Exploring the Link of Real Options Theory with Dynamic Capabilities Framework in Open Innovation-Type Merger and Acquisition Deals

Andrejs Čirjevskis

doi:10.3390/jrfm14040168

Abstract

Although it is well established that acquisition-based dynamic capabilities have important consequences for merger and acquisition (M&A) processes, direct evidence on how real option applications can measure a dynamic capability-based synergy in open innovation-type M&A deals has been scarce. This study draws from seminal research on real options theory to explore some of these benefits and limits to value a synergy in one recent highly strategic acquisition. To strengthen the identification of causal effects, the paper develops the proposition that justifies the role of dynamic capabilities as antecedents of the success of open innovation-type M&A deals in the ICT industry and demonstrates real options’ application to measure M&A synergies. To test the internal and external validity of the proposition, the explorative case study on Samsung’s acquisition of Harman International Industries was analyzed and interpreted. This study contributes important empirical evidence to bear on the literature on open innovation theory, dynamic capabilities framework, and real options theory.

Highlights

Management 14: 168. https://The open innovation (OI) literature has grown tremendously in recent years with a primary focus on external knowledge sourcing at the organizational level (Ferraris et al 2020).OI has become well established as a new imperative for organizing innovation (Bogers et al 2019)
This paper aims to explore the link of real options theory with dynamic capabilities framework and to understand the full benefits and possible limits of an application of real options theory to measure dynamic capabilities-based synergy in OI-type merger and acquisition (M&A) deals have been scarce in previous research
Scholars employed real options valuation to obtain the expected value of synergies arising from M&A deals, but they did not consider synergies as consequences of the dynamic capabilities (Loukianova et al 2017; Barbopoulos et al 2019)

Summary

Introduction

The open innovation (OI) literature has grown tremendously in recent years with a primary focus on external knowledge sourcing at the organizational level (Ferraris et al 2020). The author integrates the influence of dynamic capabilities on reciprocal synergies in open innovation type M&A deals into real options valuation and reconciles what has previously been presumed to be independent. Corporations use open innovation through strategic alliances and/or M&A deals (Čirjevskis 2019) In this vein, the role of dynamic capabilities in the OI-type M&A deal is difficult to overestimate in terms of the abilities of an acquirer to integrate two merging companies in search of strategic synergies. The author regards the OI-type of M&A deal as innovative ambidextrous (explorative and exploitative) learning (Čirjevskis 2016) of acquirers’ companies and examines how such type of acquisitions contribute to securing growth options by improving an acquirer’s dynamic capabilities and providing a synergy. The paper discusses findings that promote understanding of the consequences (synergy) of important external factors (dynamic capabilities of a target’s firm) that an acquirer’s firm may get by pursuing an OI type M&A deal

Key Literature Review

Data and Methodology

The Explorative Case Study

Discussion

Extended Abstract

Methods