Acquisitions and Innovation : -from the acquired company point of view

Abstract: There are many studies of how acquisitions of small technology startups and firms affect innovation growth and performance, but less is put on how acquisitions affect the innovative behavior of the acquired firms. This thesis explains changes in the innovative behavior of acquired technology-based small firms from an innovation governance perspective. An interview based case study of founders and top managers of four acquisitions by a Swedish medium-sized Industrial IT company from an insider-outsider perspective found that innovative efforts shifted from a more radical innovation approach to an incremental product innovation focus, by means of accumulation of continuous hardware and software upgrades. This “acquisitional” reduction of radical innovative and entrepreneurial behavior is explained by a shift in vision from firm creation by founders (owners) pre acquisition to a product-oriented vision driven by product managers post acquisition. This vision framed the underlying dimension of discovering opportunities, which became focused to existing products and by formal and informal steering relating to incremental product innovations. This thesis suggests that the focus on innovative behavior of acquired entrepreneurial firms from an innovation governance perspective is a useful new way of analyzing technology-based acquisitions.