China Economic Bulletin | No. 18 (2 July 2018)
Beyond the Headlines: The Impact on German Firms from Chinese Acquisitions – Part 5 of 5
How Do Integration and Target Autonomy Work Together to Realize Synergies
This series of paper investigates into Chinese acquisitions in Germany and aims at discovering the post-acquisition stories through data. In the first four papers, the volume of the acquisitions was analyzed together with heated topics regarding integration, autonomy, as well as cultural differences. In the last essay of this series, academic methodology will be applied to tell an integrated story about autonomy, integration, and synergy realization.¹
It is neither rare or new that after an M&A deal, the acquiring company grants the acquired company some extent of autonomy. Such an approach is effective in keeping the acquired business innovative (Haspeslagh & Jemison, 1991; Kale, Singh, & Raman, 2009). Acquired companies’ autonomy attracted broader attention since more companies from developing countries started acquisitions in developed economies. In many of the deals between a developing acquirer and a western target, the acquirers intended to keep the target companies independent after the acquisition (Cogman & Orr, 2017). According to a McKinsey survey, half of deals by Asian acquirers did not carry out fast and comprehensive integrations (Cogman & Tan, 2010).
However, in the academic world, most discussion about the post-deal phase of acquisition is dominated by the integration, which is in contrast to autonomy (e.g. Graebner, Heimeriks, Huy, & Vaara, 2016; Puranam, Singh, & Zollo, 2006). Several researchers have theoretically and empirically elaborated that autonomy and integration are not two extremes of one continuum (Haspeslagh and Jemison, 1991; Zaheer, Castañer, & Souder, 2013). Nevertheless, these discussions did not address how autonomy works together with integration in synergy realization, which topic is highly relevant to Chinese acquisitions in the western world. Therefore, this research qualitatively analyzes acquisition implementation cases to address this research gap by including both integration and autonomy in the model and answers the question: How do autonomy and integration impact post-acquisition performance of an acquired company?
This research is based on Eisenhard method of qualitative case study. There are 9 in-depth case analyses in this research. The cases are Chinese majority acquisitions in Western developed economies between 2011 and 2015.
Besides case-level analysis, synergy-level examination is also included in the research. Synergy level refers to the group of post-acquisition management measures that were carried out to realize one specific synergy. The major data source of this research is interviews. 45% of interviewees are top management team (TMT) members, whilst the rest 55% directly report to TMT. Archive data such as annual reports, public interviews, business school case materials, and media reports are also included. In the analysis, 74 supporting evidences and 2 contradictions to the interview information were found from the archive data. Regarding the contradictions, the corresponding interviewer provided abundant supporting evidences and details. Therefore, the interview information was evaluated as credible.
As summarized in Table 1, the cases and synergies were grouped according to integration and autonomy level (high or low).
Data analyses found out that autonomy and integration could coexist but were negatively correlated. In high integration and high autonomy combination, the buyers focused on strategic control instead of micro-managing the targets. Additionally, many of such cases’ integration were project based. These projects were limited to the specific function that they targeted at and did not threaten the acquired companies’ identity. However, cross-cell analyses still pointed out that autonomy and integration were indeed negatively correlated. From the quantitative perspective, 4 out of 9 cases fell into high integration-high autonomy combination and the rest 5 fell into either of the two high-low combinations; 3 out of 28 synergy-level analysis subjects fell into the high-high combination and the rest all fell to high-low combinations. Importantly, the integration comprehensiveness of high integration-high autonomy cases were lower than that in high integration-low autonomy cases, and target companies in low integration-high autonomy cases enjoyed larger freedom than their counterparts in high integration-high autonomy cases.
Contrasting to strategic controlling and project based integration, a lack of cooperative relationship between target and buyer could reinforce the negative correlation between autonomy and integration. Hostile relationship pulled the two players further apart because they both wanted to protect themselves and to avoid dealing with partners that they did not like. Such a force resulted in a more autonomous and in fact isolated target, and in a limited level of integration because no motivation for cooperation existed.
Table 2 summarizes the synergy realization performance in both case and synergy level. Comparing high integration-high autonomy with low integration-high autonomy, 3/4 high integration subjects were high performers while 5/18 low integration subjects were high performers. Three alternatives exist here regarding how autonomy and integration impact synergy realization. First of all, higher integration may lead to higher synergy realization. Secondly, since according to former analysis the autonomy level is higher in low integration situation than in high integration situation, high autonomy may lead to lower synergy realization. Thirdly, the above-mentioned mechanisms may work together. Comparing high integration-high autonomy with high integration-low autonomy, 3/4 high autonomy subjects are high performer and 7/10 low autonomy subjects are high performers. Therefore, there is no evidence that supported autonomy difference is connected to synergy realization difference. As a result, it is most likely that high integration is connected with high synergy realization while autonomy is not clearly connected to synergy realization.
|Low||Case level 2/2 high performer
Even though the analysis does not support that autonomy is directly connected to synergy realization, cross-cell analyses revealed that autonomy worked together with social psychological factors to moderate the relationship between integration and synergy realization. These social psychological factors include trust, cooperative relationship between the buyer and target, perceived fairness, etc. Autonomy granted to the acquired business can be perceived as trust, cooperation, and respect from the target’s point of view. These positive perceptions benefited synergy realization since both parties are more likely to focus on the interest of the combined business in the long term, instead of counting gains and losses in details. Additionally, they are open to share the knowhow and feel proud about helping the other side. However, as mentioned before, toxic relationship between the acquirer and the target could turn autonomy into isolation. In these cases, target’s autonomy is a sign of failed cooperation. In the opposite situation, in well managed deals, even though the target company may give up almost all decision power or lose its structure as a stand-alone organization, procedural fairness factors help to connect the acquirer and the target as a cooperative team. To sum up, autonomy does not work independently because its relationship with synergy realization is moderated by social psychological factors. Social psychological factors also do not function independent from autonomy because they are frequently the consequence of autonomy. Figure 1 summarizes the results of this research as a theoretical model.
Around the essay’s findings about integration and autonomy, there are several topics which acquired and acquiring managers should pay special attention to.
First of all, integration activities are basis for synergy realization and only under very specific situations, synergy may be realized with very limited integration. Combining with discussions about management attention, substantial resource should be dedicated to acquisition implementation design which take demands, capabilities, and situations of both businesses into consideration.
Secondly, the meaning of autonomy should be clearly understood. In some deals, autonomy is necessary to preserve the target’s talent, motivation, client relation, etc. but in some other cases, autonomy is an excuse for resistance. Autonomy should be granted under a cooperative relationship between the target and buyer. If the acquired business may resist integration or be hostile to the acquirer, autonomy can exacerbate the problems and further isolate the two parties. Therefore, autonomy should be granted with well-examined reasons and with a clear integration strategy.
Thirdly, if both autonomy and high level of integration are needed, the acquirer may impose performance management and strategic control to the target but leave the operational decision-making authority to the acquired management. Additionally, if the buyer has resource and capability, structural integration may be carried out targeting at specific functions. However, to preserve the overall autonomy, such integration plan should be well designed in order to be effective, but only effective in necessary areas.
Lastly, the negative impact of autonomy removal could be alleviated by perceived fairness from the target’s side. The target may benefit from the result of specific implementation measures in which the acquirer has the decision-making power. In this case, the buyer should try to quantify the results of such measures in order to make the benefit visible. On the other hand, inclusive decision making further support the constructive relationship between the two companies and partly satisfy the acquired management’s needs for respect and influence.
- This research is funded by Alexander von Humboldt Foundation.
- Cogman, D., & Orr, G. (2017). From active buyers to active owners. A Pocket Guide to Chinese Cross-Border M&A, pp. 30–45.
- Cogman, D., & Tan, J. (2010). A lighter touch for post-merger integration. McKinsey Quarterly, 34, pp. 8–12.
- Hapeslagh, P.C. & Jemison, D.B. (1991). Managing acquisitions: Creating value through corporate renewal. New York, NY: Free Press.
- Kale, P., Singh, H., & Raman, A. P. (2009). Don’t integrate your acquisitions, partner with them. Harvard business review, 87(12), pp. 109–115.
- Graebner, M., Heimeriks, K., Huy, Q., & Vaara, E. (2016). The process of post-merger integration: A review and agenda for future research. Academy of Management Annals, Annals 2014.
- Puranam, P., Singh, H., & Zollo, M. (2006). Organizing for innovation: Managing the coordination-autonomy dilemma in technology acquisitions. Academy of Management Journal, 49(2), pp. 263–280.
- Zaheer, A., Castañer, X., & Souder, D. (2013). Synergy sources, target autonomy, and integration in acquisitions. Journal of Management, 39(3), pp. 604–632.
Author: Sheryl Tang