Acquiring IT Competencies through Focused Technology Acquisitions

In the turbulent information technology (IT) industry, firms need to continuously innovate to maintain or increase their competitiveness. Focused technology acquisitions provide a means to rapidly gain IT competencies and innovations. Research consistently identifies knowledge and culture as critical antecedents to success in these acquisitions. Since such studies are typically observational, these constructs have been considered independently and within limited parametric values. Incorporating an agent-based simulation expanding on the March (1991) exploration-exploitation model, we show that there are marginally decreasing returns on knowledge appropriation, but non-decreasing linear returns on cultural appropriation. Our findings also show that combinations of appropriation strategies yield equivalent performance benefits. Gains are improved by insulating retained employees from any exploitive cultural influences. We confirm prior evidence of the “dual-edged” sword effects of cultural appropriation of acquiring underperforming IT firms.