Merging Networks: Contributions and Challenges of ...

Mirc Nicola (2015), Merging networks – contributions and challenges of social network analysis to study mergers and acquisitions, in A. Risberg, D. King & O. Meglio (eds.), Routledge Companion on Mergers and Acquisitions, Routledge, London, UK, 259-271.

Merging Networks: Contributions and Challenges of Social Network Analysis to Study Mergers and Acquisitions

Nicola Mirc Toulouse School of Management, University of Toulouse 1 Capitole, CRM – UMR CNRS 5303 Ecole Polytechnique, PREG-CRG UMR CNRS 7176 (associate researcher)

Keywords : Mergers and Acquisitions, social network analysis, networks, inter-organizational relations, intra-organizational relations, pre-acquisition process, post-acquisition integration.

INTRODUCTION

Centuries of Mergers and Acquisitions (M&A) research have allowed the development of a fairly wide-ranging understanding of organizational and managerial issues to consider and overcome when implementing a merger or acquisition. Scholars have investigated pre- and post-acquisition processes, identifying numerous factors critical to M&A performance (see Gomes et al. 2013 for a review). In the pre-acquisition phase, research has attempted to identify factors influencing acquisition decision-making and target selection processes. In the post-acquisition phase, the pivotal role of effective management of the integration process has become a widely accepted fact. In this regard, scholarly work has underlined the importance 1


of considering employee reactions and commitment to, and identification with, the merged entity; cultural, strategic, and organizational compatibilities or discrepancies between acquisition partners; and further managerial decision-making on the targeting, pace and scope of integration (see Mirc 2013 for a review).

What remains far less extensively addressed is the actual state and evolution of relationships between merger partners, or between the acquiring and the acquired firms. However, the development of such relations – whether as work collaborations, means of knowledge and information transfer, the sharing of client accounts, or simply reporting or hierarchical dependencies – appears crucial for effective implementation and value creation.

By the same token, it is not only the development of relations between the merging entities or organizational members that merits in-depth consideration, but also the evolution of relationships with the firms’ environment. The study of business networks and network organization has become increasingly popular in management research. Looking more closely into the way M&A may impact – or be impacted by – the structure of the business or industry network in which they take place seems therefore not only a natural but also an indispensable step. In this chapter, I address how the method of social network analysis (SNA) enables the study of M&A from this relational, network-based perspective. By focusing on structures and patterns of relationships, SNA indeed appears a fruitful means of addressing the emergence of, and change in, inter- and intra-organizational relations in the course of M&A. I will start by introducing the method and then present studies that have used SNA to study M&A, focusing on their contributions, and on avenues for future research with this method. I then

2


discuss the methodological challenges and limitations of SNA in the context of M&A research.

THE SOCIAL NETWORK APPROACH

SNA is fundamentally about revealing relationship patterns between actors. Actors in social settings are connected through relationships that, taken together, constitute a social network. This network is social by nature, since it relies fundamentally on interactions between its parts. The primary objective of SNA is to study the properties of these relationships and of the social structure they build. In this regard, SNA is not limited to being a method or a tool, but can also be considered as deriving from a complete theoretical paradigm relating to the network as a whole system. It assumes that social structures and individual interactions are fundamentally interdependent (White 1992; Wasserman and Faust 1994; Burt 1992, 2005; see Wellman 1988 for a review of the evolution of the field). On one hand, actors’ interactions are the constitutive forces through which social structure emerges. On the other hand, the social structure in which they occur has a constraining effect, so that actors are not entirely free in the way they behave and interact with each other. In other words, SNA considers that social structure emerges only from – and exists only through – the social relations that occur between the parts of the network (be they individuals, groups, firms, countries etc.), but that the way these parts behave and relate to each other is shaped by the structure of all relationships that form the network. The focus is thus primarily on relationships – rather than on categorical attributes that regroup units (such as age, gender etc.) – and the way they are structurally embedded (Granovetter 1973, Uzzi 1997). Methodologically speaking, the unit of analysis is accordingly the 3


relationship between two actors, and not the individual actor. The type of relations (or ties) can be various, including any kind of connection that might relate two different actors. Applied to the organizational context, relationships under study can be formal or informal, internal or external, and work-related or extra-professional. Examples include business relations, hierarchical relations, work collaborations, group affiliation, communication, information exchange, kin or friendship, and relations with clients, providers and competitors.

The body of social network research in management science is substantial and steadily growing (see, for instance, Borgatti and Foster 2003 for an overview). Scholars have created a sound understanding of network patterns and effects at both the intra- and the interorganizational levels. Organizational network research has investigated various topics, which Brass et al. (2004) – in their excellent review – regroup into three different levels: interpersonal networks, inter-unit networks and inter-organizational networks. For each level, scholars are engaged in analysing the antecedents and consequences of network structures and actor relationships.

Identified drivers of interpersonal networks are, for instance, similarities between actors in terms of age, sex, education, prestige or social class (Carley 1991, Ibarra 1993, McPherson et al. 2001) – or proximity in the organizational structure induced by geographical proximity or task relatedness (Burkhardt and Brass 1990, Borgatti and Cross 2003). Interpersonal networks have been found to impact on actors’ similarity in attitudes, job hunting, job satisfaction, performance and turnover (e.g. Granovetter 1973, Ibarra 1992, Krackhardt and Porter 1985, Mehra et al. 2001, Morrison 2002).

Research on inter-unit networks points out antecedents such as functional ties or organizational structures and processes as playing a significant role (Tsai 2002). Structural 4


patterns of inter-unit networks have further been associated with performance and innovation capacities. Units with high internal density, for instance, have been found to perform better, whereas strong ties between units promote the sharing of complex knowledge and innovativeness (e.g. Hansen 1999, Reagans and Zuckerman 2001). Research on the antecedents of inter-organizational networks has addressed motives for firm cooperation, learning effects and the role of trust (e.g. Galaskiewicz 1985, Ebers 1997, Powell et al. 1996, Zaheer et al. 1998). On the outcome side, scholars note imitative practices, innovativeness, firm survival and performance (e.g. Ahuja 2000, Shan et al. 1994, Uzzi 1997).

STUDYING M&A AS MERGING NETWORKS

The focus on relationships as the central object of analysis appears particularly relevant for the study of inter-organizational encounters, such as alliances and M&A, where the development of relationships between firms is the primary objective. Whereas alliance research has made much use of SNA as the focal method of investigation, this is less so in the field of M&A. Nonetheless, SNA has much to offer here. In this paper, I present M&A scholarly work using SNA, and give examples of possible avenues of future research where SNA could provide a fertile means of developing new perspectives and knowledge. The aim is to provide some examples for illustration, not to develop an exhaustive overview of all possible fields of application. The section is organized in three parts, addressing different stages and perspectives on M&A processes. I will start with the pre-acquisition phase and move to the post-acquisition phase, discussing two different levels: the environmental business level and the organizational level.

5


Influence of pre-acquisition networks on acquisition decision-making The pre-acquisition phase and antecedents to M&A decision-making have been a prominent topic under study, notably in the field of strategy research (see, for instance, Gomes et al. 2013 for a review). One key issue addressed is here the selection of the target by the acquiring company. Scholars have pointed out various factors affecting decision-making at that stage, emphasizing economic and financial explanations above all. In these studies, acquisition decision-making is generally considered to be a rather atomistic process, occurring within the top management of the acquiring firm in a discrete manner. An alternative perspective is to think of acquisition decision-making as embedded in a much larger social and economic context, paced by how the acquiring form relates to its environment. Firms are not isolated but relational entities, subject to opportunities and constraints in their networks (Uzzi 1997).

This perspective has notably been adopted by Yang et al. (2011a, 2011b), studying the influence of network relations on M&A patterns in China and the United States. In their study, the authors explore the impact of the acquiring firm’s network on the likelihood of its acquiring former alliance partners. They find strong support for the importance of relational drivers in acquisition decision-making. This shows that alliance partners who share central brokerage positions in their industry network are more likely to join in the course of an acquisition, notably if partners prioritized exploratory shared learning over ‘mere’ resource exploitation during the alliance. By studying behavioural factors (form of alliance learning) and relational factors (network embeddedness) as interdependent settings, the authors propose a complementary underexplored explanation of acquisition drivers.

Similarly, Vanhaverbeke et al. (2002) use a network approach to identify relational factors that impact on the decision whether to acquire, or to form an alliance with, a given firm. They 6


find that prior direct ties between firms within their industry network promote subsequent acquisitions, whereas indirect ties favour the formation of strategic alliances. Further, they find that a firm’s network position influences whether it will acquire or be acquired. Those firms that are more centrally located in the network of inter-firm alliances are more likely to be acquirers, whereas the more peripheral firms tend to be acquired.

The recognition of the importance of relationships in the formation of acquisitions is also at the centre of Haunschild’s (1993) and Beckman and Haunschild’s (2002) work on interlocking directorates. The authors explore the question of whether the network of an acquirer – through the ‘interlocks’ it shares with other firms – has an influence on the acquisition-making process. Haunschild (1993) finds notable evidence that firms are submitted to normative and informational influences from their network partners that make them adopt an acquisition strategy based on imitation. Beckman and Haunschild (2002) analyse the effect of diversity of network partners and of their experience on the price paid for an acquisition. They point out that the more the network of a firm is heterogeneous in terms of acquisition experience and firm size, the more the focal firm is likely to pay less for an acquisition and to show higher levels of acquisition performance. Palmer et al. (1993) also found an association between interlocks and firms’ participation in M&A. Influences exerted by a firm’s network do, however, concern not only direct business partners but also third parties involved in the acquisition process, such as consulting firms and investment banks – a topic that has recently been investigated by several (though not SNAbased) studies (Holburn and Vanden Bergh 2014, Huang et al. 2014). Using a social network approach, Sleptsov et al. (2013) study, in this regard, the influence of relationships with what they call ‘information brokers’ – intermediaries on acquisition decision-making. They find that relationships with multiple investment banks enhance the quality of acquisition-related 7


information and, subsequently, acquisition performance. Firms who relied on exclusive ties with the same investment bank showed less positive performance outcomes, leading the authors to conclude that competition among external actors enhances the quality of the information and the service they provided. From a completely different angle, D’Aveni and Kesner (1993) adopt the perspective of the target firm, and study how social networks shared by executives of both firms shape target managers’ motivation to respond to tender offers. They find that target managers tend to respond positively when they perceive their internal relations to be less prestigious than those developed by managers in the acquiring firm, and when both firms share external connections to the same prestigious organizations externally. So far, SNA-based studies on pre-acquisition processes have provided original insights into relational factors affecting acquisition decision-making and target selection processes. They focus on relationships such as alliance partnerships, interlocking directorates, and links with external parties. Deepening these research findings with complementary studies would be an interesting endeavour. The influence of interlocking directorates, for instance, is much studied by social network scholars concerned with identifying the effects of board-of-director composition on managerial strategies in various respects (Mizruchi 1996). Boards of directors are significant because a firm’s directors often sit on the boards of other firms, creating privileged inter-firm relationships that promote sharing of market information, management practices and personal contacts. They can thus be expected to play a significant role in acquisition decision-making processes; this topic still needs to be fully exploited. By the same token, scholarly comprehension of the role of external parties involved in acquisition processes – such as governments, banks and consulting firms – could be enhanced by analysing their linkage to, and influence on, the acquiring firm’s acquisition strategy. Further, 8


other types of business relations might be studied with the approach, for instance influential ties with suppliers or customers in vertical deals.

Effects of M&A on industry structures and relations with the environment A second fertile ground for applying a social network approach to M&A research constitutes the study of effects of M&A on the business environment. In a similar way to the relational perspective developed in the previous section, which considers firms not as atomistic but as relational entities that are influenced by the networks they are part of, SNA here aims to address the consequences of acquisitions on these very networks after a deal has been closed. This concerns industry structures as well as the direct and indirect relationships that the acquiring and acquired firms, or merged firms, hold with their environment.

Such an attempt has been made by several marketing scholars, such as Lusch et al. (2011), who apply SNA to investigate the impacts of M&A on the business network and, in particular, on customer relations. They observe the detrimental effects of horizontal business combinations of suppliers on downstream channel customers, decreasing their satisfaction and enhancing their likelihood of switching. Similarly, adopting an industrial marketing perspective, Anderson et al. (2000, 2001) address the changes in relationships with customers and suppliers induced by an acquisition. They advance the idea that management can have only limited control on the evolution of such relationships, notably because they are socially constructed and fundamentally interactive. The lack of control stems from the dyadic nature of these business ties: their existence and persistence are based on the behaviour of both parties, which is further influenced by each party’s other relationships (i.e. its network).

In a working paper, Anderson et al. (2003, p. 2) underline the importance of considering:

9


‘organisations as ongoing processes consisting of human interaction. This approach reveals that any merger or acquisition is not one clear-cut process, but consists of many ongoing, interfering sub-processes both within and between organisations. (…) Our key message is to show that connectedness in time and context, is important, and we also propose an approach, which enables its consideration.’

The authors advocate adopting a social network approach to understanding M&A as contextually bounded. As they argue (Anderson et al. 2003, p. 3), M&A failure is often the result of a neglected analysis of the impact of M&A on external exchange relations: ‘Although an acquisition mainly influences the dyadic relationship between the merging parties (e.g. through integration processes), this confined change often becomes connected change and changes spread in the network. A key issue for development is how actors perceive changes in the dyad and the network effects.’ In a similar vein, Spedale et al. (2007) study factors that affect the target firm’s network after an acquisition, drawing on the concept of embeddedness (Uzzi 1997). They find that acquirers’ attempts to build close relationships with the target result in the dissolution or deterioration of strong ties that the target has maintained with external market actors before the acquisition. Arguing that M&A research traditionally focuses on the parent–target dyad, the authors propose focusing more straightforwardly on the impacts of acquisitions on external relationships and networks. Spedale et al. (2007: 1172) state that ‘acquisitions are discontinuous events in the life of an organization and generate significant uncertainty and ambiguity in all its aspects, including the relational. They represent, therefore, an ideal setting for the study of network relationships and their dynamics.’

10


Öberg (2012) and Öberg et al. (2007) adopt a different approach and discuss shifts of network pictures, i.e. the way actors in the firm perceive changes in the firm’s relationships after the deal. They show how pre-acquisition networks might radically change due to the acquisition, thus challenging managers to drastically change their perceived network picture in time. Additional research into impacts on relationships with customers and suppliers, notably in specific industries, is required. Also, investigating M&A-induced changes to the relationships with other types of actors – such as governments, competitors and alliance partners – through a social network approach would enhance our comprehension of business environment-related factors that impact on M&A performance.

Effects of M&A on internal relations, and the evolution of ties between merger or acquisition partners A third area of contribution of SNA concerns the study of post-acquisition integration processes. Notably, at the organizational level, SNA enables new light to be shed on integrative dynamics, apprehending them in their very essence, i.e. as emergent links between merging organizations through which resources, processes and structures can be combined. It puts the emphasis on the emergence of relationships between two entities and their members that allow synergy and integration to materialize. Moreover, from a social network perspective, post-acquisition organizational integration and its outcome can be considered inherent to the emergence of social relations between units of both firms that allow the establishment of linkages through which value is to be created. Social relations between both units appear as the main mechanisms through which resources and competencies can be shared and transferred. In other words, post-acquisition integration is – from a social network

11


perspective – essentially rooted in the social relations and interactions that emerge between actors (individuals and units) of both firms.

During recent years, some first studies have used a social network approach to disentangle the role and evolution of social relations between acquirer and target during the post-acquisition period. In this way, Briscoe and Tsai (2011) investigate to what extent and under what conditions collaborations between partners in a law firm developed during the postacquisition process, and so promoted integration and value creation. In particular, they study the practice of client sharing between lawyers of the acquirer and of the two acquired law firms. They find that the characteristics of the personal network as it existed before the acquisition have a strong influence on individuals’ willingness to share clients with the acquisition partner’s lawyers. The authors found that individuals who collaborated strongly with others before the acquisition engaged more in collaborations with the acquisition partner, thus greatly promoting integration between the two firms. At the same time, however, their level of intra-unit collaboration decreased, so detracting from integration.

Another study, carried out by Allatta and Singh (2011), looks at the evolution of communication patterns between employees during the three years after acquisition. They observe that the period immediately following the acquisition is characterized by an increased level of communication between members of the two firms, especially if their tasks are interdependent, but that the level decreases afterwards. Employees rapidly turn back to their original communication routines, a phenomenon that the authors explain in terms of individuals’ perception that there is less need to communicate with members of the acquisition partner once they have obtained information and got to know each other (and so have developed a common ground).

12


In a working paper, Allatta et al. (2010) address more closely the influence of homophily (i.e. the tendency of individuals to associate and bond with similar others) on the evolution of communication patterns after the acquisition. Their findings show that homophily has an important impact in this situation, in that individuals tend to communicate with those who share similar attributes. One dominant attribute here is company affiliation, i.e. communication flows better between individuals of the same company (who share a common history and culture) than between those of the target and the acquirer companies. Whereas such within-company homophily can be a significant barrier to post-acquisition integration, the authors also find evidence for the existence of what they refer to as ‘cross-cutting circles’. These, in contrast, have a positive effect on integration: homophily based on common job group (same functional domain) and on common managerial status attenuated company-based homophily and, importantly, promoted communication across both companies – and so promoted post-acquisition integration.

My own research (Mirc 2012, 2014) on post-acquisition collaborative practices in a consultancy firm provides additional insights, relating to some of the points made by the above studies. Taking snapshots of the collaboration networks between the two firms and for each single firm (the acquisition being a symbiotic one, preserving both entities) at several points in time (before and after the acquisition), I find that group cohesion significantly hinders integration. In the acquiring firm in particular, where the internal collaboration networks were dense and cohesive (with individuals regularly collaborating with many others), individuals were much less disposed to engage in collaborations with those from the acquired firm. Homophily was actually strengthened here by the cohesiveness of the network, and thus had a strong negative impact on integration. The analysis of relationships that did emerge between employees from both firms pointed towards there being a small number of 13


actors who engaged in such inter-firm collaborations much more extensively than others. Together with Very (Mirc and Very forthcoming), I term these individuals ‘acquisition brokers’, i.e. individuals who act as key people in the integration process by strongly promoting, through their relationships, cross-firm ties and integrative practices. In terms of structural characteristics, these individuals occupy particularly central positions and brokerage roles in their focal firm’s network, suggesting tendencies to preferential attachment (i.e. relating preferably to prominent others). This partly mirrors the findings by Briscoe and Tsai (2011). In our study, however, these central positions were maintained and even reinforced during the post-acquisition period, suggesting effects of prestige and power gained through their integration-brokerage activities.

The identification of individuals who act at the intersection of the merging firms, and thus drive forward organizational integration, is indeed an exciting field of study that SNA enables us to explore. It sheds new light on important topics such as key people, leadership and integration managers (e.g. Angwin and Meadows 2009, Ashkenas and Francis 2000, Teerikangas et al. 2011). As Angwin and Meadows (2009) note, the choice of the leader who will be driving organizational integration is critical. A more substantial knowledge of the relational profiles of such leaders could be a means of enhancing our understanding of the way this leadership is exerted and made effective.

In a similar vein, an analysis of network effects of the departure of individuals after the acquisition could complement studies on the effects of top management turnover (TMT). Findings remain contradictory, with some scholars suggesting that TMT has a negative effect on performance (Cannella and Hambrick 1993, Krishnan et al. 1997) and others suggesting that it has a positive one (Anslinger et al. 1996). Analysing the effects of TMT more locally

14


(in terms of network positions and flows) by focusing on specific individuals might help inform this debate.

The analysis of flows inside networks can further be of interest in investigating knowledge transfer or communication processes. Many scholars have identified effective knowledge transfer as being critical in post-acquisition integration (e.g. Ranft and Lord 2000, Puranam et al. 2006). However, there is limited knowledge on the actual processes through which knowledge is transferred in M&A (exceptions being Empson 2001 and Greenberg and Guinan 2004). SNA allows the knowledge flow to be traced in a very direct way, and enables the role and functioning of informal networks in the process to be grasped (Ranft and Lord 2000); this topic has received significant attention by SNA scholars (e.g. Cross et al. 2001, Borgatti and Parker 2002). By the same token, focusing on individual contributions in post-acquisition innovation processes through a network lens potentially provides new insights into relational attributes (such as social status and centrality) that have been found to play influential roles (Paruchuri et al. 2006). As I have attempted to demonstrate, many possible contributions of applying SNA to M&A research are conceivable. While I have listed only a few, many other potential areas of investigation are certainly possible. A growing number of studies has started to exploit this potential, and has provided new perspectives on pre-acquisition and postacquisition processes. While having proved to be a powerful tool, regarding not only M&A studies also but interorganizational research in general, SNA also presents some challenges and limitations. Reviewing general requirements for data collection and processing, I will address some of these challenges in the context of M&A research. Readers who wish to go further are invited to consult one of the numerous SNA manuals dedicated to in-depth discussions of

15


methodological implications (e.g. Borgatti et al. 2013, Scott 2013, Wasserman and Faust 1994).

METHODOLOGICAL CHALLENGES AND LIMITS

Network data can be collected from either primary or secondary sources through different means such as questionnaires, archival records, interviews and observations. As the relationships being studied can be of various types, the main issue concerns building a research design. This should allow the gathering of data that provides information about the relationship between actors and not only about the actor as an individual (for example, in terms of attributes, opinions or behaviour – as in standard questionnaires used in social science).

One method regularly used to gather primary data is the network survey. Network surveys ask actors directly about the relationships they are involved in. Two different methods are commonly used in this regard. The first provides the respondents with a list of all members of the network being studied, asking them to indicate all the people they are themselves connected to (according to the type of relationship specified for each question – see, for instance, Mirc 2012). This technique has the advantage that it diminishes the risk of a bias induced by memory issues, but necessitates that the researcher is able to establish the boundaries of the network (i.e. which actors are to be considered part of the network studied, and which are excluded), and that the sample does not exceed a certain size (which would make the process of sifting through the names too laborious). If a sample cannot be determined with sufficient certainty or the sample is too large, an alternative technique is the so-called ‘roster’ format, or ‘free recall’ approach. Here, no complete list of potential actors is 16


provided, but respondents are asked to name a certain number of people to whom they relate (see, for instance, studies carried out by Friedkin (1984) and Moore (1979) on community elites).

Secondary data can be obtained through archives or databases. In their study on postacquisition collaborative practices in a law firm, Briscoe and Tsai (2011) develop a research design based on company records of billable hours. These records, available for each partner, provide information about who worked with whom on a given case (or project) for each year. Company records of personnel data and evaluations from partners were also used. Allatta and Singh (2011) and Allatta et al. (2010). use a different approach, using email logs to collect relational data. Over a period of approximately three years, the researchers extracted email logs from all employees every four months. This data provided them with information on who exchanges emails with whom, to what extent and during which period. In addition, actorattribute data was collected regarding the division they worked in, their job title, their job group and their age, gender and length of employment.

Contrary to the use of secondary data as used in these two examples, a certain bias has to be acknowledged when collecting primary data through network surveys. As data is provided directly by actors, the observed network might be said to be more subjective, in that it reflects the network as it exists in the minds of the actors involved. This is not the case when making use of accounting data or formalized records on particular practices (such as email logs). However, what might be considered here is the overall purpose pursued by the research design. The study may be aimed at revealing structural properties and constraints, and the way these influence actors’ actions and attitudes (for instance, whether actors tend to relate to similar others). If we consider that actors’ behaviour is determined by the way they evaluate their environment, the fact that the network reflects not an objective but a perceived reality is 17


then of great interest. In addition, many types of relationships – especially informal ones – might not be easily detectable in archives or databases. Gathering data directly from the actors involved might thus be the only option to obtain network records.

A second challenge of SNA is that the method requires complete data. For a given population, or at least the defined sample, relational data for each actor is needed in order to be able to analyse network structures in a reliable way. This means that the researcher has to be able to collect data on the relationships of every member of the network. Each piece of missing information risks distorting analysis of the overall network structure in a significant way. For instance, if data on an important network broker is missing, analysis might be strongly biased. This methodological constraint is a major drawback of network studies; it is minimized when company records are used, assuming that these are complete. Surveys, on the other hand, necessitate a very high (if not exhaustive) response rate, which can be difficult to obtain. In the situation of a merger or acquisition – where people are preoccupied with their own employment, career development and additional work load brought about by reorganization – respondents might be reluctant or too busy to provide information on their relationships with colleagues. This problem is amplified in longitudinal research settings, where individuals are repeatedly asked to respond to a survey. In addition, employees might leave the firm between two observation periods, which enhances the risks of missing data. Further, people might tend to overstate their network position, the latter being tightly linked to representations of power and influence in an organization. As M&A may induce uncertainties about potential lay-offs or future career development, employees might thus ‘embellish’ the representation of their network, and report relationships that make them look more powerful or influential than is actually the case.

18


These considerations bring us to point out an important limitation to SNA when carried out in a strictly structural manner. A rigid focus on structural dynamics does not allow proper analysis of M&A processes, especially organizational ones. In other words, research that highlights only the transformation of social networks in structural terms would not be sufficient. It might be usefully coupled with other non-structural data, such as qualitative interviews, in order to be able to develop a comprehensive picture of integrative processes. Simply to highlight network properties at one or more points in time does not enhance our understanding of what drives individuals or organizations from one state to the other. For instance, factors such as culture or identification cannot be grasped through relational data. On topics where human interactions and representations are important, it is therefore vital to combine structural with non-structural data in order to highlight the actual processes and factors explaining the observed shifts at the structural level.

CONCLUSION

The aim of this chapter was to discuss the potential contributions of SNA to the study of M&A. As I argued – and demonstrated using existing literature – SNA allows M&A to be approached as contextual and relational phenomena, where relationships between firms, groups and individuals influence pre- and post-acquisition processes. M&A are fundamentally about linking two organizations, and their assets, processes and people. SNA enables the explicit highlighting of the patterns, emergence and evolution of such inter-organizational links.

In the field of M&A research, SNA has been applied in different ways. Three bodies of research can be distinguished. The first concerns the study of the impact of a firm’s network 19


on M&A decision-making and target selection, putting the emphasis on the influence of preacquisition relationships and external parties. The second line of research focuses on the postacquisition phase, and tries to comprehend the effects of M&A on firms’ business networks. Recently, a third line of research has emerged, using SNA to address organizational integration dynamics. The purpose is to disentangle the effects on firms’ internal ties, notably between individuals of both firms, and the way these ties evolve during the integration process. Nonetheless, relatively few studies on M&A processes have made use of SNA, although there are many possible avenues for future research.

On an industry or business level, SNA enables more direct exploration of the impacts of a firm’s network on acquisition decision-making on the one hand, and of the impacts of M&A on the firm’s business environment on the other, highlighting changes in relationships with suppliers, clients and competitors that have so far been only partly explored. The study of business networks and network organization has indeed become increasingly popular in management research. Looking more closely at how M&A may impact, or be impacted by, the structure of the business or industry network in which they take place seems, therefore, not only a natural but also an indispensable step.

At the organizational level, changes to organizational processes and inter-individual relationships in each firm induced by M&A can be analysed in a more tangible way. SNA allows group processes to be revealed in a very concrete way, highlighting phenomena such as cooperative practices, knowledge exchange and the role of key people. Many other topics are conceivable, such as the evolution of hierarchical relationships, information channels, work processes, financial flows, the effects of top management, and employee turnover. Also, in research concerned with the role of trust, culture sharing, identification processes and employees’ resistance to change, the relational approach might be a fruitful means to 20


understand these issues from a different perspective. For instance, how do cultural differences translate into group segmentation/group cohesion? How do relationships of trust develop, and how do they influence the emergence of inter-organizational links? And how do network structures influence employees’ identification processes?

SNA allows researchers to go beyond the focus on individual or organizational factors as two independent settings. The network approach – which considers individual behaviour and structural properties as fundamentally interdependent – offers a multi-level perspective on M&A integration processes, enabling researchers to address interactions between individual factors at the micro level, and organizational factors at the macro level (Angwin and Vaara 2005; Mirc 2012).

Of course, SNA presents challenges and limitations in terms of the constraints imposed on data collection and processing. The necessity of collecting complete data sets is notably a significant barrier, which might be especially important in the context of M&A research. But as shown by the related studies, this barrier is possible to overcome. Scholars maintain the call for more comprehensive studies, and explicitly point out that a focus on connectivity between merging organizations could be a means to achieving this endeavour (Angwin and Vaara 2005). Although challenging, studying M&A through the lens of SNA constitutes a promising and captivating ground to respond to that call.

21


BIBLIOGRAPHY Ahuja, G. (2000) ‘Collaboration networks, structural holes, and innovation: a longitudinal study’, Administrative Science Quarterly, 45: 425-455. Allatta, J., Iyengar, R. and Van den Bulte, C. (2010) ‘Social network dynamics after a corporate acquisition’, Academy of Management Annual Meeting, Montreal 2010. Allatta, J. and Singh, H. (2011) ‘Evolving communication patterns in response to an acquisition event’, Strategic Management Journal, 32: 1099–1118. Anderson, H., Andersson, P., Havila, A., and Salmi, A. (2000) ‘Business network dynamics and M&As: structural and processual connectedness’, 16th IMP-conference, Bath, U.K, 7–9 September 2000. Anderson, H., Havila, V. and Salmi, A. (2001) ‘Can you buy a business relationship? On the importance of customer and supplier relationships in acquisitions’, Industrial Marketing Management, 30: 575–86.

Anderson, H., Andersson, P., Salmi, A., Halinen-Kaila, A., Havila, V., Holström, J. and Vaara, E. (2003) ‘M&A processes in Business networks- managing connectedness’, Work-in-progress paper submitted to the 19th Annual IMP Conference, Lugano, 4–6 September 2003.

Angwin, D. N. and Meadows, M. (2009) ‘The choice of insider or outsider top executives in acquired companies’, Long Range Planning, 42: 359–89.

22


Angwin, D.N. and Vaara, E. (2005), Introduction to the special issue ‘connectivity in merging organizations: beyond traditional cultural perspective’, Organization Studies, 26: 1445– 53. Anslinger, P. L., Copeland, T. E. and Thomas, E. (1996) ‘Growth through acquisitions: A fresh look’, Harvard Business Review, 74: 126–133 Ashkenas, R. N. and Francis, S. C. (2000) ‘Integration Managers: Special Leaders for Special Times’, Harvard Business Review, 78: 108–116. Beckman, C.M. and Haunschild, P.R. (2002) ‘Network learning: the effects of partners' heterogeneity of experience on corporate acquisitions’, Administrative Science Quarterly, 47: 92–124. Borgatti, S.P. and Cross, R. (2003) ‘A relational view of information seeking and learning in social networks’, Management Science, 49: 432–45.

Borgatti, S.P., Everett, M.G. and Johnson, J.C. (2013) Analyzing Social Networks, London: Sage Publications. Borgatti, S.P. and Foster, P.C. (2003), ‘The network paradigm in organizational research: a review and typology’, Journal of Management, 29: 991–1013. Brass, D.J., Galaskiewicz, J., Greve, H.R., and Tsai, W. (2004), ‘Taking stock of networks and organizations: a multilevel perspective’, Academy of Management Journal, 47: 795–817.

23


Briscoe, F. and Tsai, W. (2011) ‘Overcoming relational inertia: how organizational members respond to acquisition events in a law firm’, Administrative Science Quarterly, 56: 408– 440. Burkhardt, M.E. and Brass, D.J. (1990) ‘Changing patterns or patterns of change: the effects of a change in technology on social network structure and power’, Administrative Science Quarterly, 35: 104-127.

Burt, R.S. (1992) Structural Holes: The Social Structure of Competition, Cambridge MA: Harvard University Press. Burt, R.S. (2005) Brokerage and Closure – An Introduction to Social Capital, Oxford: Oxford University Press. Cannella, D.C. and Hambrick, A.A. (1993) ‘Relative standing: a framework for understanding departures of acquired executives’, Academy of Management Journal, 36: 733-762. Carley K. (1991) ‘A theory of group stability’, American Sociological Review, 56: 331-354. Cross, R., Borgatti, S.P. and Parker, A. (2002) ‘Making invisible work visible: using social network analysis to support strategic collaboration’, California Management Review, 44: 25–46. Cross, R., Parker, A., Prusak, L., and Borgatti, S.P. (2001) ‘Knowing what we know: supporting knowledge creation and sharing in social networks’, Organizational Dynamics, 30: 100–120.

24


D’Aveni, R.A. and Kesner, I.F. (1993) ‘Top managerial prestige, power and tender offer response: a study of elite social networks and target firm cooperation during takeovers’, Organization Science, 4: 123–51. Ebers, M. (1997) ‘Explaining inter-organizational network formation’, in Ebers, M. (ed.), The formation of inter-organizational networks: 3-40, Oxford: Oxford University Press. Empson, L. (2001) ‘Fear of exploitation and fear of contamination: impediments to knowledge transfer in mergers between professional service firms’, Human Relations, 54, 839–62. Friedkin, N.E. (1984) ‘Structural cohesion and equivalence explanations of social homogeneity’, Sociological Methods and Research, 12: 236–61. Galaskiewicz, J. (1985) ‘Interorganizational relations’, in Turner, R. and Short, J. (eds), Annual Review of Sociology, vol.11: 281-304, Palo Alto, CA. Gomes, E., Angwin, D.N., Weber, Y., and Tarba, S.Y. (2013) ‘Critical success factors through the mergers and acquisitions process: revealing pre- and post-M&A connections for improved performance’, Thunderbird International Business Review, 55: 13–35. Granovetter, M. (1973) ‘The strength of weak ties’, American Journal of Sociology, 78: 1360–80. Greenberg, D. and Guinan, P.J. (2004) ‘Mergers and acquisitions in technology-intensive industries: the emergent process of knowledge transfer’, in A. Pablo and M. Javidan (eds), Mergers and Acquisitions: Creating Integrative Knowledge, Oxford: Blackwell Publishing. 25


Hansen, M.T. (1999) ‘The search-transfer problem: the role of weak ties in sharing knowledge across organization subunits’, Administrative Science Quarterly, 44: 82-111. Haunschild, P.R. (1993) ‘Interorganizational imitation: the impact of interlocks on corporate acquisition activity’, Administrative Science Quarterly, 38: 564–92. Holburn, G.L.F. and Van den Bergh, R. (2014) ‘Integrated market and nonmarket strategies: political compaign contributions around merger and acquisition events in the energy sector’, Strategic Management Journal, 35: 450-460. Huang, Q., Jiang, F., Lie, E. and Yang, K. (2014) ‘The role of investment banker directors in M&A’, Journal of Financial Economics, 112: 269-286. Ibarra, H. (1992) ‘Homophily and differential returns: sex differences in network structures and access in an advertising firm’, Administrative Science Quarterly, 37: 422-447. Ibarra, H. (1993) ‘Personal networks of women and minorities in management: a conceptual framework’, Academy of Management Review, 18: 56-87. Krackhardt, D. and Porter, L.W. (1985) ‘When friends leave: a structural analysis of the relationship between turnover and stayers’ attitude’, Administrative Science Quarterly, 30: 242-261. Krishnan, H.A., Miller, A. and Judge, W.Q. (1997) ‘Diversification and top management team complementarity: is performance improved by merging similar or dissimilar teams?’, Strategic Management Journal, 18: 361-374.

26


Lusch, R.F., Brown, J.R. and O’Brien, M. (2011) ‘Protecting relational assets: a pre and post field study of a horizontal business combination’, Journal of the Academy of Marketing Science, 39: 175–97. McPherson, M., Smith-Lovin, L. and Cook, J. (2001) ‘Birds of a feather: homophily in social networks’, Annual Review of Sociology, 27: 415–44. Mehra, A., Kilduff, M. and Brass, D.J. (2001) ‘The social networks of high and low selfmonitors: implications for workplace performance’, Administrative Science Quarterly, 46: 121-146. Mirc, N. (2012) ‘Connecting the micro and macro-level: proposition of a research design to study post-acquisition synergies through a social network approach’, Scandinavian Journal of Management, 28: 121–35. Mirc, N. (2013) ‘Human impacts on the performance of mergers and acquisitions’, in Cooper & Finkelstein (eds.), Advances in Mergers & Acquisitions, Emerald Group Publishing Limited, 12: 1–31. Mirc, N. (2014) ‘Network evolution after a corporate acquisition: the role of network cohesion and acquisition brokers on post-acquisition integration’, European Academy of Management, Valencia, Spain, 4–6 June 2014. Mirc, N. and Very, P. (forthcoming) ‘Acquisition brokers as resource to ensure acquisition integration’, in Larimo, J. and Nummela, N. (eds.), Edward Elgar Handbook on Strategic Alliance and Network Research, Edward Elgar, Cheltenham, UK.

27


Mizruchi, M. (1996) ‘What do interlocks do? An analysis, critique, and assessment of research on interlocking directorates’, in Hagan, J. and Cook, K.S. (eds), Annual Review of Sociology, vol.22: 271-298, Palo Alto, CA. Morrison, E.W. (2002) ‘Newcomers relationships: the role of social network ties during socialization’, Academy of Management Journal, 45: 1149-1160. Moore, M. (1979) ‘The structure of a national elite network’, American Sociological Review, 44: 673–92. Öberg, C. (2012) ‘Using network pictures to study inter-organisational encounters’, Scandinavian Journal of Management, 28: 136–48. Öberg, C., Henneberg, S. and Mouzas, S. (2007) ‘Changing network pictures: evidence from mergers and acquisitions’, Industrial Marketing Management, 36: 926–40. Paruchuri, S., Nerkar, A. and Hambrick, D. (2006) ‘Acquisition integration and productivity losses in the technical core: disruption of inventors in acquired companies’, Organization Science, 17: 545–62. Parlmer, D., Jennings, P.D. and Zhou, X. (1993) ‘Late adoption of the multidivisional form by large U.S. corporations: institutional, political, and economic accounts’, Administrative Science Quarterly, 38: 100-131. Powell, W.W., Koput, K. and Smith-Doerr, L. (1996) ‘Inter-organizational collaboration and the locus of innovation; networks of learning in biotechnology’, Administrative Science Quarterly, 41: 116-145.

28


Puranam, P., Singh, H. and Zollo, M. (2006) ‘Organizing for innovation: managing the coordination-autonomy dilemma in technology acquisitions’, Academy of Management Journal, 49: 263-280. Ranft, A.L., and Lord, M.D. (2000) ‘Acquiring new knowledge: The role of retaining human capital in acquisitions of high-tech firms’, Journal of High Technology Management Research, 11: 295-319.

Reagens, R. and Zuckerman, E.W. (2001) ‘Networks, diversity, and productivity: the social capital of corporate R&D teams’, Organization Science, 12: 268-292.

Scott, J. (2013) Social Network Analysis, London: Sage Publications. Shan, W., Walker, G. and Kogut, B. (1994) ‘Interfirm cooperation and startup innovation in the biotechnology industry’, Strategic Management Journal, 15: 387-394. Sleptsov, A., Anand, J. and Vasudeva, G. (2013) ‘Relational configurations with information intermediaries: the effect of firm-investment bank ties on expected acquisition performance’, Strategic Management Journal, 34: 957–77. Spedale, S., Van den Bosch, F. and Volberda, H. (2007) ‘Preservation versus dissolution of the target firm's embedded ties in acquisitions’, Organization Studies, 28: 1169–96. Teerikangas, S., Very, P. and Pisano, V. (2011), Integration managers’ value-capturing roles and acquisition performance, Human Resource Management, 50: 651–83. Tsai, W. (2002) ‘Social capital, strategic relatedness, and the formation of intra-organizational linkages’, Strategic Management Journal, 21: 925-939.

29


Uzzi, B. (1997) ‘Social structure and competition in interfirm networks: the paradox of embeddedness’, Administrative Science Quarterly, 42: 35–67. Vanhaverbeke, W., Duysters, G. and Noorderhaven, N. (2002) ‘External technology sourcing through alliances or acquisitions: an analysis of the application-specific integrated circuits industry’, Organization Science, 13: 714–33. Wasserman, S. and Faust, K. (1994) Social Network Analysis – Methods and Applications, Cambridge: Cambridge University Press. Wellman, B. (1988) ‘Structural analysis: from method and metaphor to theory and substance’, in Wellman and Berkowitz (eds.) Social Structures: A Network Approach, Cambridge: Cambridge University Press, 19–61.

White, H. (1992) Identity and Control: A Structural Theory of Social Action, Princeton: Princeton University Press. Yang, H., Lin, Z. and Peng, M. (2011a) ‘Behind acquisitions of alliance partners: exploratory learning and network embeddedness’, Academy of Management Journal, 54: 1069–80. Yang, H., Sun, S.L., Lin, Z., and Peng, M. (2011b) ‘Behind M&As in China and the United States: networks, learning and institutions’, Asia Pacific Journal of Management, 28: 239–55. Zahher, A., McEvily, B. and Perrone, V. (1998) ‘Does trust matter? Exploring the effects of inter-organizational and interpersonal trust on performance’, Organization Science, 9: 141-159.

30

Merging Networks: Contributions and Challenges of ...

Merging Networks: Contributions and Challenges of ...

Suggest Documents

Periodic Merging Networks - CiteSeerX

Contributions and challenges of cross-national ... - BioMedSearch

Contributions and Challenges of Dhaka's Food ...

Marketing in Antitrust: Contributions and Challenges - CiteSeerX

Marketing in Antitrust: Contributions and Challenges

Merging evolutionary history into species interaction networks

The Contributions of Regional Knowledge Networks Researching ...

Challenges in merging fisheries research and management: the ...

Contributions and Challenges in the Design of ... - Proceedings.com

The challenges of merging two similar structured overlays - LSIR EPFL

Management Theory and Social Welfare: Contributions and Challenges

Merging and partitioning in ad hoc networks

Teen Alcohol Use and Social Networks: The Contributions of Friend

Wireless Sensor Networks: Challenges and Opportunities - CiteSeerX

Academic Social Networks : Challenges and ... - UNICA - Network

Vehicle-to-Grid Networks: Issues and Challenges

MULTIDOMAIN OPTICAL NETWORKS: ISSUES AND CHALLENGES

Scalability Challenges and Solutions for Emerging Networks

Video Delivery Networks: Challenges, Solutions and ...

Academic Social Networks : Challenges and opportunities

BODY AREA SENSOR NETWORKS: CHALLENGES AND ...

WIRELESS MESH NETWORKS: OPPORTUNITIES AND CHALLENGES [PDF]

Social Networks Challenges and New Opportunities

Sustainable distribution networks -challenges and ... - IMP Group