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What is the Acquisition Integration Approaches Model?
The Acquisition Integration Approaches model is a theoretical framework put forth by Philippe Haspeslagh and David Jemison to better understand and manage post-acquisition integration. This model emphasizes strategic capabilities and the need for interdependence or autonomy in acquisitions.
Haspeslagh and Jemison’s model breaks down the acquisition integration process into four categories: preservation, symbiosis, holding, and absorption.
- The ‘absorption’ and ‘preservation’ approaches expect low need for strategic interdependence, whereas ‘symbiosis’ requires a high level of interdependence and autonomy.
- The ‘holding’ approach, on the other hand, assumes low levels of both strategic interdependence and organizational autonomy.
- This framework assists organizations in making informed decisions concerning their acquisitions, thereby maximizing the potential for successful integration.
Criteria for Successful Integration of An Acquired Firm
Strategic independence and organizational autonomy are critical to successfully navigating the complexities of mergers and acquisitions.
1) Need for Strategic Interdependence
Strategic independence facilitates value creation, allowing each entity to utilize its strengths and maintain its unique selling propositions.
- It provides a platform for leveraging complementary capabilities, fostering innovation, and driving synergistic growth.
- Strategic interdependence also ensures that the acquired benefits remain intact, preventing the dilution of the firm’s competitive advantage.
- Furthermore, it informs the level of autonomy granted to the acquired firm, which can significantly impact the realization of combination benefits.
2) Need for Organizational Autonomy
Organizational autonomy ensures the acquired benefits remain intact, thereby preserving the very aspects that made the acquisition attractive in the first place.
- Organizational autonomy empowers the acquired firm to maintain its method of operation, thereby retaining critical attributes that contribute to its overall performance and value.
- This autonomy facilitates the transfer of general management skills. However, striking the right balance of autonomy is crucial to avoid isolating the acquired firm or stiffening innovation.
- Ultimately, the level of autonomy should be calibrated to serve the strategic goals of the merger or acquisition.
4 Approaches of Acquisition Integration
To keep acquired benefits intact within an organization, it is essential to integrate the new entity into the existing structure of the company. This process is known as acquisition integration and involves combining different aspects of two companies to create a cohesive and efficient organization.
There are four approaches to acquiring integration, each with its own unique set of benefits and challenges. These are:
Preservation encapsulates the notion of maintaining the acquired company’s identity, values, and autonomy post-acquisition. This approach emphasizes the preservation of the company’s unique attributes and autonomy, which were likely the features that made it an attractive acquisition target in the first place. Preservation is particularly beneficial in the following circumstances:
- When the acquired company has a distinct culture or operational process that has proven to be successful.
- When the acquired company operates in a distinct market or industry, where its expertise and knowledge are invaluable.
- When the preservation of the company’s autonomy and identity can lead to higher employee satisfaction and a lower turnover rate, thereby ensuring the continued operation and success of the company.
Symbiosis involves a deeper level of integration between the acquired and acquiring companies, where they share resources, processes, and knowledge to create mutual benefits. This approach is more collaborative and mutually beneficial for both parties involved. Some potential benefits of symbiosis include:
- Leveraging cash resources from the acquiring company to fund growth initiatives in the acquired company.
- Combining expertise and knowledge from both companies to improve operations, processes, and general management capability.
- Transferring general management skills from the acquiring company to the acquired company, leading to an overall improvement in performance.
Holding refers to the process of generating basic values through risk-sharing along with general management capability, and financial transfers. It does not aim for integration, as there is minimal requirement for autonomy. This approach is often used when the acquired company has a unique set of assets that can benefit the acquiring company, such as valuable patents or technology. Some of the potential benefits of holding include:
- Acquiring new assets or capabilities that can be leveraged by the acquiring company to increase its market power.
- Allowing the acquired company to continue operating independently while still benefiting from financial support and resources from the acquiring company.
Absorption implies that management must ensure the successful execution of its acquisition vision. The acquired company is fully integrated into the acquiring company’s operations, processes, and systems. This strategy entails prioritizing the maximization of acquisition benefits, even if it requires sacrificing some level of autonomy or experiencing slower and limited integration. Some of the key benefits of absorption include:
- The potential for cost savings and increased efficiency by eliminating redundancies and streamlining processes across both companies.
- The acquiring company gains access to and control over the acquired company’s resources, including technology, talent, and intellectual property.
How to use the AIA Model?
The AIA model, or Acquisition Integration Approaches model, is a tool used by companies to determine the optimal approach for integrating an acquired company into their operations. This model takes into consideration various factors such as the nature of the acquisition, the goals and objectives of both companies, and the current state of each organization.
- Identify the type of acquisition: The first step in using the AIA model is to determine the type of acquisition being made. This could be a horizontal acquisition, where the acquiring company and acquired company are in the same industry, or a vertical acquisition, where the companies operate at different stages of the supply chain.
- Define integration goals and objectives: Next, it is important to clearly define the integration goals and objectives. These could include maximizing cost savings, gaining access to new markets or technologies, or increasing market power.
- Assess the level of autonomy required: One of the key considerations in using the AIA model is determining how much autonomy is essential for the acquired company. This will depend on factors such as the culture and management style of the acquiring company, as well as the level of expertise and resources within the acquired company.
- Choose the preferred acquisition integration approaches model: Based on the type of acquisition, integration goals, objectives, and required autonomy level, companies can choose from various pre-defined acquisition integration approaches. These include preservation, symbiosis, holding, and absorption. Each approach has its benefits and drawbacks, and the choice will depend on the specific needs of the companies involved.
- Implement the chosen approach: Once the preferred integration approach is selected, it is time to implement it. This involves coordinating with various departments and teams within both companies to ensure a smooth transition and effective integration of operations.
- Monitor and adjust the post-acquisition integration process: The final step is to monitor and continuously assess the effectiveness of the chosen approach. This will involve making any necessary adjustments, as well as identifying and addressing any potential issues that may arise during the integration process.
If the process of acquisition integration is conducted strategically and attentively, it can significantly ensure greater market power and competitiveness.
Careful selection of an optimal integration approach, knowing the level of autonomy essential for the acquired company, and effective general management skill transfer can all contribute to reaping the full benefits from a large-scale acquisition process.
1) What are the approaches to acquisition?
There are four main approaches to acquisition integration: the preservation approach, the symbiosis approach, the holding approach, and the absorption approach.
2) What is the difference between integration approaches?
The main difference between integration approaches lies in the degree of autonomy given to the acquired company. The preservation approach allows for greater autonomy, while the absorption approach involves complete assimilation into the acquiring company’s operations.
3) What factors should be considered when selecting an integration approach?
Some of the key factors to consider when selecting an integration approach include the culture and values of each company, the level of compatibility between their operations and systems, and the overall goals and strategy behind the acquisition.
4) How can effective general management skill transfer contribute to successful integration?
Effective general management skill transfer involves the exchange of ideas, knowledge, and skills between the acquiring and acquired companies. This can help to align their operations and enhance overall performance, leading to a more successful integration process.
5) How does the acquisition integration approach affect employee morale?
Employee morale can be impacted by the chosen integration approach. The preservation approach may retain a sense of independence for employees but could lead to uncertainty and job insecurity. The absorption approach may cause resistance and resentment from employees, but could also offer opportunities for growth and development.