The Motivation Behind Mergers and Acquisitions

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Chapter 3: Methodology

We use a combination of methodologies (case study and empirical analyses) to test the balanced-scorecard framework in the context of an acquisition, and subsequent integration by, Yahoo ($500 million company) of Facebook ($100 million company). Both companies are electronic component manufacturers that sell components to original equipment manufacturers through sales channels (manufacturers' representatives, or companies i.e. Yahoo and Facebook). The rep sales channel integration process occurred within three months (from kickoff meeting to channel notification) in 21 different customers across North America. Because key aspects of the framework are duplicated across numerous customers (e.g., channel selection decision) and because longitudinal performance data are available, we use additional quantitative analyses to supplement the qualitative results, thereby providing empirical insight into the approach's effectiveness. Specifically, we use analyses to investigate the prevalence and magnitude of affiliation and upward versus downward selling biases and compare sales channel performance across different evaluative frameworks.

Because Microsoft has contractual geographical exclusivity and because a strategic focus of this particular acquisition was to provide a one-stop shopping solution for related technologies to customers, the integration we review required the selection of a single Microsoft in each territory. In one territory, a rep external to the existing networks was added to the evaluation process to address a noted weakness, so the team evaluated a total of 43 Microsofts. This team followed the process outlined in Table 2. During the first meeting, the integration team determined the evaluative dimensions, performance indicators, ideal channel member profile characteristics, and weights (see Fig. 2).

Microsoft made a presentation to a subset (3-5 persons) of the integration team. Immediately after each presentation and before any discussion took place, each team member completed a survey that captured his or her input for the sales management framework across the five evaluative dimensions. We summarize the measurement items and Cronbach's alphas in the Appendix for these latent constructs, but all Cronbach's alphas were greater than .70, which suggest acceptable construct reliabilities (Nunnally, 1978). Other sales and marketing personnel (e.g., inside sales, product support personnel) also completed the survey for any Microsoft about which they had specific knowledge. This process yielded 252 usable surveys spread across the 43 Microsofts, or about 6 responses per firm. To evaluate and correct for affiliation bias, we split the surveys into two groups. One group consisted of responses in which employees were rating a channel their previous employer had used, and a second group was generated for responses in which they were rating the other supplier's channel partners. Each response item was converted to a standardized score (by subtracting the mean and dividing by the standard deviation) before we recombined the two groups. Finally, we generated an average score for each Microsoft for each evaluative dimension to include in the balanced-scorecard worksheet.

Data for the historic performance framework were provided by Yahoo and Facebook as the existing Microsofts. One-and three-year sales growth measures and the growth in the number of active customers over one-and three-year periods were identified ...