Tuesday, February 20, 2018

When Networks Merge: The Other Benefit of Firm Acquisitions

Here are two facts we have known for a long time. One is that a firm acquiring another firm combines their assets, and that can give synergies if they have something that works better together than apart. That something can be any kind of asset, by the way, including knowledge or intellectual property. The other is that firms establish and change interfirm networks through forming and dissolving alliances with other firms, and they use alliances to gain synergies too. So far everything sounds conventional and straightforward.

But these two facts don’t tell the whole story. A firm acquiring another firm also combines their networks, and that can create synergies when the combined network is better than the original ones. In fact, it can change a network much more radically than just forming and dissolving alliances one by one. This third fact is the start of an article in Administrative Science Quarterly by Exequiel Hernandez and J. Myles Shaver, but the article does not end there. It also checks whether firms are deliberately choosing acquisition targets based on these network synergies.

The question is important. It speaks to how smart firms are in maneuvering and modifying interfirm networks, which is useful to know, especially because people are not particularly smart in modifying interpersonal networks. But firms are not people, and acquisitions are not normal firm actions – they are analyzed carefully, and networks could be one of the factors taken into account. They could even be more important for acquisitions than some of the assets that researchers have long obsessed over. After all, alliances are observable in advance, like physical assets are, but they are unique and therefore more strategic. The other unique and strategic assets in play are often people with knowledge, but they are known to sometimes leave a firm after it has been acquired, so it is pretty risky to acquire to get people. Alliances usually stay. 

Network synergies are especially potent if they make the combined firm a better broker of knowledge because they connect to firms that are not themselves connected and do not have other shared connections (that’s called gaining structural holes). Brokers of knowledge can help create novelty and can reap more of its benefits. Synergies are also potent if they make the combined firm more central in the overall network, giving it higher status. Pretty much any combination of firm networks will improve brokerage and status, however, so it is not enough to see that this happens after an acquisition. What we need to know in order to look for deliberate choice of network synergy is whether the increase from the firm network that got acquired was better than the increase would have been for other firms that could have been acquired. Strategy is about choices, so a choice has to be compared with what was not chosen. 

This is where Hernandez and Shaver make a fully convincing case for network synergies as an important factor in acquisitions. They studied biotech, where networks are very important, and so are assets like people and intellectual capital. Their analysis is impressive and leaves no doubt that the opportunity to combine networks and gain network synergies was an important factor in the choice of acquisition targets. That means we now have a new way of looking at acquisitions, and we are better able to tell what firms may get acquired, and what they were acquired for. 

Hernandez, E., & Shaver, J. M. Network Synergy. Administrative Science Quarterly, forthcoming.


Wednesday, February 7, 2018

From Tigger to Eeyore: How Gig Economy Workers Cultivate Work Identities


When some people hear the term “gig economy,” they think of temps working for agencies, but that misses 90 percent of the picture. The gig economy consists of people who act as independent workers, contract firm workers, on-call workers, and temporary help agency workers. Fully half are independent workers, and with the gig economy growing fast and now encompassing one-sixth of the U.S. workforce, independent workers have become important in society. But what is it like to be an independent worker in a world of organizations and employees?

An article in Administrative Science Quarterly by Gianpiero Petriglieri, Susan Ashford, and Amy Wrzesniewski finds that the answer is… complicated. The reasons give an interesting look at both the world of employees and the world of independent workers. Studying the world of organizational employees, scholars and observers of society have long been interested in how people’s identities become shaped by their affiliation with an organization, and how some organizations strengthen this and make use of it. The classic book “The Organization Man” by William Whyte was part of a greater conversation on how people’s identities and actions may become too connected to the safety of being in an organization as part of a collective.

If the idea of collectives as capturing and constraining people captured employees’ reality, for independent workers, contracting and independent work should mean freedom and the ability to express one’s individuality. And that should be a good thing. The problem is that Whyte may have been right when he suggested that people like collectives and fear the freedom of individualism. The independent workers interviewed by Petriglieri, Ashford, and Wrzesniewski expressed an unmoored existence with wildly fluctuating emotions – like the Tigger and Eeyore fluctuations that one of them mentioned. They also experienced uncertainty about their personal identity, economic position, and the recognition of their work. All of this because independent workers don’t have an organization as a holding environment that defines their identity, determines their economy, and recognizes their work.

So what do the independent workers do? The key finding is not that they have found one clear solution, but instead that they seize on all sorts of ways to secure their work identities. They make routines for anchoring themselves, not necessarily because the routines help the work. They connect to places where they do the work, almost as a ritual of establishing the place as a context that helps define their individuality. They connect to people who can provide interpretations of what they do and affirmations of who they are. They find ways of connecting their work to higher goals for society, so they can define a purpose of life. Some of their actions are hard to understand for people who work for organizations. I don’t know how a writer can revere the public library as a workspace, but maybe that’s because I don’t know enough about writing. I did software development much earlier in my life, though, and it is a mystery to me that an independent software engineer can describe his home office as a “fighter pilot cockpit” – to me, part of the beauty of software engineering is that it is completely portable, so places are unimportant.

When actions are hard for outsiders to understand, have seemingly precarious links to outcomes, and are highly varied across person, time, and place, they display all the signs of having a function. In this case, the function is to hold on to and cultivate an identity in the absence of a collective, and to manage the emotions that come with independence. We may find that the new economy has many more unmoored people holding onto their identities in ways we’ve not seen before.


Petriglieri, G., Ashford, S. J., & Wrzesniewski, A. 2018. Agony and Ecstasy in the Gig Economy: Cultivating Holding Environments for Precarious and Personalized Work Identities. Administrative Science Quarterly, forthcoming.