Abstract: Despite the widespread agreement on the importance of dynamic capabilities (DCs) to the success of merger and acquisition, little is known about how a configuration of these capabilities may contribute to the business models’ innovation (BMI) of an acquirer. The goal of this article is to understand what some role dynamic capabilities play for sustainability-oriented strategizing in technology-advanced M&A and to explore how dynamic capabilities underpin business model innovation of acquirer’s company. Empirically, I examine the role of DCs in the transformation of operationalized components of the BM of the three acquirers (Samsung, Microsoft, and Amazon) by means acquisition of technology-advanced firms (Harman, LinkedIn, and Whole Food) in 2016-2017.
Drawing on extensive qualitative data, I develop a practice-driven model as a practical guide for scholars who have been studying DCs and BMs, as well as for those who are new to the field. The resulting model advances the discourse on DC. The presented conceptual model encourages practitioners to grasp an exact relationship between the micro-foundations of each perspective.
Overall, the paper deepens the conversation at the nexus of dynamic capabilities and BMI in pursuing a new customer value proposition in the M&A process and thereby exploiting a competitive advantage forgoing sustainability. Keywords: dynamic capabilities, business model innovation, merger and acquisition, ICT, sustainability 1. IntroductionResearchers in strategic management argue that the performance outcome of a specific growth strategy is usually affected by the dynamic capabilities and business models (BM) [1-3]. However, Foss and Saebi argue that research on business model innovation (BMI) raises several crucial theoretical and empirical questions: What are the drivers, facilitators, and hindrances of the innovation of a business model? Under which circumstances can business model innovation give rise to sustained competitive advantage? Such fundamental questions are not currently being systematically posed, addressed, and answered, reflecting the emergent nature of BMI research  (p.201). What I wanted to know in my current paper is the role of dynamic capabilities in technology-related M&A process as drivers of the reinvention of a business model of merging company. Capturing valuable insights from the dynamic capabilities framework , business model canvas , and BMI theory I aimed to integrate three theoretical perspectives in the cohesive conceptual model. The paper is organized as follows. At the beginning of the paper, I explore the recent scientific discussion on the role of dynamic capabilities in the field of strategic management, building blocks of the BM of focal company and capabilities needed to its transformation in the context of M&A processes. Based on the literature review in depth, I designed the research methodology and posed two research questions as follows. What trigger off dynamic capabilities, particularly in technology advanced M&A? What is the role of dynamic capabilities as drivers of BMI in technology-related M&A? To answer research questions, I selected three inductive (illustrative) case studies of the most successful companies of Information and Communication Technologies (ICT) industry and the most intriguing their M&A deals, namely, Microsoft’s acquisition of LinkedIn at the end of 2016, Samsung’s acquisition of Harman International Industries in 2017, and recent Amazon’s acquisition of Whole Food in the end of 2017. There are three main sources of information have been used in the research: business study literature, news media, and company reports. The global ICT industry is selected for the reason of global nature and major changes in its complex settings of the competitive environment which require dynamic capabilities. The research paradigm of dynamic capabilities is still relatively new. Accordingly, illuminating case studies are likely to yield powerful insights”  (p.1400). Three cases have been compiled in one cohesive research paper due to similarities of triggers of the deployment of dynamic capabilities and causes the transformation of a business model their business model innovation, namely, Samsung delay entry in connected cars business, Microsoft’s delay entry on mobile ecosystems, and Amazon insufficient capabilities to upgrade their off-line grocery business. Three cases studies have been compiled in one cohesive research paper also due to similar roles of dynamic capabilities as drivers of BMI in technology-advanced M&A, namely, to sense a new demand, capture new resources and partnerships, transform channels and customers’ relationship and deliver a new customer value proposition to new users’ base, particularly, by means of acquiring of new technologies, advanced an engineering team. Having used cases studies research findings, I have developed a conceptual model for future research that integrates dynamic capabilities frameworks (sensing, seizing, transforming) , nine building blocks of BM canvas  and, strategic management framework (scope – resources ” organization), to demonstrate the role of dynamic capabilities in BMI in the M&A process. At the end of the paper, I discussed empirical findings, limitations and future work. 2. Literature review2.1 Dynamic capabilities.Capabilities are generally dened as the capacity to undertake activities; thus, capabilities are latent until called into use . Dynamic capabilities refer to a subset of capabilities directed toward strategic change, both at the organizational and individual level . The recent scientific discussion in the field of strategic management broadly favors the idea of dynamic capabilities in order to overcome potential rigidities of organizational capability building . Teece et al.  define dynamic capabilities as “the ability to integrate, build, and reconfigure internal and external competencies to address rapidly changing environments”. What’s more, making strategically important investment choice on M&A, dynamically capable management team need such managerial capabilities as sensing and shaping new demand, seizing new resources and transforming organization as well as reinventing and implementing new BMI . Teece argues that dynamic capabilities can enable the rms to create and capture value by designing appropriate business models . Value creation through M&A requires the simultaneous identification of target with similar dynamic capabilities on certain dimensions and different dynamic capabilities on other dimensions. While similarity is seen as an indicator for efciency-based synergies (scale and scope), complementarity provides rms with both efciency synergies and value created from those differences that are mutually supportive. Studies give clear empirical evidence that complementarities are a signicant factor for M&A success  (p.272). Through the interaction of complementary characteristics, value creation does not only derive from cost savings, but the value is also created by a growing turnover and market share . Complementarity has been studied in terms of top management team complementarity , technological complementarity , strategic and market complementarity , or product complementarity . However, the study in terms of complementarity of dynamic capabilities in M&A is still waiting for researchers. Teece argues  that business models have considerable significance but are poorly understood – frequently mentioned but rarely analyzed and establishes his goal to explore their connections to business strategy, innovation management, and economic theory. In spite of all this definition and application, the business model and business model innovation research stream produced little agreement on key issues. In fact, there is still surprisingly little agreement on what is the nature of the unit(s) analysis, that is, what BM and BMI are.  (p.10). 2.2 The business model of the acquirer’s company.Business models characterize the focal firm’s plan for its value creation and capture . In recent year, the business models have received increasing attention of strategy researchers. Slightly adapted Johnson et al.  and Osterwalder and Pigneur  ideas on BM, Teece proposed three main components of the business model: Cost Model: Core Assets and Capabilities; Core Activities; Partner Network. Revenue Model: Pricing Logic; Channels; Customer Interaction. Value proposition: Product and Service; Customer Needs; Geography  (p.41). However, the reinvention of business models of acquirers still an open area for research due to the following reasons. Johnson at al.  gave excellent ideas on a reinvention of business models and their building blocks for focal companies, but still, a question remains, what capabilities are needed in a reinvention of business models in M&A process? Pursuing scientific rigor and helping practitioners to re-invent of their BMs, Amit & Zott  integrated dynamic capabilities with business model design process but what about re-invention of building blocks of business models in M&A process? However, it is silence about what dynamic capabilities are needed for that. With respect to brilliant contributors to dynamic capabilities and BMs’ frameworks, there is still a gap in understanding what and how dynamic capabilities leads to new cost structure and revenue streams and how dynamic capabilities foster new value proposition of acquirer’s company in M&A process and therefore lead to competitive sustainability. We have to understand how dynamic capabilities reinvent the building blocks of BM of acquirer’s company. Furthermore, studies that provide a better understanding of business model innovation, implementation and change will shed light on important aspects of dynamic capabilities  (p.40). 2.3 Business model innovationThe emerging BMI literature addresses an important phenomenon but lacks theoretical underpinning, and empirical inquiry is not cumulative  (p.200). Researchers perceive the level of innovation of the BM differently. For example, Johnson et al.  believe that BMI is pointless unless it is new to the company and novel or game-changing to the industry and market in a certain way. On the other hand, Amit and Zott  suggest that BMI can be also only incremental in its characteristics, when a company finds a way to realize the economy of scale and affect the efficiency or boost the quality, for example. Often the BMI implies reinforcing some of the components or complimenting the core business. Therefore, the new BM does not imply that the existing business model is threatened or should be changed dramatically . “At root, business model innovation refers to the search for a new logic of the firm and new ways to create and capture value for its stakeholders; it focuses primarily on finding new ways to generate revenues and define value propositions for customers, suppliers, and partners”  (p.464). Amit and Zott argue that focal company can innovate BM by redefining (a) content (adding new activities), (b) structure (linking activities differently), and (c) governance (changing parties that do the activities) . Abdelkafi et al. argue that a business model innovation happens when the company modifies or improves at least one of the value dimensions.  (p.13). However, Foss argues, that systematic research on the antecedents, moderators, and implications of BMI remains limited, leading us to question whether a true theory of BMI exists  (p.201). Reviews on Business Model Innovation in Technology Advanced M&A are limited and do not provide systematic discussions of the phenomenon that it represents for research. Furthermore, a more comprehensive review and empirical research of the BMI in technology advanced M&A deals are warranted. What exactly is meant by the reinvention of building blocks of BM? The reinvention of building blocks of business is meant the process of the transformation of the most important activities, capabilities and resources of the company to reduce cost, to increase revenue stream, to deliver new customer value proposition and thereby to sustain competitive advantage advantages. How dynamic capabilities support a reinvention of building blocks of BM? There are three sets of dynamic capabilities which should be developed to transform and reinvent a business model of an acquirer to achieve competitive advantage. The first set of dynamic capabilities (sensing and shaping) is contributing to select new key activities and new customer segments, thereby contributing to an acquirer to shape emerging market demand and new technologies needed. The second set of dynamic capabilities (identifying and seizing) is supporting an acquirer’s company to obtain new key idiosyncratic resources and capabilities and to extend a partnership’s networks. The third set of dynamic capabilities (transforming and reconfiguring) is contributing an acquirer’s company to transform the mode of customer retention and sale force and thus, to deliver value to the customer and capture value for stakeholders. Thereby, an acquirer’s company would diminish capital expenditure (CAPEX) and operating expenses (OPEX), due to economies of scale and scope, and would generate new free cash flow stream.