Product Differentiation in IT Industries: The Interplay between M&As and In-House Innovation and Exploitative Innovation Orientation
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Published:2023
Issue:4
Volume:24
Page:1102-1131
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ISSN:1536-9323
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Container-title:Journal of the Association for Information Systems
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language:en
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Short-container-title:JAIS
Author:
Qi Kangkang, ,Han Sumin,Jeong Yeasung,Rhamati Pouya,Susarla Anjana,Sambamurthy Vallabh, , , , ,
Abstract
Firms in IT industries are under constant competitive pressure from incumbent firms and startups to offer
innovative products and services. This study explores the effect of mergers and acquisitions (M&As) on
firms’ product differentiation in IT industries. The unique characteristics of IT industries, namely
hypercompetition, distributed innovation, modularity of products, and the tacit nature of knowledge, make
M&As an attractive mechanism to enable IT firms to stay competitive. Drawing on product differentiation
theory, we hypothesize a positive effect of M&As on product differentiation and suggest that this
relationship is more potent in firms with higher in-house innovation, an exploitative innovation
orientation, and under high levels of industry turbulence. We test our hypotheses using M&A transactions
from 1996 to 2016 and a unique 10-K textual analysis-based measure of product differentiation. Using
the difference-in-differences identification strategy, the following findings are supported: (1) M&As lead
to higher product differentiation, (2) in-house innovation capability and exploitation-oriented innovation
strategy positively moderate the positive effect of M&As. These results, which are robust to endogeneities
and other robustness tests, contribute to theory and managerial practice by shedding light on the role of
M&As as an essential mechanism for product innovation and the complementary role of in-house
innovation capability and strategy for firms that intend to take advantage of M&As for creating a
competitive edge through differentiating their products and services from competitors. These findings
have important managerial value, providing an alternative narrative to the current view on M&As in IT
industries as a means of absorbing and dismantling the competition.
Publisher
Association for Information Systems
Subject
Computer Science Applications,Information Systems