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Many acquisitions of high-tech firms are motivated by the acquirers’ desire to enhance their strategic technological capabilities. However, these capabilities are likely to be embedded to a large degree in the tacit and socially complex knowledge of the acquired firms’ individual and collective human capital. This presents a dilemma for acquirers because, unlike tangible or financial assets, the acquired firms’ valuable human assets cannot be purchased or owned outright and they can leave the firm at any time. Retention therefore is likely to be of central importance during acquisition implementation in knowledge-intensive firms. Using data from a sample of acquisitions in high-technology industries, the results of this study confirm that retention of specific types of human capital is critical for determining the success of the acquirers’ efforts to gain valuable new technological capabilities. Applying the theory of relative standing to predict post-acquisition retention, we find that autonomy, status, and commitment sig- nificantly affect retention, but economic incentives do not. We discuss and inte- grate these results in the context of knowledge-based views of the firm and the existing literature on acquisition implementation. 2000 Elsevier Science Inc.


Since 1990 there has been a substantial increase in merger and acquisition (M&A) activity, with a significant portion of the activity occurring in technology-based

Direct correspondence to: Annette L. Ranft, Calloway School of Business and Accounting, Box 7285 Reynolda Station, Wake Forest University, Winston-Salem, NC 27109-7285; Tel: (336) 758-5098; Fax:

(336) 758-6311; E-mail:

The Journal of High Technology Management Research, Volume 11, Number 2, 295–319 2000 Elsevier Science Inc. All rights of reproduction in any form reserved. ISSN: 1047-8310


industries. More than 11,000 M&A deals were completed in 1997, for example, valued at over $900 billion. These results indicate a 47% increase over the number of mergers and acquisitions occurring in 1996 (Aley & Siegel, 1998). The overall level of M&A activity has continued to increase notably in subsequent years. Acqui- sitions in computer hardware and software, electronics, telecommunications, bio- technology, and pharmaceuticals dominate much of this activity. These industries frequently place among the top 10 most active merger and acquisition industries in the Securities Data Corporation’s annual merger and acquisition almanacs. Many of the acquisitions in the 1990s appeared to be motivated by firms’ need to obtain critical technologies or capabilities. In contrast to acquisitions used to achieve economies of scale, gains in market share, or geographical expansion, many acquisitions are attempting to obtain highly developed technical expertise and skills of employees, high-functioning teams for product development or other functions, or specific new technologies in fast-paced industries (Kozin & Young, 1994; Wysocki, 1997). Acquiring firms may not have the ability to develop these valuable knowl- edge-based resources internally or, alternately, internal development may take too long or be too costly. As an example, one of the most aggressive acquirers in the 1990s was Cisco Systems, Inc. Between 1994 and 1997, Cisco acquired over 30 technology companies:

mostly small software outfits, with 50–100 employees, just on the brink of launching commercial products. Cisco is buying new product teams on the open market because it takes too long to assemble them from the

ground up. And it is paying lofty prices—sometimes as much as $2 million

[According to CEO John Chambers] It’s the critical

an employee

mass—bringing in the team of people in a different area of expertise than we have today (Wysocki, 1997).

According to Chambers, Cisco makes acquisitions both to obtain critical technol- ogies and to retain the services of the best-skilled knowledge workers, including hard to find engineers and programmers. In these high-tech acquisitions, some of the acquiring firms “couldn’t care less about product lines, plants, equipment, or real estate,” assets which have traditionally been the focus of many other types of acquisitions (Wysocki, 1997). The academic literature highlights that many acquisitions do not succeed in achieving their desired objectives and instead result in poor organizational and financial outcomes. Problems with post-acquisition implementation are among the primary reasons given for this disappointing record. Acquisition implementation problems often arise because of clashes of organizational cultures, systems, or strategies and because of the loss of key executives in the acquired firm. In the academic literature, researchers have focused on the causes and consequences of top management team turnover in an acquired firm (Hambrick & Cannella, 1993; Krug & Hegarty, 1997; Very, Lubatkin, Calori, & Veiga, 1997; Walsh, 1988, 1989; Walsh & Ellwood, 1991). The departure of an acquired firm’s top managers, and the consequent loss of their knowledge and skills, is thought to be one important determinant of poor post-acquisition performance (Cannella & Hambrick, 1993). This study builds from a knowledge-based view of the firm to investigate the causes and consequences of employee turnover throughout the acquired organiza-

Retaining Human Capital


tion, and the impact of this turnover on the newly combined firm’s knowledge- based resources. As illustrated by John Chamber’s comments regarding Cisco’s acquisition strategy, key employees—both individually and collectively—embody an acquired firm’s intellectual capital and are the repository of much of its technological capabilities. Many of these employees are not top managers, but instead are located at different levels and in different functions or locations throughout the firm (Badar- acco, 1991; Nonaka, 1994). Because the acquisition of key employees’ valuable knowledge and skills may be a primary motivation for the acquisition in the first place, their departure makes the success of the acquisition much more difficult and much less likely. The existing acquisitions literature offers limited understanding of the anteced- ents and consequences of retaining key employees throughout an acquired firm, however, because of a predominant focus on the “upper echelons” of the organiza- tion. Empirical research to date has primarily focused on turnover in the top management team of the acquisition target (Cannella & Hambrick, 1993; Ham- brick & Cannella, 1993; Very et al., 1997; Walsh, 1988, 1989; Walsh & Ellwood, 1991). In contrast, knowledge-based views of the firm argue for the importance of employees elsewhere in the organization—those who possess critical individual expertise and skills or those who in combination possess valuable team- or group- based capabilities—who may be critical for determining the overall success of the acquisition. Integrating perspectives from the acquisitions and knowledge literatures, this study empirically explores the determinants and the effects of retaining key employ- ees on the transfer of an acquired high-tech firm’s knowledge-based resources, specifically its valued technologies and capabilities, to the acquirer.



From a knowledge-based view of the firm, firms are dynamic repositories of different sets of knowledge that are critically dependent upon the individual and collective human capital of the organization. Unique sets of knowledge, and the distinctive ways in which knowledge is integrated and organized by the firm, can generate capabilities that either create or support a firm’s competitive advantage (Grant, 1996; Leonard-Barton, 1995; Nonaka, 1994; Winter, 1987). Knowledge-based re- sources can be better understood by examining the degree to which they are based on knowledge that is tacit in nature, and the degree to which they are socially complex and embedded in the social fabric of the firm (Badaracco, 1991; Itami & Roehl, 1987; Kogut & Zander, 1992; Nelson & Winter, 1982; Winter, 1987). Knowl- edge that is highly tacit and socially complex is a valuable competitive resource because it is very difficult for other firms to imitate (Barney, 1991). This same tacitness and social complexity, however, make it difficult for firms to manage, particularly in the context of mergers and acquisitions (Coff, 1997). Tacit knowledge consists of individuals’ implicit, non-codified body of expertise and skills accumulated through experience (Polanyi, 1962; Reed & DeFillippi, 1990). In contrast to more explicit types of knowledge that can be readily articulated and codified in the form of manuals, blueprints, and other documented material, tacit


knowledge cannot be “specified and communicated independent from the possessor of the knowledge” (Winter, 1987: 168). In many cases, only through lengthy experi- ence and learning-by-doing can tacit knowledge be successfully acquired. Precisely because they are difficult, costly, and time-consuming to obtain, tacit forms of knowledge may be of paramount strategic value and may be a relatively strong and lasting source of competitive advantage for firms (Barney, 1991; Winter, 1987). However, managing this tacit knowledge creates unique challenges. Firms cannot build and maintain an advantage if their most valuable knowledge assets simply “walk out the door” to go to work for competitors or to start their own companies (Coff, 1997). Not all of a firm’s knowledge assets are contained within specific individuals, however. Critical organizational competencies often are embedded in relationships among individuals, or in a firm’s more general social and organizational fabric, rather than in any particular person (Huber, 1991). A significant portion of a firm’s knowledge may be located in the formal and informal networks of relationships within the organization, and even across organizational boundaries (Badaracco, 1991; Coff, 1997; Nelson & Winter, 1982; Winter 1987). In other words, a firm’s valuable knowledge- based resources may reside not only in particular individuals, but also in socially complex relationships among different individuals and organizational subunits (Bar- ney, 1991; Kogut & Zander, 1992; Leonard-Barton, 1995). Socially complex knowledge “resides primarily in specialized relationships among individuals and groups and in the particular norms, attitudes, information flows, and ways of making decisions that shape their dealings with each other” (Badaracco, 1991: 79). In the case of socially complex knowledge, no single person has the full set of skills and capabilities required to create a commercially viable product or service. This social complexity makes knowledge difficult to manage because critical interrelationships can be easily dis- turbed, such as when key individuals or teams leave the firm (Leonard-Barton, 1995; Nelson & Winter, 1982). Consequently, retention of key employees is not only a critical issue for retaining individual knowledge, but also for preserving valuable types of knowledge that are socially complex. A firm’s total stock of knowledge develops both from the individual experiences of organizational members, and from the collective experiences of the organization as a whole (Nelson & Winter, 1982). Leonard-Barton (1992, 1995) discusses how knowledge sets giving rise to organizational capabilities are embedded in both human and organizational capital. Specifically, she notes that knowledge-based capabilities reside in a complex combination of employee skills, managerial systems and processes, organizational values and norms, and the physical capital or physical systems of the organization. A firm’s intangible, knowledge-based resources are an interrelated and interdependent system arising from these dimensions of human, organizational, and physical capital (Leonard-Barton, 1995). Technological capabili- ties built on socially complex knowledge transcend the level of individual expertise, though disruption of one or more critical individual links can cause problems for the whole system.

Retaining Human Capital During Acquisition Implementation

When a firm attempts to gain another firm’s valuable technological capabilities through an acquisition, the tacitness and social complexity of the acquired firm’s

Retaining Human Capital


knowledge-based resources creates a critical challenge during post-acquisition im- plementation. In particular, the need for retention of individual and collective human capital is a central concern because many valuable employees of the acquired firm tend to leave during the post-acquisition transition period, resulting in the loss of their knowledge and skills (Hambrick & Cannella, 1993; Walsh, 1988, 1989; Walsh & Ellwood, 1991). Cannella and Hambrick (1993), for example, conclude

that the departure of acquired firms’ top executives is detrimental to post-acquisition performance. This negative performance effect was found in both related and unrelated acquisitions. Consistent with Castanias and Helfat (1991), Cannella and Hambrick suggest that executives from acquired firms are an intrinsic component of the acquired firms’ resource base, and that their retention therefore is an important determinant of post-acquisition performance. In other words, if executives of ac- quired firms are part of the valuable resources obtained in the acquisition (Pitts, 1976; Walsh & Ellwood, 1991), then the success of the acquisition may hinge on the retention of their knowledge and skills. Though these prior studies have focused on the post-acquisition turnover of top management team members, these argu- ments might be extended to consider the impact of the departure of other members of the acquired firm. Particularly from a knowledge-based view of the firm, focusing only on retention of top managers omits an important part of the motivation for many acquisitions. Top managers may be a central source of knowledge in an organization through their particular individual skill sets, through the ways in which they work with one another, and through their organizational actions and leadership. As the literature highlights, however, valuable knowledge may reside in individuals and relationships throughout the organization, in different functions and areas and levels, and not simply at the upper echelons of the firm (Badaracco, 1991; Davenport & Prusak, 1998; Nelson & Winter, 1982; Nonaka, 1994). Top managers are likely to possess

a great deal of the acquired firm’s valuable managerial knowledge and skills, for

example, but much of the firm’s technological knowledge and skills may reside elsewhere within the organization. This technological knowledge may reside in researchers, engineers, programmers, marketers, and middle- and lower-level man- agers, both in the form of individual human capital (Saura-Diaz & Gomez-Mejia, 1997) and in the form of effective, high-functioning teams or groups (Leonard- Barton, 1995). Not all individuals in the firm are necessarily critical to maintain a firm’s knowl-

edge base. Key employees to retain are those that possess individual expertise about

a particular technology, or those individuals that are part of a highly functioning

group that plays a critical part in generating the firm’s value-creating capabilities. These key employees are critical to the maintenance of knowledge-based resources during the post-acquisition implementation period. If these employees leave a firm, the loss of their tacit and socially complex knowledge will cause organizational capabilities to mutate or wither (Nelson & Winter, 1982). In addition to the relatively discrete effects of individual departures, turnover of key employees may cause more systemic disturbances in the social structure of the acquired firm that may negatively alter the firm’s capabilities (Fryxell & Judge, 1997). Extending the logic of the knowledge-based view of the firm, we discuss how retaining valuable human capital is likely to be necessary to preserve and transfer both tacit and socially complex knowledge when one firm acquires another. The


success of knowledge transfer is evident when the desired skills and capabilities are ultimately redeployed to the acquirer (Capron, Dussauge, & Mitchell, 1998). If key employees depart during the acquisition transition, the acquirer may find itself losing the skills and capabilities which largely motivated the acquisition in the first place. Consequently, retention of the acquired firm’s key employees throughout the acquired organization, not just at the top management team level, should significantly enhance the success of the transfer of knowledge-based re- sources to the acquirer.

Hypothesis 1: Retention of key employees in the acquired firm is positively associated with the transfer of technological capabilities from the acquired firm to the acquirer.

In the next section, we discuss the theory of relative standing and the existing acquisition implementation research. We extend the theory of relative standing and develop hypotheses that consider factors that may influence the retention of valuable human capital throughout the acquired firm, not just at the top management team level.

Relative Standing and Post-Acquisition Retention of Key Employees

The abnormally high rate of departure of acquired firms’ top executives during the first two to three years after an acquisition has generated considerable attention in the strategy literature (Cannella & Hambrick, 1993; Hambrick & Cannella, 1993; Krug & Hegarty, 1997; Very et al., 1997; Walsh, 1988, 1989; Walsh & Ellwood, 1991). Much of this research uses the theory of relative standing (Frank, 1986) to examine why turnover in acquired top management teams occurs. The theory of relative standing describes the importance of individuals’ feelings of status and worth relative to that of others in a proximate social setting. “Relative standing is manifested in such things as access to centers of power, titles, others’ acts of respect, inclusion, and warmth” (Frank, 1986: 736). Researchers have argued that “some acquisitions result in extremely low relative standing for acquired executives—they feel inferior, the acquirers see them as inferior and themselves as superior, autonomy is removed, status is removed, and a climate of acrimony prevails” (Hambrick & Cannella, 1993: 733). The theory of relative standing predicts that acquired execu- tives are more likely to be retained after an acquisition when they are given a greater degree of autonomy and a greater sense of status and importance in the newly merged firm. Appointing acquired executives to the newly merged firm’s management team may help provide them with a positive sense of their status and worth in the new organization. Likewise, other actions or symbols that indicate the importance of the acquisition to the acquiring firm, and that signal the commitment of the acquirer to the success of the acquisition, are likely to minimize departure of key managers (Hambrick & Cannella, 1993). In addition to the work by Hambrick and Cannella (1993), Walsh (1988, 1989) and Walsh and Ellwood (1991) also investigated top management turnover following acquisitions. These studies attempted to determine the underlying reasons for turn- over but found that neither the relatedness of the acquisitions (Walsh, 1988), the degree of hostility of negotiating the acquisition deal (Walsh, 1989), nor market

Retaining Human Capital


for corporate control theories (Walsh & Ellwood, 1991) were able to explain high turnover rates. Consequently, the theory of relative standing appears to offer the best explanation for top management turnover in acquired firms. Because top executives are not the only important form of human capital in technology-moti- vated acquisitions, the theory of relative standing may have implications beyond the acquired firm’s top management team. The theory might also be applied to other human capital in the acquired firm, such as scientists, engineers, programmers, middle managers, sales personnel, etc. (Very et al., 1997). Drawing on concepts from the theory of relative standing, we predicted three significant influences on the post-acquisition retention of valuable human capital in acquired firms. First, the degree of autonomy given to the acquired firm increases the relative decision-making latitude of acquired managers and employees. Rather than be dominated or subjugated by the acquirer, greater autonomy provides incen- tives for employees to stay with the firm because they are able to maintain greater control over their environment (Hambrick & Cannella, 1993; Huselid, 1995; Very et al., 1997). This is especially likely to be the case in knowledge-based acquisitions, where acquiring new skills and capabilities is the objective, because highly skilled professionals or “knowledge workers” tend to desire or require relatively high levels of autonomy (Jelinek & Schoonhoven, 1995; Raelin, 1991). Second, relatively greater post-acquisition status of the acquired firms’ human assets may also increase their propensity to stay with the newly merged firm (Coff, 1997). Status may be indicated by the acquired firms’ role in the management of the newly merged firm after the acquisition is completed (Hambrick & Cannella, 1993). Managers and other employees from the acquired firm may be allowed to manage not only their own operations, but they also may be promoted to assume greater responsibilities through being appointed to larger general management or functional responsibilities within the new, overall combined organization. Perhaps more typically, many acquirers strip the acquired firms’ managers and employees of their key responsibilities, effectively demoting them and reducing their status, and instead appoint their own executives to manage the acquired firm’s operations (Hambrick & Cannella, 1993; Haspeslagh & Jemison, 1991). Finally, evidence of the acquirer’s commitment to the success of the acquisition is likely to increase feelings of relative standing among the acquired firm’s managers and employees. This commitment may be expressed through positive internal and external media emphasizing the importance of the skills and capabilities of the acquired firm to the newly combined organization. Such positive publicity may increase acquired employees’ feelings of worth within the new organization. Other types of evidence of the acquirer’s commitment might include mechanisms such as increased resources for training and professional development for acquired manag- ers and employees. Highly skilled employees are likely to value opportunities for continued learning, training, and other forms of personal development in order to increase their expertise and skills (Coff, 1997; Huselid, 1995; Pfeffer, 1994; Raelin, 1991). Investment in such opportunities by the acquiring firm demonstrates their commitment to the success of the acquisition. Consistent with the predictions of the theory of relative standing, these positive expressions of commitment are likely to increase the propensity of acquired firms’ employees to remain after the acquisi- tion deal is closed.


Applying these insights from the theory of relative standing in the specific context of high-tech acquisitions, we propose the following three hypotheses:

Hypothesis 2:

Post-acquisition autonomy is positively associated with retaining key employees.

Hypothesis 3:

Post-acquisition status of the acquired firm (as indicated by management roles and responsibilities) is positively associated with retaining key employees.

Hypothesis 4:

Evidence of the acquirer’s post-acquisition commitment to the acquired firm is positively associated with re- taining key employees.

Financial Incentives and Retention of Key Employees

As applied in the strategy literature, the theory of relative standing primarily emphasizes the importance of non-financial incentives, related to perceptions of the acquired firm’s autonomy, status, and worth, for determining post-acquisition retention. But financial incentives may substitute at least partially for many of these more intangible factors (Coff, 1997; Hambrick & Cannella, 1993). Financial incentives provide another form of indication of an employee’s worth to an organi- zation. The use of financial incentives to help achieve strategic and operational objectives, including specifically to enhance retention of valuable managers and knowledge workers, has received some attention in the literature (Saura-Diaz & Gomez-Mejia, 1997). In high-technology industries, for example, the use of financial incentives to retain highly skilled workers sometimes is a key component of retention strategies (Balkin & Gomez-Mejia, 1990). In the specific context of acquisitions, however, there is relatively little research on the use and efficacy of financial incentives as a mechanism to enhance retention. Some practitioner-oriented literature supports the use of short- and long-term incentives to “help keep valuable executives on board during the transition period and signal key executives that they have important roles to play in the organization going forward” (Ferracone, 1987: 61). Financial incentives used to retain employees in acquisitions can take several forms: (1) “stay put” bonuses, generally a large bonus payable after the expiration of a certain period of time; (2) long-term contracts with bonuses payable over a given period of time; (3) stock options that can be exercised over some period of time or after a future date; and (4) increased base salary and/or benefits. To retain valuable human capital, firms may need to share the wealth they help generate through some form of rent sharing, such as through various types of financial incentives. Sharing the profits generated by knowledge workers’ valuable expertise and skills promotes retention by raising their compensation higher relative to the general labor market, as well as by increasing their perceived status in the firm (Coff, 1997; Hambrick & Cannella, 1993). Economic rewards linked to key employees’ continued employment within the newly merged firm therefore are likely to enhance the prospects that these employees will remain after the acquisition

Retaining Human Capital


is consummated. The logic behind the use of such direct economic incentives sug- gests the following hypothesis:

Hypothesis 5:

The use of financial incentives is positively associated with retaining key employees in the acquired firm.


Sample Selection

Three criteria guided the selection of an appropriate sample of acquisitions for this study. First, we focused on domestic acquisitions of high-technology firms. Second, these acquisitions were relatively recent events, having occurred during the time period 1994–1995. Third, the acquisitions had a transaction value between $10 million and $250 million. These criteria and the resulting sample are discussed in this section. Acquisitions of domestic firms in industries classified as “high-technology” in the Securities Data Corp (SDC) Worldwide Mergers and Acquisitions database comprised the initial sample set. These industries include biotechnology, computer equipment, computer software, computer services, electronics, and communications. We selected these industries both because of a high level of recent acquisition activity and because they represented technology-intensive businesses in which knowledge-based resources were likely to be important strategic motives for the acquisitions. The desire to obtain a particular technology or capability is a key driver of most of these acquisitions (Kozin & Young, 1994). Because much of the data were gathered through surveying of key managers, the use of relatively recent acquisition events (1994–1995) helped minimize recall or bias problems due to elapsed time. The sample was limited to acquisitions valued at between $10 million and $250 million. Transactions of this size were more likely to be acquisitions of single- business or single-division firms. This criteria helped control for the complexities arising in acquisitions of larger and more diversified multidivisional firms. The focus on small to medium-sized firms also increased the likelihood of being able to identify issues related to acquisition of specific knowledge-based resources and increased the likelihood of being able to identify key managers intimately involved in the acquisition implementation process. In acquisitions of this size, generally two or more managers in each firm had familiarity with both the acquisition decision and the acquisition implementation process. In larger, more complex transactions, any single manager would likely have had only limited information regarding the entire acquisition process. A total of 268 acquisitions of high-tech firms that met the three criteria were identified in the SDC Worldwide Mergers and Acquisitions database. Subsequently, Lexis/Nexus was used to search PR Newswire and Business Wire for press releases associated with each of these acquisitions. Press releases were not available for 32 acquisitions. We examined press releases for each of the remaining 236 acquisitions for evidence of whether gaining knowledge-based resources such as a specific tech- nology or capability was described as an important motive for the acquisition.


Examination of the press releases resulted in elimination of 42 acquisitions from the sample because there was no evidence of a technology or capability to be transferred. These press releases typically discussed issues such as pending bank- ruptcy in the acquired firm, acquiring specific physical assets such as a particular plant, or they described partial acquisitions of a single division or product line. Seven additional acquisitions were eliminated because of a lack of sufficient contact information. In these cases, contact information in the press releases was invalid and the information also was unavailable in Ward’s Business Directory or other references. A contact person for each of the remaining 187 acquisitions was identi- fied from the press releases and other references, including through direct contact with the firms. For the majority of acquisition cases, key managers were directly contacted by phone to describe the project and to secure their participation before the survey was actually sent. The survey was then sent through the mail to the primary contact person and to one other senior manager in the firm. In all the mailed survey packages, a cover letter explained the nature and intent of the study and specified which acquisition the respondents were to consider when answering the questionnaire. Managers from 27 firms indicated that they would not be able to participate in the research. The most common reasons given for not participating in the study were company policy and time pressures. Four of the returned surveys had incom- plete data and so were not used. When multiple responses for the same case were compared, the average rate of inter-item agreement between the respondents was 73%. Response scores were averaged for these cases (Very et al., 1997). A total of 89 cases, accounting for 48% of the initial sample of 187, were included in the final sample. Given the potentially sensitive nature of the questionnaire and the level of manager queried (CEO, etc.), the level of response was reasonably good. Prior research reports response rates range from 18–27% (Datta, 1991; Very et al.,


Respondents reported average experience of six years in their current position, 10 years in their current firm, and 19 years in the industry. Forty-eight percent of respondents were affiliated with the acquired firm prior to the acquisition. Fifty- two percent were affiliated with the parent firm prior to the acquisition. T-tests revealed no significant differences between these two groups of respondents with regard to the survey measures. In addition, 69% of respondents reported that they were senior managers (CEO, president, executive or senior vice president, etc.). The average transaction value of the acquisitions in our final sample was $69 million, with values ranging from $11 million to $249 million. Sixty-one percent of the acquisitions were related at the two-digit SIC level. Thirty-six parent firms and forty-seven acquired firms were computer software or information technology firms. Thirty-six parent firms and twenty-seven acquired firms were involved in electronics or related industries. The remaining firms were from the biotechnology, computer- related equipment, and telecommunications sectors. To check for nonresponse bias, respondents and nonrespondents were compared according to several criteria: the average value of the acquisition, the average size of the parent firm, and the relatedness of the acquisition. The means of each of these variables for the final sample were compared with the means for the total population of firms in the initial survey sample. Each of the calculated t-statistics was statistically insignificant.

Retaining Human Capital

Measurement of Key Variables


Established scales were used when such scales existed. Five management re- searchers examined the survey instrument for both content and face validity. In addition, managers in seven acquisitions participated in a pretest of the survey. Following the pretests, slight wording and ordering modifications were made to improve the clarity and organization of the survey. A description of the measures of each of the variables is provided in this section.

Descriptive Information

Motivation for the Acquisition. Each survey respondent first identified the pri- mary knowledge-based resource that was a key motivation for the acquisition in each particular case. A list of 10 examples was developed from a series of structured interviews with managers who pre-tested the survey, from press releases of acquisi- tion announcements, and from prior literature categorizing knowledge-based re- sources (e.g., Grant, 1996). In 35% of the acquisitions, specific product-related technology was identified as the most important knowledge-based resource of the acquired firm. Product innovation and engineering capabilities accounted for 32% of the acquisitions. Market or customer knowledge and sales relationships were identified as most important in 18% of the acquisitions. Basic research capabilities and production technology each accounted for 6% of responses. Finally, managerial capabilities were identified as most important in only 2% of the acquisitions. These survey responses were consistent with information gathered from the press releases of the acquisitions.

Social Embeddedness of Knowledge. Several items assessed the social embed- dedness of the acquired technology or capability by asking respondents the location of the key knowledge-based resources within the acquired organizations. Based on Leonard-Barton’s (1992) work, King (1996) developed a measure to assess where the knowledge supporting a particular organizational capability resides. This five- item measure asked respondents to divide 100 points among the five “places” within the firm that hold knowledge critical to sustain the acquired resource. Respondents indicated that 40% of the key acquired knowledge resided in the technical skills of the employees. Another 16.5% were identified as residing in employees’ social and professional relationships. Organizational mission and values was identified as the location of 16% of the critical acquired knowledge. Managerial systems ac- counted for 8% of the acquired knowledge, while physical systems accounted for just 18%. These values are consistent with the knowledge literature in that the majority (82%) of the acquired knowledge was cited as residing either in particular individuals or in the social complexity of the relationships, teams, and culture of the acquired firm (Badaracco, 1991; Kogut & Zander, 1992; Leonard-Barton, 1995; Winter, 1987).

Dependent Variables

Retention of Key Employees. To examine the retention of key employees throughout the organization, multiple survey items were developed to measure two dimensions: (1) a weighting of importance of different types of employees in the


acquired firm, and (2) the actual percentage retained. Respondents first identified key employees by their location within the acquired firm (R&D, engineering, middle management, marketing, etc.). Managers then provided objective data representing the actual percentage of employees retained in each of these areas. This measure allowed for an assessment of retention of employees in different areas and functions throughout the acquired firm. The overall retention measure was created by using a weighted average score based on the two criteria: (1) the indicated importance of retaining a particular group of employees (1 not important at all; 7 extremely important), and (2) the actual percentage retained from that group (0–100). Table 1 provides a summary of the disaggregated data regarding which groups of employees were considered to be most important and the corresponding mean percentage retained for each group. Table 3 provides the mean and standard deviation for the weighted average retention score for all of the cases.

Transfer of Knowledge-Based Resources. To assess the transfer to the acquirer of the knowledge-based resources of the acquired firms (i.e., their valued technolo- gies and capabilities), we adapted our measure from prior work attempting to

examine the transfer of resources and capabilities in an acquisition context (Capron et al., 1998). Respondents were asked to identify to what extent each of the key knowledge-based resources of the acquired firm had enhanced the competitiveness of the newly merged firm (1 not at all; 7 to a very large extent). Scores on these items were averaged to obtain an overall indicator for this variable. Managers

in each firm were contacted and asked to provide additional follow-up data approxi-

mately 9–12 months after our initial data collection. In addition to helping provide greater assurance of the validity and reliability of the survey data, this follow-up data also was used to assess and reduce concerns about potential common method bias. Respondents were asked about: (1) the percentage of key acquired employees retained after the acquisitions, and (2) the success of the acquirers at gaining and utilizing critical technologies and capabilities from the acquired firms. Comparison

of the initial survey responses for these variables with the follow-up data indicated

a correlation of 0.84 between the initial measure of retention and the follow-up

TABLE 1 Retention of Key Employees (n 89)


Average Importance

of Retention

Average %


Research & development



Middle management






Top management





















Retaining Human Capital


TABLE 2 Composition of Key Management Group After the Acquisition (n 89)







Originally part of acquirer’s management Originally part of acquired firm’s management Originally in parent firm but not part of management Originally in acquired firm but not part of management Hired after the acquisition











measure of retention, and a correlation of 0.76 between the initial measure of knowledge transfer and the follow-up measure.

Independent Variables

Post-Acquisition Autonomy of the Acquired Firm. To assess post-acquisition autonomy of the acquired firm, the survey included a multiple-item scale developed by Very and colleagues (1997) examining autonomy by functional area. This scale includes 12 items that ask respondents to what extent various functions were consoli- dated with the parent (1 totally independent; 7 totally consolidated). The functional areas included in the items were production, supply sources, R&D, engineering, distribution, sales, marketing, personnel management, strategic plan- ning, financial & budget controls, accounting, and senior management. An aggregate measure of autonomy was calculated by averaging the scores on all the items ( 0.95). Results for this measure were compared with responses on the single-item measure developed by Hambrick and Cannella (1993) to assess “overall autonomy,” which also was included on the survey. The two measures were highly correlated (r 0.78, p .001).

Post-Acquisition Status of the Acquired Firm. To measure post-acquisition sta- tus of the acquired firm, respondents were asked to indicate the percentage of the top management team of the newly merged firm that was originally employed by the acquired firm. The total percentage of the acquired firm’s employees that were part of the newly combined firm’s top management team was used as our measure of the relative post-acquisition status of the acquired firm (Hambrick & Cannella, 1993). Table 2 provides descriptive data regarding the post-acquisition composition of the top management team.

Acquirer’s Commitment to the Acquired Organization. Because no existing mea- sure could be found to assess this variable, a new scale was developed from our literature review and from background interviews (Haspeslagh & Jemison, 1991; Huselid, 1995). The four items in this measure assessed various dimensions of the acquirer’s corporate commitment to the success of the acquisition. First, respondents indicated to what extent they agreed or disagreed with the statement that the acquirer was visibly committed to making the acquisition a success (1 strongly disagree; 7 strongly agree). The remaining items assessed other potential indica-


tors of commitment: the use of positive public relations; support for travel and liaison between the acquired firm and the new corporate parent; and support for continued training and development of the acquired firm’s employees. Factor analy- sis of the items (with varimax rotation) extracted a single factor. An aggregate measure of commitment was calculated by averaging respondents’ scores on the four items ( 0.91).

Financial Incentives. The survey presented respondents with items assessing the use of four different types of financial incentives that might be used to encourage employees to stay with a company. These items included (1) short-run incentives, (2) long-term contracts, (3) stock options, and (4) performance bonuses (Balkin & Gomez-Mejia, 1990; Gerhart & Milkovich, 1990). Respondents were asked to rate on a seven-point scale the extent of use for each type of incentive (1 did not offer; 7 used to a great extent). Factor analysis on these items (with varimax rotation) extracted two factors with eigenvalues >1. The first factor consisted of short-run incentives and long-term contracts, each linked to a specific time frame for retaining an employee. The second factor consisted of stock options and other types of bonuses linked directly to performance outcomes of the newly merged business. An overall score for each of the factors was calculated by averaging the scores for the items that loaded on each factor. Because each measure appeared to tap into a different type of financial incentive, both measures were used in subsequent analyses.

Control Variables

Three control variables were included in the analysis. The three controls were (1) the relatedness of the acquisition, (2) the acquired firm’s performance relative to the acquirers’ at the time of the acquisition, and (3) the acquired firm’s size relative to the acquirer. A well-developed argument in the strategy literature suggests that related acquisitions should be more successful than unrelated ones because both tangible and intangible resources can be more easily combined when a firm extends its activities into a related area (Bettis, 1981; Lubatkin, 1987; Ravenscraft & Scherer, 1987). To control for potential effects of relatedness, the relatedness of the acquired firm and the acquirer was included in the analysis and was coded as a binary variable. The acquisition was considered related if the acquirer and the acquired firm operated in the same primary 2-digit SIC code (Lubatkin, Merchant, & Sriniva- san, 1993). In addition, previous researchers have argued that acquisitions of relatively larger and more successful firms may be more difficult to implement effectively (Kitching, 1967; Nahavandi & Malekzadeh, 1988). When the acquired firm is relatively large and/or successful, this creates pressures to give it more post-acquisition autonomy, and to allow it to retain more control and greater assets, even if they are not considered to be critical to achieving the objectives of the acquisition. In acquisitions of relatively larger or more successful firms, it may be more difficult for the acquirers to control the post-acquisition implementation process. The size and performance of the acquired firm relative to the acquirer therefore were used as control variables. Over half of the acquisition sample consisted of privately held firms for which public data was not available. Therefore, an item was included on the survey asking

Retaining Human Capital


respondents to assess the relative size of the two firms at the time of the acquisition. For 42 acquisitions for which complete public data were available, we also obtained the ratio of the number of employees in the acquired firm to the number of employ- ees in the parent firm from Ward’s Business Directory to check the reliability of our survey measure. The archival measure and the survey measure were highly correlated (r 0.79) for these 42 acquisitions. To measure relative performance, an item on the survey asked respondents to state the relative annual sales growth of the two firms at the time of the acquisition. We again obtained archival data from Ward’s Business Directory to check the reliability of the survey measures. The archival data and the survey measure were highly correlated (r 0.89), provid- ing greater assurance of the reliability of our survey measure of relative performance. These data are summarized in Table 3.


We screened the survey data to check for outliers, out-of-range values, missing data, and assumptions of normality and homoscedasticity by examining univariate statistics and scatterplots of the residuals (Tabachnick & Fidell, 1996). Descriptive statistics and correlations for each of the variables used in the analyses are presented in Table 3. A mediated regression model was used to test the five hypotheses. Mediated regression allows for assessment of both direct and indirect effects of independent variables and an intermediate variable on the dependent variable (Baron & Kenny, 1986). Three regression models were analyzed. First, we tested a regression model assessing the impact of the independent variables (autonomy, status, commitment, and financial incentives) on the intermediate variable (retention). This first model allowed for testing of Hypotheses 2–4. Second, a regression model examining the impact of the independent variables on the ultimate dependent variable (knowledge transfer) was conducted. Finally, a regression model examining the impact of both the independent variables and the intermediate variable (retention) on the depen- dent variable (knowledge transfer) was tested. Comparing models 2 and 3 allowed for the assessment of any direct effects the hypothesized independent variables may have on knowledge transfer, as well as their indirect effects through retention (Baron & Kenny, 1986). Condition indices and variance inflation factors were analyzed for all three models to assess any potential problems with multicollinearity (Tabachnik & Fidell, 1996). No significant problems with multicollinearity were found as a result of these diagnostic checks. The regression models are presented in Table 4. The first model was significant (R 2 .50, F 10.129, p .001). Specifically, autonomy ( 0.321, p .001), status ( 0.270, p .01), and commitment ( 0.259, p .01) were positive and significant predictors of retention during post- acquisition implementation, providing support for Hypotheses 2, 3, and 4. However, neither type of financial incentive (time-based, performance-based) was a significant predictor of retention. Hypothesis 5, therefore, was not supported. In addition, the control variable for relative size was significantly related to retention ( 0.189, p .05). The other control variables, relatedness and relative performance, were not significant (p .05) predictors of retention.




















TABLE 3 Descriptive Statistics and Correlations (n 89)


























































Autonomy Commitment Relative status Financial incentive (perf.)

Financial incentive (time) Relative size Relative performance Relatedness Retention Knowledge transfer

* p .05. ** p .01.



Retaining Human Capital


TABLE 4 Mediated Regression Analysis (n 89) a


Model 1

Model 2

Model 3


Relative size







Relative performance

0.159 t ( 1.934) 0.112 ( 1.279)

0.069 ( 0.660)








Independent variables Autonomy



0.135 ( 1.198) 0.098 ( 0.859)















Performance incentives

0.052 ( 0.593) 0.072 ( 0.810)

0.131 ( 1.170)

0.096 ( 1.001)

Time incentives













R 2




DV Retention

DV Knowledge Transfer

DV Knowledge Transfer

a Standardized coefficients are presented with T-ratios in parentheses. t p .1. * p .05. ** p .01. *** p .001.

The second model used the same independent variables, but with knowledge transfer as the dependent variable. The overall model was significant (R 2 .197, F 2.448, p .01). However, commitment was the only significant independent variable ( 0.255, p .05). Neither autonomy, status, nor financial incentives were individually significant predictors of knowledge transfer. Results for the control variable for relative size ( 0.341, p .01) again were significant, however. The other controls, relative performance and relatedness, were not significant predictors of knowledge transfer. The third model used knowledge transfer as the dependent variable and included retention as an intermediate variable. This model was also was significant overall (R 2 .42, F 6.379, p .001). The change in the F-statistic from model 2 to model 3 was also significant ( F 30.589, p .001), indicating that retention explained a significant amount of variance in knowledge transfer apart from the independent variables. In other words, retention was a significant and positive predictor of the extent to which technologies and capabilities had been successfully transferred from the acquired firms to the acquirers ( 0.672, p .001), consistent with Hypothesis 1. Commitment was no longer significant in this model, indicating that the effects


of commitment are primarily through its positive influence on retention. In addition, autonomy, status, and financial incentives also were not significant in model 3, further suggesting that the key influence of these variables on the transfer of technologies and capabilities to the acquirers is through their significant effects on retention. The control for relative size remained positive and significant in model 3 ( 0.214, p .05). Relative performance and relatedness again were not significant.


This study provides one of the first empirical tests of several key issues related to high-tech acquisitions, transactions in which the transfer of knowledge-based resources to the acquirers is a paramount strategic concern. First, the study con- firmed the suggestion that many acquisitions in the contemporary business environ- ment are occurring with the specific objective of obtaining critical knowledge- based technologies and capabilities from the acquired firms. Second, retaining key employees throughout the acquired organizations (not just at the level of top management) appears to be a critical prerequisite to promote the successful transfer of their technologies and capabilities to the acquiring firms. Third, the results provide evidence of some important determinants of retention of these key acquired employees. These three contributions are discussed in turn. The first portion of the survey asked respondents to (1) identify the most impor- tant resource of the acquired firm that motivated the acquisition, and then (2) to identify the location of valuable knowledge-based resources within the acquired firm. Eighty-four percent of the acquisitions in this study were made for the purpose of acquiring specific product-related technologies, market or customer knowledge and sales relationships, product innovation capabilities, or engineering capabilities. Respondents indicated that over 40% of the knowledge necessary to sustain these critical resources resided in the technical skills of key acquired employees. Another 32% of the knowledge was identified as located in the greater social context of the organization—the relationships employees had with one another, with other professionals and other outside stakeholders, and in the organization’s mission and values. These descriptive data provide evidence that the desire to obtain both individual and collectively embedded knowledge is a key motivation for many acquisitions of high-tech firms. While most prior research has focused on retention of the top management team following an acquisition (Cannella & Hambrick, 1993; Hambrick & Cannella, 1993; Walsh, 1988, 1989; Walsh & Ellwood, 1991), our results provide evidence suggesting the importance of retaining valuable human capital other than top executives. In fact, the data in Table 1 indicate that the acquired firm’s top managers, and the knowledge and skills they possess, often are not the most critical portion of the acquired firm’s human capital. For example, research and development personnel were cited as the most important source of the knowledge-based resources for which the firm was acquired. Given the focus of prior acquisitions research on top management teams, these data also give a different perspective in that respondents cited middle managers in the acquired high-technology firms as a more important repository of the knowledge they sought to acquire. Engineering personnel tied

Retaining Human Capital


with top management as a location of critical expertise and skills, and the importance of retaining acquired sales personnel was not significantly different from the impor- tance of retaining acquired top managers. The importance accorded to these groups of employees is consistent with the respondents’ primary acquisition objectives of acquiring product-related technologies, sales relationships and customer knowledge, product innovation capabilities, and engineering capabilities. R&D, sales, and engi- neering play critical roles in generating and sustaining the acquired technologies and capabilities. These results may suggest that the negative performance effects of top manage- ment turnover that have been observed for some acquisitions (e.g., Cannella & Hambrick, 1993) may not necessarily be direct effects nor are they necessarily the most important effects in all acquisitions. At least in certain types of acquisitions, top management turnover in acquired firms may be acting as a highly correlated proxy for departure of other key employees. A more direct cause of poor perfor- mance may be the loss of R&D employees, middle managers, or engineering person- nel. As others have speculated (Very et al., 1997), another explanation is that top management turnover may be an indicator of broader organizational problems that then affect other organizational members. The departure of non-executive key employees from the acquired firm may be intertwined with organizational difficul- ties, perhaps as both cause and effect in some sort of negative feedback loop or downward spiral. Retention of the top management team may nonetheless be important in some cases because their retention may provide some stability and continuity for the acquired organization through a transition period, even though other employees possess the actual expertise and skills that are of interest to the acquirer. The reasons for keeping top managers therefore are likely to involve symbolism to some degree (as our findings for the status variable suggest) and not just to retain their executive experience and skills. Retaining top managers may be necessary or helpful for a period of time, perhaps long enough to provide a smooth transition and to gain loyalty of key R&D, engineering, sales, and middle manage- ment employees. Interestingly, however, actual retention of top managers ranked next to last among the different groupings of employees, with only finance employees more likely to leave the firm than members of the top management team. The second, more general contribution of this research is the empirical linkage of retention of key employees with the successful preservation and transfer of knowledge-based resources from the acquired firms to the acquirers. The results supporting Hypothesis 1 indicate that higher retention of key employees throughout the acquired organization does result in significantly greater transfer of knowledge- based resources to the acquirer, at least in this sample of high-technology acquisi- tions. The conceptual framework developed in this study stresses the importance of retaining these key acquired employees because valuable tacit knowledge may be packaged both in the form of particular individuals and in the relationships and interactions of teams or groups of key individuals. Consequently, if this knowledge is to be successfully preserved and transferred during the acquisition implementation process, retention of key employees should be a critical strategic objective of the top management team of the acquiring firm. In contrast, this sort of objective may not be as important when the motivation for an acquisition is to obtain increased market share, greater economies of scale, or physical assets such as plant and equipment, acquisitions in which eliminating large numbers of employees may be


an explicit part of the implementation plan. This contrast suggests that future acquisitions research may be improved and refined by more specific consideration and distinction of the different and specific motivations for an acquisition and of what is actually being acquired. Because of the importance of retention in these acquisitions, four possible deter- minants of key employee turnover were examined. These four factors were: (1) the autonomy granted to the acquired firm; (2) the status of the acquired firm, as indicated by the composition of the post-acquisition top management team; (3) corporate commitment to the acquisition; and (4) the use of financial incentives to try to keep employees from departing. First, the results provide support for the positive influence of continued autonomy of the acquired organization on the retention of key employees. Past research indicates that granting autonomy to an acquired firm’s managers increases their feelings of relative standing in the firm and, therefore, minimizes their tendency to leave. Consistent with the theory of relative standing and Hambrick and Cannella’s (1993) findings for top executives, our data suggest that “preservation” (Haspes- lagh & Jemison, 1991) or “separation” (Nahavandi & Malekzadeh, 1988) modes of acquisition implementation may be sometimes appropriate for acquisitions of knowledge-based resources (at least for some period of time) to prevent the loss of key resources through personnel turnover. With recent high levels of M&A activity, some have recommended relatively rapid and complete integration of acquisitions in order to increase the chances of success (Ashkenas, DeMonaco, & Francis, 1998). For some types of acquisitions, implementation strategies based on quick integration may be appropriate. But the results for autonomy in this sample of high-tech acquisitions suggest that a cautious consideration of such strategies is warranted. Critical aspects of acquisition imple- mentation strategies, such as levels of autonomy, perhaps need to be dictated more by the specific motivations and resources of the acquisition situation rather than by some general prescription for all acquisitions. Again, additional research may help better define key parameters or contingencies that should guide these acquisi- tion implementation choices. The autonomy findings also highlight a persistent dilemma when higher levels of autonomy are granted to an acquired firm. With lower levels of integration and higher levels of autonomy, how can the resources of the acquired firm and the acquirer be successfully transferred, shared, and combined? Assuming that there are synergies to be realized through integration in many acquisition cases, the need to maintain a large degree of post-acquisition autonomy for the acquired firm (in order to retain key employees) creates a serious challenge. How this tension can be successfully managed is another question for future research. Other types of acquisition implementation mechanisms such as formal and informal communica- tions and other types of exchanges between the acquired firm and the acquirer may be critical (Shrivastava, 1986). Frequent meetings and active project-based teams might be useful where there is the necessity for exchange of ideas and combination of knowledge across a continued post-acquisition “boundary” of autonomy between the acquirer and the acquired. As with greater autonomy, greater status accorded to the acquired firm also appears to increase retention of key employees. The percentage of the management team of the acquired firm’s operations who were originally part of the acquired

Retaining Human Capital


firm was positively associated with retention of other key acquired employees. By maintaining or increasing acquired employees’ executive responsibilities in the newly merged firm and by keeping or making them part of the new management team, their feelings of importance and status in the new organizational context are bolstered and the status of the acquired organization within the combined firm is validated. As previously discussed, the importance of retaining top managers of the acquired firm may be largely for symbolic and organizational reasons—to keep the organization stable and functioning and to thereby prevent personnel losses— rather than to retain top managers’ executive knowledge and skills. Relatively unique among acquisition studies of this type, the turnover measure used in this study included turnover/retention data for a variety (10) of different groups of employees within the acquired firm, as well as ratings of the actual importance of their retention. The results therefore clearly support the argument that issues of relative standing have consequences beyond just the top management team of the acquired firm. Relative standing issues appear to flow throughout the acquired organization. The dynamics of relative standing may be particularly important in the sort of high-tech acquisitions examined in this study because, in many of the cases, the acquired firm possessed some superior and relatively scarce knowledge-based resource, which was the motivation for the acquisition. If these types of acquisitions are implemented “surrounded by an aura of conquest [of the acquired firm],” as many acquisitions are (Hambrick & Cannella, 1993: 735), the negative consequences may be particularly acute, both in terms of departure of personnel as well as in terms of lowering morale of those who remain. Instead, relatively high status for the acquired organization and its key employees in the newly combined firm may be appropriate, especially given the valuable knowledge and skills that ostensibly motivated such an acquisition. The theory of relative standing, then, is not only important for understanding turnover of acquired execu- tives, but may also help to understand turnover of acquired employees throughout the firm. Third, the acquirer’s corporate commitment to the acquisition was also found to be a positive influence on the retention of acquired employees. Expressions of commitment to the success of the acquisition, support for training and travel, and positive public relations on the part of the acquirer appear to enhance acquired employees’ comfort within, and commitment to, the newly combined organizations. The significant findings for this commitment variable are consistent with the theory of relative standing and therefore also support the utility of applying relative stand- ing concepts to examine retention of personnel throughout the acquired firm. Perhaps one of the most surprising findings of this study was that financial incentives did not significantly influence actual retention. Neither incentives based on time spent with the firm following the acquisition, nor incentives based on post- acquisition performance criteria, were effective determinants of retention in our sample of high-tech acquisitions. Less economically related and more socially ori- ented issues related to autonomy, status, and commitment clearly were more impor- tant determinants of retention than were financial incentives. The broader social logic behind the theory of relative standing therefore appears to be a better predictor of employee retention than a theory simply based on direct, personal economic interests. These results for the financial incentives variable are worthy of further consider-


ation in future research, especially given the apparent popularity of such incentives in many acquisition implementation plans. At least for some groups of employees, broader issues related to relative standing ultimately may prove more important than financial incentives in determining whether they decide to remain with an organization after the deal is done. An alternative explanation is that highly skilled individuals or teams that are worthy of substantial financial incentives for retention, are likely to be in demand not just by the acquirer, but also by other firms who may offer even greater incentives for these key employees to leave. Yet another plausible explanation is that key employees in these high-technology firms may have already realized substantial economic gains when their firm was acquired, especially if they possessed a significant stake in the company for which they worked. After realizing such a buyout “windfall,” further financial incentives may have relatively less appeal to these employees and thus may have much lower utility as a retention mechanism than in other situations. Early research on work design emphasized the importance of autonomy in in- creasing an employee’s internal motivation (Hackman & Oldham, 1980). Autonomy has also been linked to increased innovation and creativity for technology workers (Amabile, Conti, Coon, Lazenby, & Herron, 1996; Bailyn, 1985). Highly skilled technology workers may be able to move to other firms without requisite loss of financial compensation; tight labor markets in technology professions (McGee, 1998) may allow them to seek organizational settings that provide other factors that increase their internal motivation and creativity without much, if any, econo- mic loss. Finally, from the perspective of management practice, this study may provide managers with some direction for where to focus their efforts and expend their resources in order to retain valuable human capital when they acquire other knowl- edge-intensive organizations. While the relatively “direct” approach of financial incentives for retention did not appear to be particularly effective, other less tangible and more social factors were more significant determinants of retention. Rather than solely focus on compensation issues, managers of the acquiring firms probably should spend a good portion of their efforts on issues related to autonomy, status, and commitment during acquisition implementation. Ultimately, the retention of key employees may only be a precursor or a precondi- tion for the successful appropriation of technologies and capabilities by the acquirer. The successful transfer and combination of knowledge between the acquired firm and the acquirer, and its successful application to commercial ends, will continue to be critical and complex issues both for researchers and for those managers actually tasked with acquisition implementation.


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