This document summarizes a case study on how a large company developed acquisition capabilities over time. It established a Program Management Office (PMO) to codify acquisition processes, best practices, and knowledge gained from prior acquisitions. The PMO created over 100 mechanisms like checklists, implementation plans, and knowledge sharing sessions. These mechanisms helped manage acquisitions more effectively by mitigating inexperience, identifying interdependencies, and reducing risks. Updating mechanisms based on new insights and flexible application of the rules also contributed to acquisition performance. In total, the case provides initial insights into how companies can systematically build capabilities through codifying lessons from prior experience.

1. The Emergence of Acquisition Capabilities:
Initial Insights from a Case Study
Koen Heimeriks
Assistant Professor of Strategy
Rotterdam School of Management, Erasmus University
Joint work with: Stephen Gates,
Audencia Nantes, The Conference Board
and
Maurizio Zollo,
Bocconi
February 5th Panel OSWC 2009

2. Outline
What? We study the (corporate and BU-level) actors and micro-processes that
influence decision-making in the context of acquisitions
Why? The micro-level origins of how an organization develops acquisition
capabilities are under-developed
How? By taking a rule-based approach to study acquisition capabilities, i.e.
decision rules and standard operating procedures in organizations (Cyert & March,
1963) and repository of past experience (March, Schulz & Zhou, 2000) in a single case study
So? Analyzing codified and tacit acquisition mechanisms (as decision rules),
the findings shed initial light on how individual actors and micro-processes help
shape acquisition capabilities
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3. Early evidence of acquisition capabilities
Average acquisition Deliberate Experiential Occasional
performance per Acquirers* Acquirers Acquirers
group
Large M&A 63% 59%
78%
Medium M&A 53%
73% 67%
Small M&A 57%
66% 63%
N 12 10 53
N=101, Heimeriks, Gates & Zollo, Sloan Management Review/WSJ, 2008.
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4. Emergence of acquisition capabilities
“Acquirers have great potential to learn from their experience, but generally fail to realize that potential.”
(Hayward, 2002: 21).
Learning mechanisms,
e.g. M&A department, Acquisition
Acquisition codification mechanisms Acquisition
integration
experience performance
RQ: How does a company create, capability
retain, update and suspend
Cyert & March, 1963 ; Zollo & Winter, 2002.
mechanisms to perform the tasks
critical to successfully integrate
firms?
March, Schulz & Zhou, 2000.
February 5th Panel OSWC 2009

5. Study setup
(Underlying framework: rules actions history (March, Schulz, Zhou, 2000))
Acquisition capability ‘development’ Acquisition capability ‘deployment’
(1) Creation
Documenting knowledge to define
rules in (codified) mechanisms
(4) Suspension (2) Use
Application of knowledge captured
Discontinuing or replacement of mechanisms
in codified mechanisms
(3) Updating
Improving and extending extant
documentation to include new insights
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6. Data collection
Exploratory interviews with 10 serial acquirers such
as Caterpillar, Cisco, Dow, Eastman Chemical, IBM,
Xerox (3o min each)
Pilot and pre-tests of in-depth questionnaires
Sources for acclaimed serial acquirer (rev. > $50bn):
(1) (Multiple) semi-structured interviews with 7
corporate actors of different functional
areas and 2 BU managers (av. ~25 years with
firm; >25 hours of taped, transcribed
interviews)
(2) Follow up emails and internal documents
(3) Archival data: Thomson SDC, Factiva,
websites and annual reports
Coding of interviews (M&A Centre, and focal
acquisition), clustering text segments; (1) narrative
text, (2) table of mechanisms mentioned to integrate
interview and processes studied
Miles and Huberman, 1984; Eisenhardt, 1989; Yin, 2003; George & Bennett, 2005.
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7. The initiation of the PMO
Before 1999, a corporate M&A group of financial
experts dealt with around 150 acquisitions with very
little documentation
In 1999, around a mega-acquisition, the Program
Management Office (PMO) was set up on corporate
request to staff 20 FTE (from engineering,
operations, HR, IS, EH&S, supply chain)
The ‘M&A methodology’ consists of over 100
codified (e.g. implementation plan) and tacit
transfer mechanisms (e.g. coaching, meetings)
In 2002, the PMO was renamed M&A Technology
Centre to function as central repository and transfer
knowledge inside (~40 acquisitions between 1999-
2008)
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8. Scoring table of mechanisms developed
(as used in recent acquisition ‘Wonderland’)
Codification mechanisms used Formal sessions to exchange knowledge
M&A intranet website between managers involved in implementation
IS functional repository/file share Joint business planning sessions
Function-specific due diligence checklists Cross-team meetings/functional expert
and questionnaire sessions
Due diligence report Training on mechanism usage
Function-specific generic implementation
plans Functions and staffing
Implementation milestones Financial M&A department
M&A-specific project management tool Dedicated M&A function
Day-One checklist Business implementation leader
Performance metrics Cross-functional implementation team
Standard financial modeling/evaluation Regional sub-teams
Acquisition integration folder Implementation steering team
System conversion manual Use of same personnel in subsequent
Formal post-deal evaluation acquisitions
Use of same personnel in due diligence and
Tacit transfer mechanisms used implementation
Regular meetings of cross-functional teams
One-on-one coaching
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9. Some initial insights
“If they [the M&A Tech Centre] bring their capability, when they’re on our teams, we know they have it
before; they have a function-specific tool set, they have the knowledge that really jump-starts their
processes and are the better shot of preventing gaps, of something falling through the cracks.” *
Four main advantages of acquisition mechanisms:
(1) Mitigate inexperience in M&A
(2) Help identify and manage cross-functional interdependencies
(3) Help smooth transfer between transaction, due diligence, and implementation teams
(4) Help mitigate risks in acquisitions (e.g. by inappropriately applying lessons)
The creation of codified acquisition mechanisms depends on expert knowledge
at founding; functional input influences contents, usage and may have
performance implications
The use of codified acquisition mechanisms hinges on: a) corporate sponsorship,
b) guidance of M&A Tech Centre personnel, c) function-specific contents.
The frequency and type of updating of codified acquisition mechanisms has
acquisition performance implications.
The suspension of codified acquisition mechanisms hardly occurs; rather some
flexibility in adherence and application of rules is allowed
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10. Koen Heimeriks
Assistant Professor of Strategy
Rotterdam School of Management, Erasmus University
www.koenheimeriks.com
February 5th Panel OSWC 2009