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The Dynamics of Organizational Structure, Strategy, and Innovation-An Empirical Study of M&As in the Taiwanese Electronics Industry

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Abstract - An extensive body of research suggests that an organization’s ability to achieve its goal is a function of the congruence between various components. Following the concept “structure follows strategy”, this study suggested that suited strategy-structure fit should enhance pos-acquisition technological performance for the high tech firms. Further, this study also wishes to examine effects of organizational structure and corporate strategy on process, product, and marketing innovation. Results reveal that organizational coordination and differentiation strategy will enhance product innovation; organizational decentralization and cost leadership strategy will enhance process innovation. For the type of M&As, related M&A firms have better innovation performance than firms undertook unrelated diversification.

Keywords-Innovation, Merger and Acquisition (M&A), Organizational structure, Corporate strategy,

Electronics industry

I. INTRODUCTION

The global growth in merger and acquisition (M&A) activity has been unprecedented during the past decade. The total value of M&As increased from $ 1 trillion in 1995 to over $ 5 trillion in 2000 [1]. According to UN estimates, M&As comprised 40 to 85 percent of worldwide foreign direct investment (FDI) between 1998 and 2004. Taiwan firms are also in the midst of a merger wave. Before 2003, less than one hundred open market and OTC M&A cases were reported annually by Ministry of Finance; however, in 2004 and 2005, reported M&As increased to over 200 cases per year (both open market and OTC). Also noteworthy is that over 25% of M&As during this period involved information industry firms.

The major objectives of M&A in the information and electronic industries include reducing cost, entering new markets and acquiring new technologies [2].

Corporate-level strategy involves searches for new domains in which to exploit and defend organizational ability to create value from the use of its core competences. Mergers and acquisitions, which consists of vertical expansion, horizontal expansion, and unrelated diversification, seems to be a useful corporate-level strategy in the recent decades. Firms implement M&As usually owing to the reported benefits of reducing costs, adding product value, avoiding price wars, increasing bargaining power, and enhance organizational innovativeness. As to the M&A –innovation relationship, there exists different result in the real-world practice. And in the academic researches, while some studies suggested that M&As lead to outstanding financial and technological performance, others suggested the opposite. There are several possible reasons for pessimistic M&A performance. First, acquisitions usually entail high transaction costs that result in acquirers not realizing profits from acquisitions. Another negative effect is that the acquisition processes usually absorb much managerial time and energy. Theories of organizational and strategic management suggest congruence theory to solve the difficulty of M&A innovativeness. Following congruence theory, this study argues that different types of M&As (related/unrelated), organizational structure (decentralization/formalization/coordination) and corporate strategy (differentiation/ cost leadership) will

differently affect organizational innovation.

II. LITERATURE AND HYPOTHESES SETTING Congruence refers to “the degree to which the needs,

The Dynamics of Organizational Structure, Strategy, and Innovation-An

Empirical Study of M&As in the Taiwanese Electronics Industry

Liang-Hung Lin

1*

, Chun-Hsien Wang

2 1

Department of International Business, National Kaohsiung University of Applied Sciences, Taiwan

2 Department of Bio-industry and Agribussiness Administration,National Chiayi University, Taiwan

* Corresponding Author

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culture…etc. Long-term investigations seem to be an important direction for the future study.

REFERENCES

[1] A. De Man, and G. Duysters. “Collaboration and innovation: A review of the effects of mergers, acquisitions and alliances on innovation”, Technovation, vol. 25 pp. 1377–1384, 2005.

[2] H. Chen, and T. J.Chen. “Governance structure in strategic alliances: Transaction cost versus resource-based perspective”, Journal of World Business, vol. 38, pp. 1-14, 2003.

[3] A. D. Chandler, Strategy and Structure: Chapters in the History of the Industrial Enterprise. Cambridge, MA: MIT Press, 1962.

[4] B. R. Scott, “The industrial state: Old myths and new realities. Harvard Business Review, vol. 57, pp. 133-148, 1973.

[5] G. R. Jones, and C. W. L. Hill. “Transaction cost analysis of strategy-structure choice”, Strategic Management Journal, vol. 9, pp.159–172, 1988

[6] S. Ghoshal, and N. Nohria, “International differentiation with multinational corporations”, Strategic Management Journal, vol. 10, pp.323-337, 1989.

[7] G. R. Jones, Organizational Theory, Design, and Change. New Jersey: Pearson, 2004.

[8] A. D. Chandler, “Corporate strategy and structure: Some current considerations”, Society, January/February pp. 347-350, 1998.

[9] J. M. Utterback, Mastering the Dynamics of Innovation, MA: Harvard Business School Press, 1994.

[10] J. M. Higgins, “Innovation: The core competence”, Planning Review, vol. 23 , pp.32-36, 1995.

[11] V. Grover, J.T.C. Teng, and Fiedler, K. D., “Information technology enabled business process redesign: An integrated planning framework”, Omega, vol. 21, no.4, pp. 433-447, 1993.

[12] D. Miller, “Relating Porter’s business strategies to environment and structure: Analysis and performance implications”, Academy of Management Journal, vo1.31, no.2, pp.280-308, 1988.

[13] A. Delios, and P. W. Beamish, “Geographic scope, product dicersufication, and the corporate performance of Japanese firms”, Strategic Management Journal, vol. 20, pp. 711-727, 1999.

Proceedings of the 2008 IEEE ICMIT

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