1. This is often referred to as thesuccess trap or acompetency trap. See, for instance, D.N. Sull, “Why Good Companies Go Bad,” Harvard Business Review 77 (July/August 1999): 43–52; D. Miller, “What Happens After Success: The Perils of Excellence,” Journal of Management Studies 31 (1994): 325–358; D.A. Levinthal and J.G. March, “The Myopia of Learning,” Strategic Management Journal 14 (1993): 95–112.
2. Personal communications, February to April 2003.
3. Hybrid vigor occurs when a large, secluded population whose gene base has grown narrow over the years is combined with a relatively small group with a different set of genes. Although in itself a small event, it may trigger an exponential process that in a short period of time restores the variety in the population’s gene base, enabling it to avoid decline and readapt to its environment. For instance, there is some evidence that this effect took place in Polynesia when the mutineers of the H.M.S. Bounty took their Polynesian wives. An acquisition may have a similar effect on a larger firm; the practices of the acquired unit may combine with those of the acquiring corporation to enable the creation of a new repertoire, in terms of the firm’s beliefs, systems and practices, which revitalizes the entire company. See L.F. Keller and D.M. Waller, “Inbreeding Effects in Wild Populations,” Trends in Ecology & Evolution 17 (2002): 230–241; P.K. Ingvarsson, “Restoration of Genetic Variation Lost — The Genetic Rescue Hypothesis,” Trends in Ecology & Evolution 16 (2001): 62–63.
4. Personal communication, April 2003.
5. There may be other ways. Prior research, for instance, shows how a firm’s foreign subsidiaries may bring fresh approaches from their local environment into the firm. See J. Birkinshaw, “Entrepreneurship in Multinational Corporations: The Characteristics of Subsidiary Initiatives,” Strategic Management Journal 18 (1997): 207–229; J. Santos, Y. Doz and P. Williamson, “Is Your Innovation Process Global?” MIT Sloan Management Review 45 (summer 2004): 31–37. For a similar effect for a variety of product markets, see D. Miller and M.-J. Chen, “Sources and Consequences of Competitive Inertia: A Study of the U.S. Airline Industry,” Administrative Science Quarterly 39 (1994): 1–23. Hiring executives from outside the company may also bring in fresh ideas. See, for instance, D.W. Boeker, “Executive Migration and Strategic Change: The Effect of Top Manager Movement on Product-Market Entry,” Administrative Science Quarterly 42 (1997): 213–236.
6. See P.J. Lane and M. Lubatkin, “Relative Absorptive Capacity and Interorganizational Learning,” Strategic Management Journal 19 (1998): 461–477.
7. Specifically, in a series of panel data and survival models, the financial performance and success rate of the acquiring companies was regressed on their number of acquisitions during the preceding five years. The effect was generally positive. In contrast, the effect of acquisitions in unrelated businesses (measured through the companies’ SIC codes) and the effect of acquisitions in regions in which the firm had not been active before were statistically insignificant.
8. P. Puranam, “Grafting Innovation: The Acquisition of Entrepreneurial Firms by Established Firms” (Ph.D. dissertation, University of Pennsylvania, 2001); P. Puranam, H. Singh and M. Zollo, “A Bird in the Hand or Two in the Bush? Integration Trade-Offs in Technology-Grafting Acquisitions,” European Management Journal 21 (2003): 179–184.
9. For some pairwise comparisons between these two approaches see, for instance, R.F. Bruner, “Applied Mergers and Acquisitions” (New York: John Wiley & Sons, 2004): 895–900.
10. For empirical evidence on this topic see C.B. Gibson and F. Vermeulen, “A Healthy Divide: Subgroups as a Stimulus for Team Learning Behavior,” Administrative Science Quarterly 48 (2003): 202–239.
11. Snapple, for example, carefully retained core people within Nantucket Nectars, and after discovering their value made sure to promote them within the larger company to stimulate cross-fertilization. See also M.E. Graebner, “Momentum and Serendipity: How Acquired Leaders Create Value in the Integration of Technology Firms,” Strategic Management Journal 25 (2004): 751–778.
12. Thus, blending is designed to create something new. As Igor Landau, chairman of Aventis, put it, “The strategy was to create anew company and not be the sum of the two previous companies. We decided either we create something new or we would pay the price down the line.”
13. For a more specific focus on the role of culture in acquisition integration, see J.R. Carleton and C.S. Lineberry, “Achieving Post-Merger Success” (New York: John Wiley & Sons, 2004).
14. See also F. Vermeulen and H. Barkema, “Learning Through Acquisitions,” Academy of Management Journal 44 (2001): 457–476.
15. As CEO Cees van der Hoeven put it on Oct. 29, 1999: “How do we realize growth? In the first place, through strong autonomous growth. As a second course of growth, we regularly add small takeovers to existing store chains. This year, for example, we announced a number of acquisitions in Spain, Poland, Argentina and Brazil. Absolutely essential is that both parties, for the benefit of all stakeholders and particularly the consumer, can increase each other’s value.”
16. Early in 2003, Ahold had severe financial difficulties and CEO Van der Hoeven was forced to step down.