Background of the study

In knowledge based societies and economies effective knowledge transfer is the base of successful business and value creation related to a firm’s growth and viability; this study will research the mechanisms used in knowledge transfer processes in service business acquisition context. All products and services are fundamentally tangible or intangible embodiments of human knowledge and therefore knowledge is nowadays considered to be the fundamental asset and the most strategic input for the sustainable competitive advantage of firms and organizations (Grant, 1996b; Grand & Baden-Fuller, 2004; Kogut & Zander, 1992), and it is the main inimitableness and the most strategically significant resource of the firm (Grant, 1996b). Liebeskind (1996) has defined knowledge as

information the validity of which has been established through test of proof and can therefore be distinguished from opinion, speculation, beliefs or other types of unproven information; therefore knowledge transfer is reasonably linked to organizational development and learning. The aim of knowledge transfer is to organize, create, capture or distribute knowledge and to ensure its availability to other users.

In order to maximize the competitive advantage arising from knowledge, knowledge must be effectively transferred for firms. Parallel to this, knowledge transfer is widely emphasized as a strategic issue for organizations competitive advantage and as a source for firm competitiveness (Argote & Ingram, 2000; Jasimuddin, 2007). The main purpose of transfer is the organizations´ effective use of resources by transferring e.g. best practices from one unit to another or from one organization to another. Advantage should always be taken of good, effective and economically viable methods, practices and modes.

However, there is surprisingly little research about various mechanisms in various contexts which should be applied to different transferring processes (Jasimuddin, 2007).

Knowledge transfer is therefore a process through which one unit or individual is affected by the experience of another unit or individual (Argote

& Ingram, 2000). The capability of the receiver to use transferred knowledge must also be taken into consideration (Cohen & Levinthal, 1990). The process approach of Szulanski (1996, 2000, 2003) consists of dyadic exchanges of knowledge between the sender and the receiver, where the effectiveness of transfer depends, to some extent, on the disposition and ability of the source and the recipient and on the strength of tie between them. In this process the organization recreates and maintains a complex, causally ambiguous set of routines in a new setting.

The problem in earlier studies has been a too narrow perspective of the phenomenon called knowledge transfer. The focus has been on

technological approach or related only to research and development function (Bresman, Birkinshaw & Nobel, 1999; Simonin, 1999). Due to this, different circumstances of knowledge transfer have also been missed.

Little is known about the situations under which one particular mechanism is the most appropriate and useful and the other one is not (Jasimuddin, 2007). These two factors together constitute two research gaps which this study tries to fill by linking the research questions to service business and acquisition context.

Research activity is a service business sector which is increasingly important to Finnish economy representing nearly two thirds of the GNP.

Knowledge-intensive services particularly are a dynamic and rapidly growing area of the service sector. Service can be defined as the application of knowledge and skills for the benefit of another party (Vargo

& Lusch, 2008) and services are needs, processes and performances (Zeithaml & Bitner, 1996). This definition means that services are intangible things which cannot be seen, smelled or touched. Service business includes mainly human-related service with tacit knowledge. That is why it is reasoned to criticize previous research as well, because of its technological approach. For example in service business acquisition the human based knowledge transfer mechanisms are very important to convey the new knowledge to the purchase company, it´s employees and even customers and other interest groups. Technology is important, of course, but it´s role in the new situation is to play more as a background and supporting element.

Acquisition (takeover) is the buying of one company (target) by another.

The transaction means a situation in which the purchaser acquires control or share control of another company. In publicly traded shares the buyer must be prepared to pay the market value on the premium. The acquisition is rational if it is implemented and generates economic benefits, synergies.

This means that trading partners together form a more valuable entity than they would have as separate units.

According to Kay (1996) acquisitions can be classified into horizontal and vertical groups based on how closely buyer and seller activities are linked.

In horizontal transactions parties operate in the same area and at the same time. In this type of transaction the company pursues a larger size.

In vertical transaction both parties act in the same industry but with different distribution levels. In this study the case companies operate in vertical transaction, in the same industry, but the financial and organizational size is different between the parent company and the purchased companies.

This study will be a case study. One knowledge-intensive company, which has grown rapidly via acquisitions during the last decade and represents a good model of a firm operating in service business sector, was selected as the case. It produces routine expert services and consulting type of services for its B2B customers. The reason for many acquisitions has been a desire to grow strategically, to gain new customers via new units and to get a bigger market share. The strategic growth includes increasing profitability via e-business and new IT products. The case is practically a unique case showing how knowledge transfer process can occur in acquisitions. Some of mergers have succeeded but there have also been quite challenging cases. If these cases are studied it may be possible to find mechanisms which are suitable for receiving the success better.

Those mechanisms are like the “soft face” of acquisition; channels through which the parent company begins to transfer knowledge to the subsidiary company.

The theoretical contribution of the study will provide empiric evidence about knowledge transfer mechanisms which are needed in service business acquisition and critical factors related to mechanisms.

Managerial contribution of the study will firstly describe and show the most efficient mechanisms which best help the subsidiary companies feel that they fit perfectly in the new company and get all the knowledge they need.

Secondly it is important to show the critical factors related to established mechanisms. The results of this study are also important to the case company itself, because if they are still going to grow by acquisitions in the future, it is important to know which mechanisms are the most effective and useful, and to get a new perspective how to handle takeovers better.