Experience homogeneity or experience heterogeneity? A stepwise approach to acquisition capability development

Although organizational learning theory has traditionally argued that experience homogeneity facilitates learning, research has recently started to uncover important learning benefits of experience heterogeneity instead. Pursuing a deeper understanding of how firms can learn to be more effective at doing acquisitions, we argue, drawing on transfer theory, that each has its own distinctive strengths and that both can be beneficial to the development of acquisition capability, though at different stages in the learning process. Unlike most extant research, which lumps all acquisitions together into a single generic category, we distinguish between subcategories of horizontal, related diversified, and vertical acquisitions, each implying a different level of experience heterogeneity. Apart from helping to reconcile the inconsistent results uncovered in the literature so far, these subcategories enable us to formulate and test a dynamic framework of hypotheses that provide insight into the actual process of how firms can best develop acquisition capability. We test this framework using a multi-industry sample of firms over a period of more than three decades and find strong support for it. A key finding is that the experience homogeneity resulting from undertaking horizontal acquisitions can serve as a springboard toward developing a more widely applicable acquisition capability, enabling the firm to subsequently capitalize on the inherent strengths of experience heterogeneity.