Do corporate acquisitions make subsidiary firms more or less likely to adopt new technologies?
The answer is a classic good news/bad news paradox, according to a new paper by Jeffrey Barden, an assistant professor of management at the University of Washington Foster School of Business.
Barden’s examination of the modern radio industry finds that corporate acquisitions infuse subsidiaries with new resources, people and ideas that tend to promote technology adoption. At the same time, the disruptive acquisition process makes subsidiaries less observant of and responsive to innovations in the market.
“Being acquired is a double-edged sword,” says Barden. “On one hand, it can facilitate technology adoption. On the other, the acquisition process can blind leaders—of both parties—to important subsequent changes in the technological environment.”
Four decades of deregulation have generated waves of corporate acquisitions and the consolidation of many industries. As a window on this widespread phenomenon in American business, Barden chose radio, for which deregulation began in the mid-1980s and expanded through the Telecommunications Act of 1996.
After the national ownership cap was removed, hundreds of local radio stations were snapped up in the mid-2000s by proliferating media conglomerates such as Clear Channel Communications that were looking to maximize national market share.
Into this gold rush of acquisitions, HD Radio launched in 2003. This new technology allowed radio stations to transmit a clear, consistent digital signal. It allowed the broadcasting of up to four signals over the same FCC frequency. And it allowed stations to send text messages or advertisements alongside programming content.
This is where Barden enters the story. Tired of spotty reception of his favorite radio stations over the FM band at his home, he jumped at the chance to purchase an HD Radio receiver when they became available.
Barden’s decision to adopt was a simple one. For individual stations, however, it was more complex. HD Radio was more of a complementary than killer technology. Its implementation was a real expense, though not a prohibitive one. And its future market penetration—Barden notwithstanding—was unclear.
The organizational decision-making process piqued Barden’s scholarly interest. This convergence of corporate consolidation and new technology made for a revealing study on the effect of acquisition on technology adoption.
Barden examined adoptions of HD Radio technology among 745 commercial radio stations in 18 markets across the United States from 2003 to 2008.
He found that acquisitions increase the likelihood that a firm will adopt an innovation by reducing inertia that builds up around the technological structure of the organization. In addition to offering new resources, acquisitions alter a firm’s management structure and introduce new perspectives on the technological environment.
At the same time, acquisitions also create financial pressures and demand large amounts of managerial time and attention. To local radio stations, acquisition typically mean automation and downsizing, with remaining employees feeling more like survivors than contributors. This level of stress drains resources that could otherwise be used to monitor the technological environment for potentially valuable innovations.
For managers, Barden says, the message of his study is pretty simple: Pay attention.
“The acquisition process can cause managers to lose sight of the competitive environment and potential opportunities to innovate,” Barden says. “So it may be worth dedicating someone in or around the organization to focus on competitive and technological movements.”
“The influences of being acquired on subsidiary technology adoption” is forthcoming in the Strategic Management Journal.