Reconfiguring the firm’s core technological portfolio through open innovation: focusing on technological M&A

Abstract

Purpose The purpose of this study is to investigate the effects of open innovation, especially focusing on technological M&A, on subsequent innovation and changes to the firm’s core technological portfolio. Design/methodology/approach The study suggests three types of core technological areas, based on prior focus and experience in technological categories. These are 1) the existing core area, in which the acquirer firm retains its knowledge and expertise, 2) the enhanced core area, where knowledge and expertise in the acquirer firm’s insufficient areas are strengthened, and 3) the new core area, i.e. new knowledge fields in which the acquirer firm ventures into. The study then analyzes the effects of two key knowledge characteristics of the target firm, similarity and complementarity, on post-M&A innovation outcomes in each of the three core technological areas. Findings The results confirm that while none of the investigated knowledge characteristics of the target firm is advantageous for post-M&A innovation outcomes in existing core areas, similarity of the target firm does facilitate post-M&A innovation outcomes in enhanced core areas. Moreover, the results confirm that complementarity of the target firm is beneficial for post-M&A innovation outcomes in new core areas. Originality/value The study explains the reconfiguration mechanism of a firm’s core technological portfolio. It also suggests an extended framework to analyze innovation outcomes in more detail. Moreover, the study helps to explain why most M&As result in failure.