as a generator of actions? Once a modeled behavior is replicated, the specific contextual factors existing at the moment of its implementation require adaptive adjustments of the observed model to the current circumstances, which implies that learning is fully achieved when observation is complemented with direct implementation of actions. Because with implementation/replication, learning by doing takes place, the feedback on the replicated behavior may be only partially referred to the initial source of that modeled experience. In this context, research on the relationship between observational learning and acquisition performance has actually overlooked the role played by self-efficacy. Self-efficacy is defined as the “personal belief about one’s capabilities to perform actions at designated levels” (Schunk 1991, 146; Bandura 1977). The observation of peer models typically raises the observer’s perception of self-efficacy when the action is validated by positive performance. This consideration paves the way for two potential research avenues. First, because (1) the feedback is informative of the appropriateness of an action, which is implemented through adjustments driven by the specific contingencies, and (2) it nurtures the observer’s perception of self-efficacy, a conceptual development of the mechanisms underlying observational learning would provide interesting contributions to the field of acquisitions as well as to the theoretical framework of organizational learning. A second valuable development may derive from bridging the perception of self-efficacy with institutional theory: Does perception of self-­ efficacy moderate the extent to which firms adopt strategic choices given certain external pressures for conformity? In other words, are firms that

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perceive their capabilities as inferior—that is, perception of low self-­ efficacy—less inclined to imitate models because of their fear of failure, or, on the contrary, are they more willing to opt for mimetic isomorphism in the attempt to increase their self-efficacy?

Unexplored Areas on Observational Experience Some effects of observational experience also appear to be underinvestigated. Social cognitive theory suggests that similarity to models increases the likelihood that observers will perform actions that conform to those of models. This implies, preliminarily, that the probability of imitation is linked to a perception of similarity by the observer. However, whether the observer perceives itself to be similar to a model is affected, all other things being equal, by the number of models available, somehow following the law of big numbers (Schunk 1991). Because the probability that the observer will perceive itself as similar to at least one model increases with the availability of multiple models, it would be interesting to explore whether imitation in acquisition moves changes as a function of the number of firms serving as models. A second research area that provides room for contributions relates to the relationship between observational experience and divestiture. Although divestiture has been mostly considered as an adjustment decision following a poorly performing previous acquisition, some scholars have argued that divestiture is not necessarily a signal of acquisition performance (Hitt et al. 2012). It would hence be of interest to investigate whether divestiture may be a form of frequency-based imitation, that is, whether it follows the observation of models massively divesting. Alternatively, divestiture from previously acquired units may be regarded as the result of a sort of inhibitory effect of observational experience. In other words, the observation of models suffering from poor performances in a given context (e.g., industry and country) may encourage the focal firm to divest in order to circumvent the risk of being subject to the same negative situation, thus making divestiture a form of anticipatory avoidance of losses.

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8.2.1.3  Relational Experience: Research Gaps Remaining in the territory of interorganizational experiences, interesting research avenues emerge in the context of relational experience with the target firm. Studies in this area have been interested in examining how knowledge of the target firm derived from a previous alliance affects post-­ acquisition economic performance (Porrini 2004; Zaheer et  al. 2010). Relational experience has been typically regarded in terms of whether the acquiring firm has had a prior alliance with the target in the four (Porrini 2004) or five (Zaheer et al. 2010) years before the focal acquisition. The adoption, from a methodological point of view, of a dichotomous variable to proxy reciprocal experience leaves room for additional potential insights, for instance by measuring the age of the relationship. We may indeed expect that the depth of the reciprocal knowledge may increase as the relationship consolidates over time. A more enduring knowledge of the target firm may lead to a greater quality of the strategic assessment and a more accurate and easier appraisal of organizational conditions during the justification phase. For what concerns the integration process, longer relational experiences may increase reciprocal understanding which, in turn, is conducive to the creation of an atmosphere for capability transfer. Hence, because the duration of prior alliances may affect the acquisition process, future studies might explore acquisition outcomes as a function of the age of the relationship. A second research avenue stems from the consideration that relational experience deriving from formal collaborations with the target firm may be the result also of other types of collaborations beyond strategic alliances. For example, exchange relationships between two firms in adjacent stages of the value chain may represent a source of relational experience especially valuable in case of a vertical acquisition. Thus, researchers might be interested in extending the concept of relational experience to include other types of interorganizational collaborations. This, in turn, leads to an additional consideration: diverse collaborations may involve different degrees of equity commitment, and hence provide firms with relational experiences characterized by different intensities. Exploring the contingent role played by equity, for instance by comparing relational experience from strategic alliances and joint ventures, in shaping the linkage between relational ­experience

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and acquisition outcomes seems particularly promising, as it would provide insights into potential variance in experiential effects due to equity.

8.2.1.4  P  otential Intersections Between Interorganizational Experience and Ownership Decisions in Acquisitions Extant research suggests that equity commitment in acquisitions is negatively affected by the degree of perceived uncertainty (Chari and Chang 2009). However, experience has been found as a moderating force on this uncertainty-ownership relationship (e.g., Zhu et al. 2014; Lahiri 2017). An unexplored area relates to the effect exercised by interorganizational experiences on the ownership decision in a focal acquisition. Mimetic processes may indeed respond to a need to reduce uncertainty by imitating those who have already implemented similar actions: future research might hence explore whether the ownership decision along the continuum from minority to full ownership is affected by the equity commitment chosen by models. Similarly, relational experience with the target firm may also moderate the negative relationship between uncertainty and equity commitment because reciprocal knowledge may enable the acquiring firm to more reliably assess the potential synergies and the organizational efforts to implement integration. Overall, the role played by interorganizational experiences, of both observational and relational nature, provides unexplored areas that call for contributions.

8.2.2 T  heory Development: Potential Intersections Among Path Dependence, Institutional Theory, and Transfer Theory The role of experience and learning in acquisitions has attracted the interest of diverse groups of scholars, which have offered different theoretical perspectives on the topic. At the same time, however, the conventional criteria implied in the review and publication processes reflect an expectation from most scholars that a tighter focus would make both the positioning and

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contribution clear. Yet, while on the one hand many theoretical perspectives are at our disposal, putting them together is challenging, especially when they are unconventional in a specific research territory. Honoring the conventional theoretical boundaries runs the risk of preventing true cross-­fertilizing approaches that bring together theoretical frameworks from outside the mainstream. In a context where, despite the volume of contributions produced, the underlying mechanisms of experience and learning in acquisitions still elude us, overcoming the neat borders that traditionally keep schools of thought separate from one another appears particularly urgent. Taking this approach would indeed open the way to a potentially constructive and interdisciplinary hybridization that might shed new light on the phenomenon of acquisitions and, more broadly, on firms’ behavior. Path dependence represents a potential framework that provides room for the exploration of intersections with other theoretical perspectives. Path dependence has represented a key theoretical argument explaining the deterministic effects of a firm’s historical pattern on its subsequent strategic directions. Research on path dependence in acquisitions seems to agree upon the fact that a firm’s acquisition-related strategy, in terms of acquisition propensity, activity, and type, is influenced by the acquisition-­ related strategy implemented in the past, in such a way that the firm tends to recursively reproduce its own path over time (e.g., Collins et al. 2009; Peng and Fang 2010; Galavotti et al. 2017). In parallel, another branch of studies has adopted an institutional isomorphism approach, arguing that firms are subject to external pressures for conformity and hence tend to make decisions at both acquisition strategy level and process level that are isomorphic with those taken by other organizations in their environment, for example peers and tied-to firms (e.g. Haunschild 1993, 1994; Haunschild and Miner 1997; Beckman and Haunschild 2002; Yang and Hyland 2012a, 2012b). It therefore seems that path dependence and isomorphism may actually act as opposite forces on a firm’s behavior: while path dependence emphasizes the historical path internal to the firm, institutional theory directs attention to the external field, with each of the two neglecting the other. In the context of acquisitions, where separate evidence has been found of both path dependence and institutional isomorphism in explaining

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acquisition-related strategy and process decisions, it would be particularly interesting to investigate both the firm’s own experiences and the sources of observational experience to shed light on the conditions under which path dependence prevails over isomorphism or vice versa. A further theoretical development derives from considering the relationship between path dependence and the notion of analogical reasoning that lies at the basis of experience generalizability and transfer effects. Indeed, because (1) the successful application of analogical reasoning requires a structural similarity between the familiar domain and the problem situation, and (2) the result of analogical reasoning is that the solution from the familiar domain is related to the problem situation, it appears that a lack of outcome distinctiveness may virtually exist between analogical reasoning and path dependence. Path dependence may indeed be interpreted as a signal of routines being subject to inertial pressures and to semiautomatic replication mechanisms, a phenomenon that has been acknowledged as a potential driver of premature rejection of potential alternatives. The considerations may represent a fertile ground of inquiry to connect path dependence with transfer theory and hence to explore whether negative transfer effects actually represent the other side of the coin of path dependence.

8.2.3 R  esearch Avenues on Qualitative Attributes of Experience and Experiential Processes Research on the qualitative attributes of experience and experiential learning processes has flourished in correspondence with acquisition scholars increasingly challenging the idea that the accumulation of experience per se may be a sufficient condition to develop capabilities in managing the acquisition process (Barkema and Schijven 2008). The qualitative traits examined in the literature include experience depreciation, heterogeneity, codification, and the relationship between experience and performance feedback. The exploration of their potential interconnections may further deepen our knowledge of experiential mechanisms in acquisitions. The following sections propose some of these connections, which may serve as points of departure for additional exploration that may shed light on the dynamics of experiential learning.

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8.2.3.1  Experience Depreciation: Forgetting and Transfer The time dimension of experience has been examined in terms of depreciation. The concept of experience depreciation is primarily associated with the age of experience, assuming that temporal proximity of previous experience is a driver of whether it can be easily evoked in the current situation (Levitt and March 1988). The notion of depreciation is, however, potentially more comprehensive. In its conventional meaning, depreciation refers to the useful life of an asset. The loss of value of experience is not just a function of the time lapse between its acquisition and application, which is responsible for potential forgetting, but also of two additional phenomena: interference and validity. Indeed, one question that remains open among learning psychologists is whether forgetting implies that knowledge is really lost from memory or is still present but cannot be retrieved due to distortions (Schunk 1991). These two phenomena are respectively referred to as decay and interference. While the notion of decay mirrors the argument of ­experience depreciation put forth by acquisition scholars, interference represents an unexplored dynamic in acquisition processes. The interference theory of forgetting (Postman 1961; Crouse 1981) suggests that, once learned, associations are never completely forgotten but their retrieval becomes difficult due to the existence of competing associations that hamper analogical reasoning. Therefore, at increasing experience, knowledge is incrementally nurtured by adding new lessons learned; the problem is that new knowledge may make it more difficult to remember prior associations and, at the same time, prior associations may jeopardize new learning. The phenomenon of interference provides room for potential intersection with both deliberate learning and experience heterogeneity. First, acquisition experience codification, while providing the opportunity for a more valuable learning for the cognitive efforts required, may simultaneously increase the likelihood of competing experiential materials that may ultimately interfere with knowledge retrieval. Similarly, heterogeneity of experience, while enriching the firm’s knowledge base, may add complexities in the execution of analogical reasoning. A second phenomenon responsible for the loss of value of experience is validity. Experience may depreciate, not just when it is difficult either

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to remember due to decay or to retrieve because of interference, but also when the knowledge derived from that experience is no longer valid in the present conditions, which creates connections with studies focused on transfer effects. Research suggests that the potential for positive transfer depends upon the similarity between the two events and, hence, negative transfer is typically assumed to occur when a given experience is misapplied in a focal circumstance, where the misapplication derives from the fact that the two situations are actually dissimilar (e.g., Haleblian and Finkelstein 1999; Finkelstein and Haleblian 2002). Roscoe (1971) suggests that the effectiveness of transfer is not just a function of the similarity between tasks, but also of the extent to which experience is close in time and the distribution of prior practice, which makes the effectiveness a negatively decelerated function of the amount of practice. The exploration of potential interconnections between transfer and experience depreciation may increase our knowledge of how these ­mechanisms interact: for instance, negative transfer may be due to the inability of the firm to recognize that its experience is actually no longer valid in the current situation. While depreciation expressed in terms of forgetting is related to time, depreciation in terms of lack of validity of experience in the focal circumstances is a function of the extent to which there is room for pertinent analogical reasoning and transfer. In turn, knowledge that is no longer valid may potentially activate a process of unlearning in which previous irrelevant knowledge is intentionally discarded and substituted. Furthermore, this association between validity and transfer may be potentially moderated by interference. Future research might hence investigate whether and how experience codification and heterogeneity moderate the negative transfer effect derived from the inability to recognize the lack of validity of experience.

8.2.3.2  D  eliberate Learning: Potential Connections with Experience Depreciation and Transfer Theory Deliberate learning has been acknowledged as a fundamental element that transforms tacit and unprocessed experience into explicit and cognitively manipulated knowledge (Zollo and Winter 2002). Deliberate

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learning occurs in the form of knowledge codification and contributes to the reduction of both uncertainty and ambiguity. In this respect, potential research avenues appear from bridging the knowledge-based view that underpins deliberate learning with the notions of ambiguity and learning disorders. Two dimensions of causal ambiguity have been identified in the literature: linkage ambiguity, which derives from decision-makers having different beliefs about the contribution of a given resource or competence to competitive advantage, and characteristic ambiguity, which stems from the inherent characteristic of the resource/competence (King and Zeithaml 2001). One characteristic that is particularly causally ambiguous is tacitness, because unarticulated, nonverbalized knowledge poses constraints on its mobility and transfer within the firm. In this context, deliberate learning may potentially act to reduce characteristic ambiguity, but the way in which experience codification may affect linkage ambiguity is still unexplored. Moving to the examination of potential intersections with learning disorders, the lack of communication of routines and critical knowledge has been identified as a key source of amnesia (Walsh and Ungson 1991). Causes of amnesia are, however, many and diverse, including, for instance, discount effects of experience and knowledge (Cangelosi and Dill 1965). Connecting deliberate learning with amnesia seems particularly promising to shed light on the role played by organizational memory. This, in turn, would provide interesting implications for the long-lasting debate on whether organizational learning should be intended as an individual versus an organizational phenomenon. Indeed, theorists supporting the idea that organizational learning is not an individual-level phenomenon use the argument that organizational memory survives the departure of key organizational members, whereby such survival is further enhanced by deliberate learning mechanisms. This position is, however, in contrast with the notion that experience depreciation occurs due to time-driven forgetting. Indeed, embracing the argument that codification has a positive effect in the learning cycle would imply that organizational amnesia may be virtually “defeated” by the simple existence of codified tools (e.g., procedures and documents). Future research might hence explore the interaction effects between experience depreciation and deliberate learning to under-

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stand whether experience codification slows down, or even stops, the decay process, or whether it creates interference that engenders forgetting. Furthermore, given that experience also depreciates because it may be no longer valid, deliberate learning investments may potentially create the conditions for organizational inertia and hence catalyze negative transfer effects. This second area of potential inquiry is also connected to the empirical approach used for the operationalization of deliberate learning and the consequent conceptual implications. Specifically, suggesting that codification represents a deliberate investment in learning may imply that codification is only a function of the firm’s willingness to turn experience from tacit to explicit, thus assuming that it is always possible to codify knowledge derived from experience as long as the firm is willing to invest time and resources in this formalization process. However, while the decision to codify experiential knowledge may reflect a deliberate and conscious investment in learning, the extent to which such knowledge is codified may not necessarily be a direct function of the firm’s efforts. A question therefore arises as to the extent to which experience codification leads to a mechanical learning of procedural knowledge, in that it creates routines and procedures that simply serve as ready-to-use instructions in a focal acquisition, or whether it constitutes the equivalent of conceptual maps subject to integrative reconciliations that take into account the specificities of the focal circumstances. Following this distinction, the extent to which codification leads to the first or the second type of learning is actually not just a function of codification per se but rather of learning efforts by organizational key members. The adoption of a more nuanced and contingent perspective on the interpretative dynamics and heuristics may hence shed additional light on the role played by experience codification.

8.2.3.3  P  erformance Feedback: Toward a Contingency-Based View of the Value of Feedback Many studies have acknowledged performance feedback as a critical mechanism providing information about the effectiveness of actions (Cyert and March 1963), and acquisition scholars have often linked the

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effect of prior experience to performance feedback to explain acquisition behavior (Haleblian et al. 2006; Hutzschenreuter et al. 2014). An interesting yet ambiguous open issue is related to whether some contingencies may shape the value of feedback. Among them, timing may well represent the most salient. Feedback, indeed, provides opportunities to determine whether actions were correct; however, because the completion of the entire acquisition process may take from six months to three years (Haleblian et  al. 2006), the point in time that should be selected to observe feedback remains an open issue. Specifically, two questions appear most urgent. First, at what time should performance feedback be observed for it to be considered as an informative feedback? And, second, is it really possible to consider a feedback as uniquely ­informative about the acquisition, or may it be the result of a mix of other organizational events and external conditions? The existence of “confounding factors”—for example, management turnover, productmix changes—may indeed hamper the interpretation of feedback, and if, on the one hand, feedback should be captured when the entire acquisition process is completed, on the other its informative value may depreciate due to confounding factors accumulating over time. Future research might hence explore the role played by the quality of feedback in terms of how the feedback retroacts on experiential knowledge as a function of the time lapse with which it is received, which in turn may affect its degree of informativeness. This could indeed represent the point of departure for establishing connections between feedback and the information-attribution relationship. In attribution theory, the principle of salience suggests that the attribution of an observed effect to a given cause depends on which cause is perceived as most salient at the moment in which the event is observed. The time dimension of feedback, for example, in terms of time delay, may hence carry implications on the extent to which feedback is attributed to the acquisition or to other causes. An apparent causal relationship may indeed not be real, thus leading to inappropriate behavior guided by dysfunctional beliefs on causality. Such dysfunctional beliefs may be caused by coincidental associations, linked to the selection of the wrong predicting events of a given outcome, or by a type of inappropriate generalization that occurs in case outcomes causally related to a given event become expected when a similar event occurs (Bandura 1977).

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Furthermore, because feedback interpretation may also be strongly affected by social desirability and consensus, future research might explore whether the content of feedback is more likely attributed to situational constraints or to dispositional factors, respectively, depending on whether or not the outcomes are consistent with expectations.

8.2.4 R  esearch Avenues on Empirical Approaches and Implications of Methodological Choices 8.2.4.1  P  otential Evolutions in Empirical Approaches and Operationalization Choices The empirical approaches adopted in studies on experience and learning in acquisitions offer interesting avenues for future research, especially considering that methodological issues have been acknowledged as a potential driver of mixed findings (March and Sutton 1997; Barkema and Schijven 2008). From the point of view of the empirical methodology used, only few academic contributions have adopted a qualitative methodology (e.g., Kreiner and Lee 2000; Harris 2007; Riviezzo 2013; Bingham et al. 2015; Maitland and Sammartino 2015). More qualitative research may provide both a conceptual refinement and an in-depth examination of experiential mechanisms in acquisitions. Several considerations may also be made on the different operationalization approaches, which mainly reflect a lack of consensus upon how experience and learning constructs may be most properly operationalized. Indeed, while dichotomous measures do not enable one to appraise the effects brought forth by experience accumulation, discrete measures run the risk of a lack of conceptual distinctiveness between experience and a “crude version of the rate or speed at which a firm engages in a strategic activity” (Barkema and Schijven 2008, 628). In other words, operationalizing experience in a strategic activity through the number of times the firm has engaged in that strategic activity implies equating experience with the pace with which a given strategic activity has been performed. In this respect, while it has been suggested that the mixed findings may be due to the heterogeneous measures used, whereby ­studies

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seem to point to different constructs, no conceptual difference actually does seem to exist between the notions of acquisition experience, acquisition activity, and acquisition rate/frequency. Yet, within a given time interval, the sole number of acquisitions automatically becomes itself an indicator of acquisition rate/frequency/activity/experience. Similarly, the operationalization of organizational forgetting actually coincides with measures of acquisition frequency, thus further contributing to the lack of unidirectional and unequivocal combinations between constructs and measures (Meschi and Métais 2013). The existence of diverse measures for the same construct, or, alternatively, the use of the same measure to capture different constructs, along with the arbitrariness of time windows selection, creates potential issues of construct validity while also contributing to an increasing methodological and conceptual fragmentation. Doubts therefore arise on measures’ appropriateness in terms of construct validity and on the possibility that some proxies, even if consolidated in empirical research, may actually capture only partial aspects of the phenomenon, thus raising the need to assess both the reliability and the validity of measures.

8.2.4.2  T  ime Windows for the Observation of Experience: Implications Different time windows for the observation of experience reflect subjective choices along the continuum from short term to long term. In their review of the literature on the role played by experience on acquisition performance, Barkema and Schijven (2008) suggest that both short and long time windows may entail several implications, because while using short time frames may represent an underestimation of a firm’s ability to retrieve past events, using long time frames may imply an overestimation of such ability. Actually, however, the selection of a time window for the measurement of experience may actually be considered as an implicit stance on the issue of experience depreciation. While the selection of long time windows, if not combined with the inclusion of discount factors, assumes that the useful life of a given experience remains immutable over time, the reliance on a given number of years (e.g., 4 years) indicates a latent choice about the point in time after

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which experience starts to be too old to be recollected. The existence of a huge number of different approaches and time spans for observing a given experience suggests that future research might more clearly “localize” depreciation within time to increase our understanding of how the age of experience affects its value.

8.2.4.3  Experience Endogeneity The notion of experience endogeneity builds on two considerations: first, that corporate development activities such as mergers and acquisitions are infrequent and causally ambiguous (Zollo 2009), and, second, that there is a path-dependent repetition tendency, especially of those activities that generated positive outcomes (Greve 2003). Anand et al. (2016) therefore argue that experience accumulation in the context of corporate development activities such as acquisitions is not exogenously determined but rather results from endogenous decisions that have been previously taken with the expectation to achieve superior performance. Therefore, ignoring the possible circular causation that may potentially occur when observing the effect of experience on subsequent decision-making may lead to misleading interpretations.

8.2.5 D  yadic Approach to Experience: Exploration of Experience Asymmetries With the majority of existing research adopting the perspective of the acquiring firm, only some scholars have specifically adopted a dyadic perspective that takes into consideration the experiences of both the acquiring and the target firms in terms of acquisition-related experience differentials (Porrini 2015; Cuypers et  al. 2017). The awareness that acquisitions inherently imply two initially distinct and separate organizations, although implicitly and preliminarily assumed in any study on acquisitions, has not, paradoxically, turned into an investigation of how the different characteristics of acquirer and target may impact both acquisition behavior and acquisition performance. In particular, although any acquisition scholar is perfectly aware that acquisitions

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represent a form of interorganizational aggregation and, hence, are dyadic in nature, the dissatisfying performance results obtained by acquirers have increasingly pressured scholars toward the identification of some sort of rules of thumb that may drive acquisition success, thus resulting in an overemphasized focus directed solely to acquiring firms’ value creation or erosion at the expense of a dual perspective. Only few studies have explicitly addressed this issue. For instance, in their study on the performance differentials between new ventures and established firms, Ragozzino and Reuer (2010) use the theoretical perspective of information economics to examine the role played by information asymmetry between acquirer and target in determining acquisition performance and find that dissimilar knowledge bases of acquirer and target generate lower performance in new ventures if compared to established firms. Cuypers et al. (2017) investigate how experience differences between acquirer and target affect the extent to which more value is captured by the acquirer or the target and find that value appropriation is a function of which of the two firms possesses more experience. The adoption of a comparative approach that captures the implications of experience differentials between the acquiring and target firms could be extended beyond the respective stocks of experience to include also the extent to which the two experience bases differ in qualitative terms. For instance, it could be interesting to determine whether the degree of experience codification and of experience heterogeneity of the two firms impacts on post-acquisition outcomes. Similarly, through the adoption of a process perspective, the exploration of experience differentials may shed new light on how they affect the negotiation and the creation of an atmosphere for capability transfer.

8.2.6 R  esearch Avenues on the Specific Context of Serial Acquirers and Acquisition Programs The research context of serial acquirers has represented a fertile ground for research on experiential effects in acquisitions. The research question most commonly explored is whether experience weakens the negative effects of overconfidence on post-acquisition performance or whether it contributes to nurture overconfidence. Empirical results are mixed: while

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some scholars have found that experienced CEOs may become ­overconfident and engage in value-destructive acquisitions (Billet and Qian 2008), other authors have suggested that learning outcomes from previous acquisition experiences may help to mitigate hubris because, thanks to experience, hubris-infected CEOs show a tendency toward cautious bidding (Aktas et al. 2009). In light of these mixed findings, additional research is needed to further explore the role played by acquisition experience in connection with attribution theory. A second issue relates to the definitions of serial acquirers provided in the literature. Whether serial acquirers should be intended as those acquirers that perform at least two acquisitions in five years (Billet and Qian 2008) or that perform at least four acquisitions in ten years (Laamanen and Keil 2008; Chao 2017) carries substantial implications in terms of sample selection (see Sect. 7.2.4). Furthermore, the frequency of acquisitions, being a mean value, may not represent, per se, a sufficient criterion to determine if a firm should be considered as a serial acquirer or not, as it does not provide information on the actual time distribution of single acquisitions in the elapsed time considered. This issue provides fertile ground for additional research in terms of identification of additional criteria that may univocally define serial acquirers.

8.3 Conclusions The role of experience in mergers and acquisitions is studded with many controversial areas and open issues. After approximately 40 years of literature on what still represents a hot topic in acquisition research, we are still quite far from reaching consonant and unambiguous conclusions on the role played by experience and learning in mergers and acquisitions. Over the decades, academic interest on this topic has increased in both scope and sophistication, gradually contributing to advance our understanding while developing a more refined perspective on experience and experiential dynamics. However, reflecting the theoretical fractures among schools of thought in the psychology field as to how learning should be conceived, a literature has developed through the fragmentary elaboration of heterogeneous notions (Nicolini and Meznar 1995).

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Among the unsolved theoretical puzzles inherited from the diverging epistemological orientations on learning in psychology studies, a long-­ lasting debate exists on organizational learning representing a functional extension of notions on individual learning. This borrowing has been criticized by scholars viewing in such a functional extension a dangerous anthropomorphization of organizations. If, on the one hand, this has created the opportunity for conversations among strategic management and organizational scholars on the role of experience and learning in firms’ lives, simultaneously it also seems profoundly inconsistent with the idea that organizational learning differs from individual learning. The absence of a unifying framework on organizational learning has inspired recursive efforts to identify areas of conceptual divergences and to propose more integrative approaches (e.g., Huber 1991; Crossan et al. 1995; Fiol and Lyles 1985; Nicolini and Meznar 1995; Spender 1996) but the obscure frame of reference has resulted in a mixed state of the art. Although organizational learning literature suggests that the repetition of an activity provides competence in performing it (Pennings et  al. 1994), research on acquisition experience has provided evidence that it does not necessarily imply learning (Zollo and Singh 2004) and superior acquisition capabilities (Barkema and Schijven 2008). Indeed, while experience accumulation represents a stimulus providing momentum for further expansion through acquisitions, the heterogeneity and the causal ambiguity that inherently underpin acquisitions may possibly hinder experience spillovers while implying that its effect might be contingent upon other factors. Experience may indeed be subject to organizational inertia, which may lead acquirers to reuse consolidated routines in subsequent, yet only superficially similar acquisitions, thereby causing negative transfer effects. In light of the considerations raised throughout the book, some of which represent consolidated, unsolved areas of debate, it seems that the reason why the role of experience in acquisitions has become a Rubik’s cube over the past few decades is that it derives from multiple conceptual divergences among scholars, and potentially from some dynamics in the learning process being overlooked. Although routines, documents, procedures, social values, and organizational culture represent a repository of organizationally relevant knowledge,

  Implications for Research and Conclusions 

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it is still individuals who experience, elaborate, interpret, communicate, and behave. The risk of depersonalizing learning on the one hand and the need, at the same time, to circumscribe that type of learning that has organizational value represents a sort of trade-off for scholars, struggling with the ephemeral and evanescent nature of concepts that are inherently abstract and difficult to observe. The missing link may be represented by the group, being the context within which a relationship is established and the locus where facilitations or obstacles to the learning process occur. Acquisitions represent fundamental strategic moves for corporate change and expansion, and will probably continue to attract the interest of scholars in the future. Addressing the themes outlined above could further deepen our understanding of the interactions between experiential dynamics and the value-creation mechanisms underlying this key, yet ambiguous mode for corporate renewal.

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Index1

A

Absorption, 94, 96, 111, 206 See also Integration, approaches Absorptive capacity, 97–98, 119, 165, 168, 212, 213, 223 Acculturation, double-layered, 116, 118 Acquisition activity, xvii, 100, 102, 119, 127, 129, 147, 158, 160, 163, 185, 191, 193–198, 212, 214–215, 221, 225, 245, 315–316 assisted, 227, 240 behavior, 163, 171, 184–198, 246, 247, 314, 317 completion, 192, 195 cross-border, 116, 118, 151–153, 157, 159, 164, 165, 170, 188, 190, 192, 194, 195, 203, 205, 223, 271

decision-making, 106–109, 303 domestic, 152–153, 159, 189, 190, 195, 203, 271 emphasis, 198 failure, 215 frequency, 194, 224, 226, 227, 245, 265, 269, 316 integration, 109–112, 271 process, xxi, 92, 103, 108, 118, 153, 155, 160, 165, 166, 169, 171, 183, 186, 190, 198–207, 220, 221, 243, 246, 247, 267, 274, 306, 309, 310, 314 program, xxi, 168, 224–227, 269–270, 318–319 propensity, 152, 185, 193–196, 247, 308 rate, 225–226, 245, 269, 316 related-complementary, 104, 104n2

 Note: Page numbers followed by ‘n’ refer to notes.

1

© The Author(s) 2019 I. Galavotti, Experience and Learning in Corporate Acquisitions, https://doi.org/10.1007/978-3-319-94980-2

327

328 Index

Acquisition (cont.) related-supplementary, 104, 104n2 sequencing, 224, 225, 269 types, 104n2, 189–191, 243, 246 Activity segmentation, 108 Adaptation evolutionary, 20, 68 incremental, 29, 171 intelligent, 70–73 organizational, 67–69 potential for, 18 rational, 9 Adaptive aspirations, 172 Adaptive planning model, 65 Advisor selection, 201–202, 221, 247 Agency problem, 100 relationship, 99, 100 theory, 100, 219 Alien-hand syndrome, 82 Alliances, 62, 143, 159, 160, 165, 185–188, 197, 212, 220, 223, 306 See also Strategic alliances Ambiguity causal, 98, 170, 171, 312, 320 characteristic, 98, 116, 312 linkage, 98, 312 Ambiguous expectations, 108 Amnesia, 60, 82, 83, 312 Analogical reasoning, xx, 73–74, 83, 219, 309–311 Anchoring, anchoring effect, 80, 247, 248 Anthropomorphization, xx, 57–62, 74, 320 See also Organizational, anthropomorphization

Anticompetitive effects, 203 Appropriability, 56, 96, 98, 116, 187 See also Knowledge Aspiration level, 11 Asset specificity, 23, 115, 187 Assisted acquisitions, 227, 240 See also Acquisition Atmosphere for capability transfer, 110, 303, 306, 318 Attainment discrepancy, 11 Attribution theory, 75, 201, 314, 319 B

Behavioral change, 52 potentiality, 52 theory, 9–12, 21, 33, 41, 47, 66, 70–71, 82n7, 155, 171, 194 Behaviorism, 42–49, 49n3 Better-than-average effect, 102 Bias attribution, 79, 99, 101 cognitive, 28 hindsight, 102 Blindness, 81 Boundary -contraction mode, 185 -expansion mode, 185 C

Capabilities-based view, 97, 106, 117, 119, 144, 158, 212, 214, 217 Capability combinative, 97, 98, 117 dynamic, 97

 Index 

Causal ambiguity, 98, 170, 171, 312, 320 See also Ambiguity Causal attribution, 75–79, 81 CEO experience, 189 narcissism, 196, 198 Choice under ambiguity, 4, 8, 12 under uncertainty, 4, 8, 12 Circular causation, 277, 317 Coalition dominant, 10, 30, 31, 65 political, 12, 109 Codification of experience, 144, 166, 169–170, 213, 216–217, 267–268, 310–313, 318 of knowledge, 56, 170, 217, 301, 312 Cognition, 9, 13, 28, 29, 41, 51, 52, 54, 71–73 Cognitive simplification processes, 80–83 Cognitivism, 42, 43, 48–49, 71 Communication, 33, 50, 63, 67, 83, 160, 204, 302, 302n1, 303, 312 Compatibility, 105, 106, 108, 207, 248 cultural, 105 interorganizational, 207 Competency multiplier, 171, 194 trap, 81, 168, 172, 173 Competitive advantage, 35, 41, 56, 96, 98, 114, 312 Complements

329

co-specialized, 104 generic, 104 specialized, 104 Concurrent learning, 212 See also Learning Conditioning theories, 44–47, 53, 83 Connectedness, 26 Connectionism, 44–45 Constructivism, 43, 49–50 Construct validity, xxii, 274, 277, 316 Contiguity learning, 45 Contingency theory, 13–18 Contingent payouts, 203, 205 Continuum from autonomy to absorption, 206 consciousness–subconsciousness, 29 market-hierarchy, 23 means-ends, 8 from minority to full ownership, 191, 307 from short-term to long-term, 257 from value creation to value destruction, 210 Contracting costs, 202 Convergence acquisitions, 105 Corporate scope growth, 184–198, 246 Cost efficiency, 92, 95–96, 106, 208 Covariation, covariations, 5, 77 principle of, 76 Cross-border acquisitions, 116, 118, 151–153, 157, 159, 164, 165, 170, 188, 190, 192, 194, 195, 203, 205, 223, 271 See also Acquisition

330 Index

Cultural distance, 151, 195 Cultural experience reserve, 151, 195 Customer retention, 209, 217, 227 D

Depreciation, xxi, 144, 167, 263–265, 309–313, 316, 317 See also Experience Directors’ independence, 219 Discount, 167, 187, 263–266, 312, 316 Dissemination, 65, 127, 169, 267 Diversification, 93, 94, 111, 117, 191, 198, 265 Divestiture, 159, 160, 172, 185, 187, 201, 215, 270, 305 Domain definition, 1, 2 exploration, 117, 118 extension, 117 navigation, 2 strengthening, 117 Domestic acquisitions, 152, 153, 159, 189, 190, 203 See also Acquisition Due diligence, 102, 118, 165, 211 E

Economic geography, 196, 197 See also Spatial, clustering Economies of scale, 16 of scope, 96, 103, 114 of specialization, 202 Efficiency claims, 203–204

defense, 203 maximization, 22 Enacted environment, 21, 72n5, 73 Enactment, 72 Environmental complexity, 14 illiberality, 15 manipulation, 16, 19, 22 perception, 16, 22, 25 selection, 16, 17 stress, 15 variability, 14 Epistemology constructivist, 30 objectivistic, 28 subjectivistic, 25, 72 Equity participation, 185, 191–193 Escalating momentum, 108, 119, 198, 200 Establishment mode, 188 Evolutionary theory, 17–20, 44n1, 68 Exogenic-endogenic antinomy, 43 Expatriates, 214 Experience accumulation, 166, 169–171, 207, 217, 243, 245, 277, 315, 317, 320 asymmetries, 317–318 codification, deliberate codification, 144, 166, 169–170, 216, 217, 267–268, 310–313, 318 depreciation, 144, 167, 263–265, 309–313, 316 endogeneity, 277, 317 feedback, 172 firm-nested, 142–143, 145–162

 Index 

generalization, 80, 82–83, 149 heterogeneity, 144, 166, 168–169, 265–267, 310, 318 interorganizational, 166 locus, loci of, xxii, 162, 202, 271–276, 302–307 observational, 142, 143, 162–164, 220, 246, 248, 249, 272, 274, 299, 304–305, 309 reciprocal, 143, 202, 274, 306 relational, 143, 164–166, 202, 210, 211, 220, 223, 246, 248, 255, 306–307 retrieval of, 167, 263 similarity of, 153 specificity of, 148, 150, 152 stock of, xxi, 79, 141, 142, 147, 148, 171, 243, 258, 263, 264, 267 timing, 166, 263, 265 transfer, 149, 212 validity of, 311 Experiential learning, xvii, xx, 70–73, 80, 118, 139, 141, 154, 170, 192, 195, 206, 224, 309 Exploratory learning, 162 Extinction, 46, 47, 67

331

Foreign market entry, 159, 185, 186, 188–189, 192n1, 214, 220 Forgetting, 47, 258, 265, 277, 310–313, 316 See also Organizational, forgetting Formal collaborations, 62, 143, 165, 223, 306 Functionalism, 5, 7, 9 Fundamental attribution error, 77 G

Garbage can, 12–13 Generalization, 24n1, 45, 57n4, 60, 63, 74, 80, 82–83, 148, 149, 153, 196, 309, 314 See also Transfer Geographic proximity, 198, 214 Governance decisions, 160, 163, 184–198 form, 23, 114–116, 160, 187 mode, 145, 158–160, 185–188, 213, 215, 246 Greenfield investments, 134, 159, 188, 189 Group coalition, 21 dynamics, 9, 62, 301, 303 polarization, 204, 220, 303 think, 303

F

Feedback, xxi, 71, 144, 166, 170–173, 194, 272, 301, 304, 309, 313–315 See also Interpretation of feedback Fit organizational, 102–112 strategic, 102–112

H

Heterogeneity of experience, 265, 267, 310 See also Experience, heterogeneity Heuristics, xx, 6, 29, 63, 74, 75, 80, 82, 161, 200, 247, 248, 271, 301, 313

332 Index

Higher-order routines, 170, 217 Homogenization, 25, 26, 49 Horizontal expansion, 94, 97 Host country experience, 159, 189, 240 risk, 158, 192 Hubris hypothesis, 101, 200, 226 Hubristic effects, 79 I

Identical elements principle, 45 Idiosyncratic volatility, 192, 205 Illusion of control, 82, 119 Illusory correlations, 77 Imitation of acquisition activity, 221 of acquisition type, 220 of foreign market entry mode, 220 frequency-based, 162, 163, 188, 194, 202, 247, 305 mode, 162, 222, 246 outcome-based, 162, 163, 194, 202, 222 second-order, 218, 222 trait-based, 162, 163, 194, 201, 202, 222 Imperviousness, 302, 303 Inertia, 68, 170, 217 See also Organizational, inertia Information asymmetry, 165, 206, 211, 223, 227 exchange, 204, 214 feedback, 170, 171 Innovation capability, 213, 280

experience, 213 performance, 212, 213 Institutional theory, 24, 26, 27, 49, 142, 170, 192, 195, 304, 307–309 Integration approaches, 111, 112 costs, 189 cultural, 105 design, 206–207 human resource, 105 of information systems, 216 interorganizational, 105, 206, 303 process, 100, 106, 107, 109–112, 118, 216, 217, 271, 302–303, 306 task-specific, 199, 206–207 technology, 206, 207 Integrative reconciliations, 50, 268, 313 Interaction complementary, 302 symmetrical, 302 See also Model of interaction Interdependence(s) behavior, 21, 93 commensalistic, 94 competitive, 93, 94 environmental, 93 outcome, 21, 93 strategic, 111 Interest, 99 Interference theory, 310 Interlock(s), interlocking, 163, 197, 205, 211, 222, 247, 249, 250 International diversification, 198 International orientation, 158, 192 Interpretation of feedback, 314

 Index 

Intuition, 28, 29, 299 Isomorphism coercive, 25 competitive, 24 institutional, 24–26, 194, 195, 308 mimetic, 25, 190, 305 normative, 25 J

Joint-ventures, 62, 159, 185, 187–189, 213, 270, 306 Justification for the acquisition, 107, 109 for the premium, 101 K

Knowledge acquisition, 43, 48, 58–59, 97, 127, 147 application, 57 appropriability of, 56, 96, 187 assimilation, 212 -based view, 97, 166, 169, 187, 216, 217, 312 codification of, 56, 82, 169, 170, 217, 301, 312 creation, 56, 57, 301 development, 208, 212–213 digestibility, 187 dissemination of, 64–65, 267 explicit, 55–57, 267 similarity, 187 sourcing, 187 specificity, 187 spillovers, 212, 217

333

tacit, 55–57, 169 transferability of, transfer of, 55, 56, 82n7, 96–98, 143, 170, 214, 246, 267, 303 L

Laboratory analysis, 239 Law of causal learning, 171 of causal relationship, 170 of information feedback, 170, 171 Leadership vacuum, 109 Learning by analogy, 74 by assimilation, 50–52 by-doing, 53, 139, 142, 169, 272, 277, 304 by observing, 264 concurrent, 212 curve, xxi, 59, 139–144, 146, 148, 149, 166, 277 deliberate, 168–170, 195, 216, 268, 310–313 disorders, xx, 60, 75, 80–83, 303, 312 ecology, 162 experiential, xvii, xx, 70–73, 118, 139, 141, 154, 170, 192, 195, 206, 224, 309 experimental, 58 interorganizational, 62 meaningful, 50, 268 mechanical, 50, 268, 313 Learning-performance link, 75 Legitimacy, 6, 24, 24n1, 25, 27, 116, 194

334 Index

Liability of foreignness, 116, 118, 151, 159, 191, 192n1 Locus of experience, xxii, 271–276 See also Experience M

Managerial autocracy model, 64 Managerial compensation, 100, 218, 219 Managerial self-interest, 99, 100, 110, 211 See also Opportunism, opportunistic behavior Market power, 92–95, 103 See also Synergy, sources of Measures dichotomous, 242–246, 259, 260, 315 discrete, 242–246, 259, 261–262, 265, 267 Memory, 33, 52, 54, 57–60, 129, 310, 312 See also Organizational, memory Merger remedy, 203 Method of payment, 201, 205–206 Methodology case study, 270 qualitative, 239, 270, 315 quantitative, 239, 242, 270 Mimetic processes, 162, 188, 205, 220–223, 246, 307 Mindfulness, 172 Misapplication of management systems, 109, 110, 198 Model of interaction, 302 See also Interaction Momentum

contextual, 70 positional, 70 repetitive, 70, 148, 150 strategic, 69, 70, 190, 193, 194 Multiculturalism, 207 Multiple motives, 109 Multiple-personality disorder, 81, 303 Mutual dependence, 21, 94, 95 N

Natural selection, 17, 68 Negotiation, 10, 50, 65, 99, 103, 108, 109, 118, 155, 158, 165, 198, 199, 201–206, 211, 219, 223, 227, 240, 299, 301, 318 Network diversity, 205 embeddedness, 21, 197, 202 of interdependences, 21 interorganizational, 26 partners, 142, 163, 205 theory, perspective, 163, 196, 197, 273 ties, 26, 163 O

Observational experience, observational learning, 48, 49, 142, 143, 162–164, 162n1, 166, 220–223, 246, 248, 249, 251–253, 272, 274, 299, 304–305, 309 Observation of models, 48, 142, 272, 305 OLI framework, 192

 Index 

Operant behavior, 46 Opportunism, opportunistic behavior, 23, 115, 165, 187, 197, 211, 219 See also Self-interest Organizational anthropomorphization, xx, 57–62, 74, 320 autonomy, 111 forgetting, 47, 265, 277, 316 inertia, 165, 170, 172, 211, 223, 313, 320 learning, xx, xxii, 41–43, 47, 50, 51, 53, 54, 57–65, 75, 82n7, 140, 154, 160, 162, 165–167, 171–173, 187, 194, 195, 263, 272, 299–301, 304, 312, 320 memory, 54, 57–60, 312 restructuring, 155, 215 set, 3, 21, 26 slack, 11, 14, 15, 171 subgroup, 299, 301 unlearning, 60–61 Overcapacity acquisitions, 105 Overcommitment, 200 Overconfidence, 79, 99, 101–102, 110, 119, 171, 210, 224, 226, 227, 318 Overpayment, 102, 165, 210–212, 223 Ownership, 191 decision, 185, 191–193, 246, 251–253, 307 from minority to full, 191, 307 (see also Continuum) mode, 185, 188–189

335

P

Path dependence, xx, 67–70, 74, 148, 153, 155, 156, 159, 160, 187, 190, 194, 206, 307–309 Peer models, peers, 142, 163, 194, 202, 222, 247, 304, 308 Performance firm-level, 208, 212, 227 task-level, 208, 214 transaction-level, 208, 213, 214 Personality psychology, 196, 198 Polarization, 109, 204, 220, 303 See also Group Political expediency model, 65 Population ecology, 17–20, 24, 27, 67, 68 Post-outcome euphoria, 172 Power bargaining, 99, 211 decentralization, 216 differentials, 95, 207 imbalance, 12, 95 maximization, 24 Premium, 101, 102, 164, 199, 201, 202, 208, 210–212, 215, 221, 247, 248, 278, 285 decisions, 204–205, 220–222, 248–250, 254 Preservation, 18, 59, 111, 207 See also Integration, approaches Principle of covariation, 76, 77 of noncommon effects, 76 of primacy, 76, 77 of salience, 76, 314 of similarity, 76 Prior hypothesis bias, 80, 81 Problem formulation, 28, 30–32, 65

336 Index

Problem-solving, 2, 31, 32, 64, 73–75, 80 Process perspective, xviii, xx, 102–112, 155, 318 Projection, 81 Punishment, 44–47, 48n2 R

Rationality adaptive, 66–67 bounded, 7–9, 12, 13, 19, 23, 28–31 contextual, 30, 31 legitimacy-seeking, 31 perfect, 7, 8, 29 Reactive sequence, 69, 190 Reinforcement, 46–47, 52, 53, 83, 170 Related-complementary acquisitions, 104n2 See also Acquisition Relatedness, 103, 150, 190, 191, 246, 279, 286 Related-supplementary acquisitions, 104, 104n2 See also Acquisition Relational experience, 143, 164–166, 202, 210, 211, 220, 223, 246, 248, 255, 306–307 Relearning, 60 Renewal corporate, xx, 117–118, 321 strategic, 114–117 Replication, 70, 149, 156, 213, 272, 304, 309 Representativeness, 74, 82, 83 Resistance to change, 68, 70 Resource

allocation, xx, 1, 11, 33, 91, 92, 222 -based view, 56, 96, 103–104, 114, 117, 144, 150, 187, 191 dependence theory, 20–22, 24, 27, 72n5, 93, 94, 160, 163, 197 redeployment, 92, 96–98, 114, 246 Restructuring, 155, 156 See also Organizational, restructuring Revenue-enhancement (synergy), 95 Risk perception, 4, 158, 192 propensity, 4, 11, 283 sharing, 100 Routines, xviii, xx, 19, 31–34, 53, 59, 63, 68, 83, 97, 98, 118, 149, 150, 153, 154, 156, 161, 167, 170–172, 190, 194, 200, 201, 217, 263, 268, 309, 312, 313, 320 Rules attention, 10, 51, 66, 67 decision, 10, 18–20, 67 search, 51, 66, 67 S

Scope corporate, 114, 184–198, 246 economies, 95, 96, 103, 114 Selection stage decisions, 199–201 Self-attribution bias, 226 Self-confidence, 101–102 Self-efficacy, 49, 304–305 Self-fulfilling prophecy, 303 Self-interest, 23, 100, 110, 210, 211 Self-observation, 54

 Index 

Self-reinforcing sequence, 69 Semiautomatic replication, 156, 213, 309 Sense-making, 30, 72, 73 Serial acquirer, xxi, xxii, 154, 183, 224–227, 242, 245, 269–270, 318–319 Simplemindedness, 81 Single outcome calculation, 81 Small world representations, 200 Social cognitive theory, 53, 272, 305 Social desirability, 77, 315 Spatial agglomeration, 198, 215 clustering, 197, 198 extension decision, 201 Strategic alliances, 62, 165, 306 See also Alliances Strategic choice, 13–17, 20, 21, 63, 72n5, 82, 199, 304 Strategic continuity, 114 Strategic interdependence, 111 See also Interdependence(s) Strategic renewal, 114–117 Structural equivalence, 26 Structure sub-institutional, 61, 62, 299 surface, 61, 62, 299 Subsidiary evolution, 213–215 survival, 208, 213–215, 243 Superstition, superstitious learning, 82, 83, 171–173 Symbiosis, 111 See also Integration, approaches Synergy, sources of, 93–98 Systematic review, xxi, 126–128, 130, 131, 133 Systemic bureaucracy model, 64

337

T

Target selection, 165, 199, 214, 219, 247 Threat-rigidity hypothesis, 190 TMT demographic characteristics, 158, 196 diversity, 216, 285 experience, 196, 285 functional background, 196 international orientation, 158, 192 turnover, 218 Transaction cost economic (TCE) theory, 22–24, 187 Transfer, 45, 56, 60, 82, 82n7, 96–98, 106, 109–111, 114, 116, 149, 154, 156, 161, 162, 167, 169, 170, 189, 207, 212, 213, 246, 267, 282, 303, 306, 310–311, 318, 320 theory, 150, 153, 173, 214, 307–309, 311–313 See also Generalization Trial-and-error learning, process, 44, 140, 172 U

Unlearning, 47, 60–61, 311 See also Organizational, unlearning Unrelated acquisitions, 94, 150, 152, 164, 189, 190, 251, 254, 286 Upper echelons theory, 160, 192, 196, 214 Utility maximization, 8, 10, 30

338 Index V

Value appropriation, xx, 98–99, 213, 318 capturing, 99 creation, xvii, xx, 92–112, 118, 152, 204, 206, 210, 211, 213, 223, 318, 321 destruction, xvii, xx, 99–102, 109, 110, 118, 119, 210

erosion, 102, 318 Vertical integration, 94, 97 Vicarious learning, 159, 190, 248, 272, 304–305 W

Wave (acquisition, merger), 100, 129, 225