Business Intelligence

Buying Companies For New Competencies: Is It Worth It?

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Executive Summary

In fast-moving industries, large companies are increasingly using acquisitions as a strategy to obtain new competencies from smaller firms. The key aspect of the acquisition is to gain access to the knowledge assets of the target firm. This knowledge-which often resides in the employees-is critical for the acquisition to create value for the acquiring firm. However, the difficulty of evaluating and monitoring employees in a large firm and the reduction in employees' incentives, due to less control over their efforts and lower profit-sharing, can lead to a persistent decline in their productivity after the acquisition.

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