Social Capital in Mergers & Acquisitions (M&As) PDF

Social capital is not for sale: a supply network perspective on mergers and acquisitions Mehmet Chakkol and Max Finne Warwick Business School, The University of Warwick, Coventry, UK...

Social capital is not for sale: a supply network perspective on mergers and acquisitions Mehmet Chakkol and Max Finne Warwick Business School, The University of Warwick, Coventry, UK Jawwad Z. Raja Copenhagen Business School, Frederiksberg, Denmark, and Mark Johnson Warwick Business School, The University of Warwick, Coventry, UK Abstract Purpose – Mergers and acquisitions (M&As) often lead to significant changes in the focal supply networks, hence disrupting firm-level relationships. Little is known about the supply network implications of M&As, which can be a major issue, especially for firms acquiring competitors that share suppliers, customers and associated resources. Using social capital as a theoretical lens, this research aims to investigate the implications of an acquisition on supply network relationships. Design/methodology/approach – The acquisition of a large truck manufacturer by its competitor is investigated using an exploratory case study methodology. A total of 24 interviews were conducted across ten companies in the focal supply network with an analysis of financial data. Findings – The findings from the study provide evidence that firms seeking to acquire such relationships cannot directly buy the social capital embedded within those relationships. They identify pre-acquisition characteristics and post-integration factors to understand how the supply network as a whole draws on the structural, cognitive and relational dimensions of social capital to address discrepancies in the merging network. Originality/value – This study depicts an empirically grounded, theory-based account of a post-acquisition supply network integration process, showing how an M&A can drastically impact customer and supplier network relationships. The main contribution of this paper lies in extending our understanding of how social capital cannot be simply transferred from one organisation to another during an M&A. Rather, this work illustrates how social capital in supply networks is transformed by considering the pre- and post-acquisition social capital dynamics of the merging networks. Keywords Social Capital, Supply chain management, Case studies Paper type Research paper 1. Introduction M&As may impact social capital through influencing supply network relationships. Social capital is co-created in a Mergers and acquisitions (M&As) are often used by firms to collaborative manner (Son et al., 2016; Whipple et al., 2015), access new resources through the acquisition of, or merger and hence, the acquirer needs to understand the role of the with, a competitor, supplier or customer. Accessing these supply network to yield the intended benefits from the resources post merger (or acquisition) is clearly a supply chain acquisition. Whilst the social capital perspective is beginning to management (SCM) issue, as it can lead to changes in sourcing receive attention at an inter-organisational level (Batt, 2008; and logistics. The acquisition of Whole Foods by Amazon led Johnson et al., 2013; Son et al., 2016), there is still limited to an increase in the delivery of food facilitated by e-commerce empirical research to aid in understanding the supply network channels and a reduction in sales through traditional stores aspect. This is an issue for firms acquiring competitors that (Keohane et al., 2017). Thus, an M&A can have positive and share suppliers, customers and associated resources as the negative impacts upon the supply chains of a firm post M&A can act as a “shock” to existing practices and acquisition. relationships within supply chains. The resources that a firm accrues through inter-firm The extant research on M&As primarily focuses on intra- relationships are commonly referred to as “social capital” organisational matters, such as organisational and strategic fit (Bourdieu and Wacquant, 1992; Koka and Prescott, 2002). (Cartwright and Schoenberg, 2006), from the internally focused Social capital as embedded within inter-firm relationships is context-specific, idiosyncratic and sensitive to changes within the supply network (Dyer and Singh, 1998). In particular, The authors would like to thank the four anonymous reviewers and the editor for their insightful comments in helping us develop the paper. The authors are particularly grateful to Lauren Pflueger for her support with the The current issue and full text archive of this journal is available on paper. Emerald Insight at: www.emeraldinsight.com/1359-8546.htm Received 8 February 2017 Revised 14 July 2017 Supply Chain Management: An International Journal 25 November 2017 23/5 (2018) 377–395 29 March 2018 © Emerald Publishing Limited [ISSN 1359-8546] 27 April 2018 [DOI 10.1108/SCM-02-2017-0052] Accepted 1 May 2018 377  Supply network perspective Supply Chain Management: An International Journal Mehmet Chakkol, Max Finne, Jawwad Z. Raja and Mark Johnson Volume 23 · Number 5 · 2018 · 377–395 resource-based view (RBV) perspective as a basis of competitive exploring M&As and supply networks using a social capital lens advantage (Barney, 1991; Lavie, 2006) or from the perspective of to understand the implications for the different dimensions. the absorptive capacity (AC) of an acquiring firm (Björkman et al., 2007). Conceptualising M&As as a firm-level phenomenon – 2.1 Implications of M&As for supply networks utilising RBV or AC as the theoretical lens – largely overlooks the The extant research on the organisational drivers of M&As inherent inter-firm dynamics that derive from companies being shows that the great variance in M&A success remains largely embedded in networks of inter-organisational relationships unexplained (King et al., 2004; Stahl and Voigt, 2008; Kato (Granovetter, 1985). This suggests that social capital is an and Schoenberg, 2014). M&A-related organisational appropriate lens through which to examine the impact an M&A disruptions are generally discussed in terms of intra- has upon the supply chains of a post-acquisition firm. organisational issues, such as culture and identity, reduced job The overall research objective of this study is to investigate satisfaction and increased turnover of staff (Krug and Aguilera, the implications of an acquisition in the UK trucking industry 2005; Kato and Schoenberg, 2014; Marrewijk, 2016). These on supply network relationships. Using social capital as a challenges are particularly evident in an absorption M&A theoretical lens, we investigate the ways in which merging strategy involving the full consolidation of both organisations as companies configure their relationships and resources within opposed to a “preservation” strategy, where the firms will be the post-acquisition supply network. The work studies the operating autonomously and separately from each other impact of M&As on the three dimensions – structural, cognitive (Haspeslagh and Jemison, 1991). and relational – of social capital in a supply network (Nahapiet The existing research has studied the extent to which and Ghoshal, 1998; Tsai and Ghoshal, 1998). Thus, the business relationships are transferable and whether customer following research question is adopted: and supplier relationships can successfully be adopted through M&As (Öberg and Holtström, 2006). This research stream RQ. How does an acquisition impact the structural, provides evidence of major positive and negative perceptual cognitive and relational dimensions of social capital changes towards the merging organisations from both within a supply network? customers and suppliers (Anderson et al., 2001). Positive In this paper, then, we contribute to the literature by exploring impacts include obtaining new customers, expanding market M&As and social capital from a supply network perspective. In share and exploiting innovative networks (Trautwein, 1990). this regard, we undertake a retrospective case study (Miller The list of unexpected negative effects on networks includes the et al., 1997; Voss et al., 2016). The selected case is of a truck loss of trustworthiness and reputation, as well as integration manufacturer that acquired a competitor and their dealership issues (Bocconcelli et al., 2006; Öberg et al., 2007). For network. The case serves to illustrate how the complexities of instance, Kato and Schoenberg (2014) studied a large the acquisition in terms of pre- and post-acquisition factors international merger and identified service performance, hindered the development of social capital during the customer orientation, flexibility, account management, employee turnover and product/service breadth as the key integration period and how the resultant lack of social capital in part explains the post-acquisition performance. We contribute aspects impacting customer relationships. “[T]he outcome of any acquisition depends on how well by extending the understanding about how social capital managers succeed in recognizing external relations and on cannot be simply transferred from one organisation to another whether established business relationships can be taken over” during an M&A but rather that relationships also need to be (Anderson et al., 2001, p. 579). The studies on the effects of transformed by considering the pre- and post-acquisition social M&As on supply networks are limited and have mainly focused capital dynamics of the merging networks. on the implications for customer relationships (Kato and The remainder of the paper is structured as follows. Section 2 Schoenberg, 2014) and in particular on the “acquired” discusses the literature on M&A implications for supply company’s relationships (Bocconcelli et al., 2006) during the networks and social capital as the applied theoretical lens. The post-merger period. Bocconcelli et al. (2006) acknowledge a research design is presented in Section 3, detailing the case need for future research in exploring the impact on the selection, data collection and analysis. Section 4 presents the “acquiring” company. They argue in their research that senior case study findings, dividing the case into pre- and post- management, in all cases studied, failed to consider the impact acquisition situations. The findings starts with detailing of acquisition on the inter-firm relationships or the role of these pre-acquisition social capital dimensions, followed by the relationships in the acquisition outcomes for the integration acquisition process and then the influence on post-acquisition period. In this respect, there is a need then to understand the social capital dimensions. Finally, in Section 5, we discuss the impact of acquisitions on supply network relationships from the theoretical contributions of the work, managerial implications, perspective of the acquiring company. Next, the theoretical lens limitations and avenues for future studies. used in this research is explained. 2. Literature review 2.2 Social capital as the applied theoretical lens M&A activity continues to receive extensive coverage in the “Social capital” is the collection of resources that a firm accrues international business, strategy and change management by virtue of possessing a network of inter-firm relationships domains, to name a few. Notwithstanding the vital contributions (Bourdieu and Wacquant, 1992; Koka and Prescott, 2002). It is these and other domains have made, the rather limited coverage argued that such networks are a product of investment that “can M&As have received to date in the SCM domain is striking. be obtained only by virtue of a social capital of relationships (or Thus, in this paper, we seek to begin addressing this gap by social obligations) which cannot act instantaneously, at the 378  Supply network perspective Supply Chain Management: An International Journal Mehmet Chakkol, Max Finne, Jawwad Z. Raja and Mark Johnson Volume 23 · Number 5 · 2018 · 377–395 appropriate moment, unless they have been established and embeddedness of relationships can lead to strong bonding social maintained for a long time” (Bourdieu, 1986, p. 24). Inter-firm capital (Adler and Kwon, 2002). This bonding is important for relationships are thus seen as an example of social capital (Koka building common values and norms with a network but might and Prescott, 2002; Johnson et al., 2013) for two reasons. Firstly, also result in unwanted consequences. For instance, it can firms interact, exchange information and create knowledge generate a culture of conformity and compliance amongst the through relationships (Burt, 1997). Secondly, these interactions groups creating a homogenous network, hence deterring result in the formation of obligations, norms and expectations members of the network from embracing innovation when faced that are considered to be the essence of social capital (Putnam, with significant changes from established norms (Edelman et al., 1995; Nahapiet and Ghoshal, 1998; Koka and Prescott, 2002). 2004; Eklinder-Frick et al., 2011; Ansari et al., 2012). To To fully understand the concept of social capital, there is a need mitigate risks associated with the over-embeddedness of to move away from dyadic conceptualisations to include the relationships, it is important for firms to develop bridging forms of wider network within which companies are embedded social capital (Adler and Kwon, 2002). According to Granovetter (Granovetter, 1985; Matthews and Marzec, 2012). Inter-firm (1973), this is performed through weak ties, which create the relationships do not exist in isolation but are part of a larger conditions to bridge connections between different groups. network (Harland et al., 2004), and the interconnectedness of Prior research suggests clear links between social capital and these relations is an important consideration in understanding relationship performance (Bernardes, 2010; Cousins et al., social capital (Hartmann & Herb, 2015). 2006; Schoenberg, 2006; Krause et al., 2007; Villena et al., Nahapiet and Ghoshal (1998) distinguish social capital in 2011; Lee, 2015; Whipple et al., 2015; Son et al., 2016; Preston terms of structural, cognitive and relational dimensions, et al., 2017). However, this impact is argued to be non-linear allowing for operationalisation in empirical settings. The first and has generally been described as curvilinear because too dimension, structural capital, refers to the position of a firm in a much social capital can harm performance (Son et al., 2016; network of relationships (Granovetter, 1973), which provides Villena et al., 2011; Zhou et al., 2014). It is argued that “the benefits to the firm in terms of information and resources accumulation of social capital improves performance up to a (Coleman, 1990; Koka and Prescott, 2002; Edelman et al., point [until] the risks associated with over-embeddedness offset 2004; Hartmann and Herb, 2015). This dimension is the benefits” (Son et al., 2016, p. 17). For instance, heavy particularly concerned with the patterns of relationships reliance on a customer or a supplier relationship may lead to connecting the focal firm to the wider network (Burt, 1997; opportunistic behaviour, which harms the focal company. Burt, 1992). Network ties, structures and configurations It is important to consider social capital as dynamically represent facets of social capital, as the density and connectivity co-created between the firms involved in a business relationship, of a firm’s position in the network determine its access to which can affect performance (Adler and Kwon, 2002; Whipple external resources and competences (Tsai and Ghoshal, 1998). et al., 2015). A lack of social capital amongst firms is usually Accordingly, structural capital builds on the collection of the depicted in terms of asymmetry, often including dynamics relationships (Granovetter, 1985) of the focal company. among the three dimensions of social capital. For instance, a lack The second dimension, cognitive capital, refers to the shared of network ties (i.e. structural capital) or a shared vision (i.e. languages, representations, codes, narratives and systems of cognitive capital) can lead to differing expectations and meaning amongst different actors and groups in a social context asymmetric trust arrangements (i.e. relational capital). This can (Nahapiet and Ghoshal, 1998; Tsai and Ghoshal, 1998). Firms significantly harm relationships and potentially lead to lesser that share similar means of communication are generally better operational collaboration and diminished information exchange positioned to become strategic partners and have an increased (Cousins et al., 2006; Krause et al., 2007; Carey et al., 2011; breadth and depth of information exchange as a result of an in- Matthews and Marzec, 2012; Johnson et al., 2013; Preston et al., depth understanding of each other’s business needs (Tsai and 2017). In terms of the interdependence among the three Ghoshal, 1998). Accordingly, overlapping cognitive capital dimensions, prior studies have largely considered the structural may facilitate companies in building mutually beneficial and cognitive dimensions as antecedents to relational capital, relational capital, which is the third dimension of social capital. arguing that the two former positively influence the latter (Carey Relational capital refers to the trust, obligations, expectations et al., 2011; Preston et al., 2017). Moreover, there is evidence that and identification that are created and leveraged through suggests different forms of social capital can have significant relationships (Nahapiet and Ghoshal, 1998). These relationships implications for performance (Bernardes, 2010; Lee, 2015). form the social context within which all economic actions of Owing to the fundamental nature of social interaction, the companies take place (Granovetter, 1985) and are influenced by resultant social capital that will exist in a newly established the other two dimensions (Carey et al., 2011; Preston et al., relationship is co-created by the parties involved (Son et al., 2016; 2017). For example, differing cultures and identities may create Whipple et al., 2015), and so the end result is far more complex to tensions in the relationships that can be further enhanced by predict than simply adding up the resources of the two parties structurally overlapping networks. Increased relational capital involved. Further, we suggest that M&As have the capacity to within supply networks can result in reduced manufacturing impact supply network relationships and to influence different costs and increased speed and flexibility, as well as improved dimensions of social capital. This impact can be either positive or operational efficiency (Krause et al., 2007). Within an inter- negative, depending on the context, management and integration organisational context, repeated interactions between firms over strategy. In particular, the post-M&A integration process is time are viewed to be integral to the development of relational expected to involve a re-configuration of relationships and capital (Cousins et al., 2006; Gulati, 1995; Kale et al., 2000; resources in terms of the three different dimensions of social Hartmann and Herb, 2015), and it is argued that the over- capital – structural, cognitive and relational. Hence, the post- 379  Supply network perspective Supply Chain Management: An International Journal Mehmet Chakkol, Max Finne, Jawwad Z. Raja and Mark Johnson Volume 23 · Number 5 · 2018 · 377–395 acquisition social capital of the merged network is expected to be is possible to study the supply network implications on social different than the sum of the pre-acquisition social capital. capital. The research question also dictated the need for access to Table I provides a synthesis of the literature on social capital other firms in the network, primarily because social capital is co- and the different dimensions. Next, we outline the research created in a collaborative manner (Adler and Kwon, 2002; design to explore the different dimensions of social capital Whipple et al., 2015) and secondarily to avoid biased perspectives within different supply networks in the context of an M&A. or misrepresentations of inter-firm relationships (Son et al., 2016). We therefore purposefully selected a case meeting all the 3. Research design necessary criteria identified above. To this end, we studied a truck manufacturer (hereafter referred to by the pseudonym 3.1 Retrospective case approach and selection “QualityTruck”) and its dealership (supply) network, which had The case study research method was deemed appropriate given acquired a competitor (hereafter referred to by the pseudonym the exploratory nature of the research question and the scarcity “PriceCo”). This study benefitted from long-term engagement of existing research on the topic (Edmondson and McManus, with the case company and its network. The focal firm provided a 2007; Flyvbjerg, 2006). A case study should enable phenomena good level of access, and, even more crucially, we were able to to be observed in their natural contexts, and it is deemed a negotiate access to some of its customers and dealers which were suitable method for answering “what” and “how” questions impacted by the acquisition. (Voss et al., 2002). Accordingly, it fosters an understanding of the interaction between the phenomenon and its context (Yin, 2009), which is what this research aims to do. Meredith (1998) 3.2 Data collection argues for the adoption of a single case study methodology The data collection mostly consisted of semi-structured when conducting exploratory research, as it is able to fully interviews with QualityTruck and ex-PriceCo employees, as well explore the depth of the research, which is necessary for the as respondents from dealerships and customers (see Table II for elucidation of the tacit and intangible nature of social capital overview). In addition, we undertook a thorough review of (Johnson et al., 2013). It is also appropriate to use the single financial performance and supporting data sources, including case study (Yin, 2009; Siggelkow, 2007), where: annual reports and internal systems, as well as marketing and online material. The study was conducted over a period of 18 [...] the objective is to capture the circumstances and conditions of an everyday or commonplace situation [...]. The lessons learned from these months. The wealth of data sources enabled data triangulation, cases are assumed to be informative about the experiences of the average thereby improving reliability (Yin, 2009). In particular, the person or institution (Yin, 2009, p. 41). analysis of financial data from annual reports helped provide Thus, in line with these rationales (Meredith, 1998; Voss et al., further support for performance implications by corroborating 2002; Yin, 2009), it was decided to focus on a case study with the claims of the respondents, which is important for a the primary motivation to provide an in-depth understanding retrospective case (Voss et al., 2002) and reduces potential bias of the M&A implications for supply networks. In a similar vein from respondents (Huber and Power, 1985). The annual reports to Kato and Schoenberg’s (2014) study, the acquisition case that were analysed ranged over 12 years, starting from two years studied had a significant impact on the truck manufacturing prior to the acquisition to nine years after – that is, from year -2 to industry, as it is made up of a few large firms. year 9, with year 0 being the acquisition year. In addition, market Theoretical sampling was used to select the case (Yin, 2009; data on commercial vehicle (truck) sales in the UK within this Corbin and Strauss, 2015). For the purposes of this research, we period were analysed to form an understanding of the company’s utilise a retrospective (Miller et al., 1997) M&A case, whereby it financial performance in comparison to the market Table I Synthesis of literature on social capital Dimension of social capital Elements Description Indicative references Structural Network ties Ties provide access to resources Nahapiet and Ghoshal 1998; Network configuration Overall configuration of ties Tsai and Ghoshal, 1998; Coleman, 1990; Koka Appropriable organisation Can often but not always be transferred and Prescott, 2002; Edelman et al., 2004; Hartmann and Herb, 2015 Cognitive Shared codes and languages A common language facilitates ability to gain access Nahapiet and Ghoshal, 1998; Tsai and Ghoshal, to people and their information 1998; Bolino et al., 2002 Shared narratives and systems of Myths, stories and metaphors provide means for meaning creating, exchanging and preserving rich sets of meaning Relational Trust Cooperation leads to trust and vice versa Nahapiet and Ghoshal, 1998; Fukuyama, 1995 Norms Represents a degree of consensus in the social Putnam, 1993; Coleman, 1990; Cousins et al., system 2006; Petersen et al., 2008; Carey et al., 2011; Obligations and expectations A commitment to deliver against an expectation in Kale et al., 2000; Lawson et al., 2008; Gulati, the future 1995; Hartmann and Herb, 2015 Identification A process through which people associate themselves with a group 380  Supply network perspective Supply Chain Management: An International Journal Mehmet Chakkol, Max Finne, Jawwad Z. Raja and Mark Johnson Volume 23 · Number 5 · 2018 · 377–395 Table II Details of the interviews Interview number Organisation Job title 1 QualityTruck HQ CEO 2 QualityTruck HQ Head of Aftersales 3 QualityTruck HQ Head of Parts Business 4 QualityTruck HQ Communications Manager 5 QualityTruck HQ Business Development 6 QualityTruck/East Midlands Key Account Manager 7 QualityTruck/East Midlands Customer Relationship Manager 8 QualityTruck/East Midlands Commercial Manager (ex-PriceCo) 9 QualityTruck HQ Human Resources (HR) Director 10 QualityTruck HQ Repair & Maintenance Manager (ex-PriceCo) 11 QualityTruck HQ Head of Network Development (ex-PriceCo) 12 QualityTruck HQ Head of Service & Support 13 Dealer A/North West Owner Director (ex-PriceCo) 14 Dealer B/South East Managing Director 15 Dealer B/South East Service & Business Development Manager 16 Dealer B/South East Parts Manager 17 Dealer C/East Managing Director 18 Dealer C/East After Sales Director 19 Dealer D/London Managing Director (ex-PriceCo) 20 Dealer E/London After Sales Manager 21 Customer A/West Midlands CEO 22 Customer B/East Midlands Fleet Manager 23 Customer C/East Midlands Small Fleet Owner 24 Customer D/London Owner-Driver developments. A total of 24 semi-structured interviews were During the analysis, the research team compared and conducted across ten different companies: 12 interviews within contrasted emergent categorisations with insights and the case company, 8 interviews across five dealers and interviews assumptions in the extant literature in an iterative fashion with four different customers. Table II shows the interviews (Dubois and Gadde, 2002). In addition, investigator conducted across the different organisations and the job titles of triangulation was used to improve the validity of the findings, respondents. A tandem interviewing approach was also used, which meant cross-checking the results from the analyses by with at least two researchers being present in each interview different investigators (Denzin, 1989). The following joint (Huber and Power, 1985). In addition, Appendix 1 details the discussions amongst the research team resulted in the checking interview guide. and validation of first-order categories, and, where necessary, respondents were contacted via phone or email for further 3.3 Data analysis clarification. In addition, feedback workshops were held with To analyse the data, we adopted the principles of template executives at the case company (QualityTruck), which allowed analysis (King, 2012). For the initial coding template, a for the validation of our findings. Overall, this process resulted conscious decision was made to include only the main categories in the refinement of the linkages between first-order categories, of the interview protocol at the highest level to avoid introducing second-order themes and aggregate themes and also helped bias into the coding process. Thus, the initial coding template ensure the credibility of the findings (Guba and Lincoln, 2015). was composed of two aggregate categories, namely, pre- and In the final step of the analysis, we presented the findings post-acquisition network social capital. These categories were from this study to senior and operations personnel in substantiated by structural, cognitive and relational capital workshops and informal meetings, which led to further dimensions as second-order themes. All transcribed interviews elaboration and clarification of the points raised. Drafts of and associated company-related documents were reviewed and earlier versions of the paper were also circulated with senior re-reviewed by the research team to extract the codes relevant to management of QualityTruck and presented at academic the manifestations of social capital and network performance conferences for discussion (Vangen and Huxham, 2003). This related to the acquisition of PriceCo. The three dimensions of resulted in various changes, such as clarifications of the social capital were used as second-order themes, with the relationships between the themes forming the three types of identified themes being coded as associated first-order social capital and the way the findings are presented. The categories. New themes were added when the analysis identified deliberate decision to include different data sources – being findings that did not fit the existing structure (Miles et al., 2013). informants, companies, annual statements and United For instance, motivations for the acquisition by QualityTruck of Kingdom (UK) trucking market data – allowed us to PriceCo emerged as a second-order theme during the initial corroborate the findings to further enhance reliability (Denzin, coding, but this was not part of the original template. 1989; Voss et al., 2016). 381  Supply network perspective Supply Chain Management: An International Journal Mehmet Chakkol, Max Finne, Jawwad Z. Raja and Mark Johnson Volume 23 · Number 5 · 2018 · 377–395 The empirical findings show that the acquisition studied in such as international fleet owners and logistics services firms. this research had drastic implications for the networks, which The interactions with these customers were governed by practically resulted in a large-scale reconfiguration of network detailed formal contracts. However, the company struggled to partners, relationships and resources. Next, we present the develop strong links with small- and medium-sized customers findings from the study. across the UK, which accounted for a significant share of the market. In addition, QualityTruck lacked dealer network links 4. Findings and customer base in northern England and Scotland. Whereas, PriceCo enjoyed historical links with small- and In this section, we begin by presenting the case company medium-sized as well as family-owned businesses across the situation to contextualise the social capital of the merged UK. However, the company struggled to develop links with network. Following this, the description of the pre-acquisition large fleet owners and business-to-business customers, which social capital of the two networks and the rationale for the only constituted a small part of their portfolio. PriceCo’s acquisition of PriceCo by its competitor QualityTruck are network held one of the most comprehensive coverage of the outlined. After this, we provide a detailed account in our entire UK in terms of dealerships. analysis of the implications of acquisition on the merged network with a focus on the three social capital dimensions and 4.2.2 Pre-acquisition cognitive capital the impact upon performance. Similarly to Nahapiet and Within the network of QualityTruck, the quality of the product Ghoshal (1998), we consider each dimension independently, in and proud history of firm’s engineering excellence were clearly both pre- and post-acquisition contexts, whilst acknowledging evident as a shared value. The value propositions, the dealer that several facets are likely to be interrelated, which we discuss network and other marketing material largely emphasised the in the subsequent section. rich history of innovations in terms of truck parts and technologies. In addition, QualityTruck offered a wide range of 4.1 Case context services to its business customers who valued repair and The focal case company QualityTruck operates in the maintenance services as important as the truck itself. As such, commercial vehicle industry. The company is historically the dealer network shared the understanding of the significance known for its excellence in product quality and technological of service for QualityTruck customers. QualityTruck also innovation. It is currently one of the leading commercial vehicle valued its intellectual property and was very protective of parts manufacturers in the UK and is part of a large multinational and technical knowledge, prohibiting dealers from sharing organisation. QualityTruck’s product range includes heavy information and technology with customers. trucks, medium trucks, buses, coaches and specialist trucks. PriceCo’s network had a long history of being associated with The trucking industry in the UK is heavily regulated: each a British manufacturer. This key value was echoed across the commercial truck is required by legislation to go through a network, where many customers and dealers were proud to do formal Ministry of Transport inspection every six weeks. Thus, business with one of the last standing British brands in the efficient and effective maintenance of the vehicles is of market. Historically, PriceCo allowed dealers a large degree of paramount importance to vehicle operators. autonomy in terms of service processes as well as parts and The service offering of QualityTruck is predominantly technology. Consequently, the dealers did not have a joint centred on the repair and maintenance of vehicles and includes understanding of services. The common culture within the warranty, inspections, preventative maintenance, driver PriceCo network was described as being a “price-driven” training, finance and fleet management. An extensive dealer business, where the price and features of the product were the network carries out these service activities and is formed of focus, and services were not seen as a fundamental part of the independent firms which are largely responsible for delivering business. the repair and maintenance services to customers on behalf of 4.2.3 Pre-acquisition relational capital QualityTruck to ensure vehicles are roadworthy given the legal QualityTruck had a formal, process-driven and non-flexible requirements. Many customers therefore opt for a service approach to its relationships with the network. The customers of contract when they purchase a new truck, which extends to the firm placed their trust in the quality of the products and the include mandatory testing and related servicing. consistency of the services, and the interactions were largely The target company, PriceCo, a competitor of driven by the content of the contracts. Owing to the history of the QualityTruck, operated at the lower end of the market and with company and the brand, the corporate identity was shaped by a lower market share. However, PriceCo had a long history “engineering excellence and innovation”, where cost was seen as within the UK trucking industry, with a considerable dealer secondary to quality (annual report [AR] 1). This was well network covering the breadth of the country (see Table IV for documented across the strategy documents and vision and value detailed chronological details of the acquisition). statements. The dealer network’s key obligation was to achieve Next, the pre-acquisition social capital for both consistent and superior service delivery to QualityTruck QualityTruck and PriceCo is presented. customers. Whilst this required the dealers to strictly follow the standardised service procedures, QualityTruck acknowledged 4.2 Pre-acquisition social capital of the two networks and recognised superior performance by providing additional 4.2.1 Pre-acquisition structural capital business and nominating dealers for industry awards. Prior to the acquisition, QualityTruck’s network included PriceCo’s approach to managing relationships with its strong links with business-to-business customers (mainly customers and dealers was described as trust-based, flexible within the Greater London and southern England regions), and not contingent on formal processes or contracts. This also 382  Supply network perspective Supply Chain Management: An International Journal Mehmet Chakkol, Max Finne, Jawwad Z. Raja and Mark Johnson Volume 23 · Number 5 · 2018 · 377–395 entailed being accommodating to customers’ requests. It respect to PriceCo was one of “preservation” – that is, developed closely coupled relationships with small- to medium- operating the two brands separately but in parallel. sized customers, which were known to be loyal to the PriceCo The main reasons behind QualityTruck’s acquisition brand. Although PriceCo struggled to match the technological decision were to, first, widen its market through increasing the innovations of its competitors over the years, the firm reach of the network. Second, QualityTruck wanted to attempted to mitigate this through being more accommodating consolidate and standardise manufacturing to gain synergies of customers’ requests. The dealer network’s key obligation through economies of scale. Third, QualityTruck considered it was to maximise the number of vehicles sold whilst meeting the essential to extend service coverage. Fourth, it aimed to access customers’ needs in terms of specifications and requirements. PriceCo’s longstanding customer relationships in the UK. The The pre-acquisition social capital along the three dimensions latter two points were cited as key drivers because PriceCo had discussed above is summarised in Table III. a considerable number of loyal fleet operator customers: What [QualityTruck] wanted in [PriceCo] was the special relationships with its customer base that none of the competitors had. [PriceCo] had a historical relationship with small family-owned businesses and an extensive 4.3 Acquisition process network of dealers. Through this acquisition [QualityTruck] killed two birds Prior to the acquisition, QualityTruck was looking to extend its with one stone and tapped into the family business markets while extending network of dealerships within the UK market, and, at the same its dealer network to all parts of the country. (Owner-Driver, Customer D) time, there was a push from its headquarters towards providing At the time of the acquisition, QualityTruck’s market share in the additional service packages to customers, as services were seen UK commercial vehicle industry was approximately 9 per cent, as a key source of revenue generation. Hence, QualityTruck whereas PriceCo had a 5 per cent share. Prior to the acquisition, began an M&A process that resulted in the acquisition of one of PriceCo’s market share had been in decline for many years, its competitors, PriceCo. QualityTruck was positioned at the whereas QualityTruck had been experiencing steady growth. higher end of the market and emphasised product quality and As a result of the acquisition, the combined market share of service, whereas PriceCo’s main strategy was to compete on the two brands was 14 per cent, with 146 dealers owned by 110 purchase price and placed little emphasis on after-sales service. firms. Since the acquisition, PriceCo has completely integrated The merger process was considered an acquisition, with the into QualityTruck, and, today, the merged company functions parent company of QualityTruck acquiring full ownership of under one brand name, and PriceCo-branded trucks are no PriceCo. Originally, QualityTruck’s acquisition strategy in longer manufactured. By Year 8, the merged company’s market Table III Pre-acquisition social capital of QualityTruck and PriceCo networks Social capital dimensions Pre-acquisition social capital of the networks QualityTruck’s network Structural capital Evident network configuration and ties with customer base within the south of England and around Greater London Lack of interaction and ties with the customers in northern England and Scotland Network links and interaction with large business-to-business customers Lack of links with small and medium-sized family-owned customers Cognitive capital Shared vision and value of engineering excellence and product quality Shared understanding of intellectual property concerns; protective of parts and technical knowledge Common goal of emphasising both product sales and service delivery Process-driven relationships with the network underpinned by the service excellence and product quality Similar values are shared across the network of dealers on the importance of product and service quality Relational capital Non-flexible, formal and process-driven customer and dealer relationships Business customers trust the product quality and the consistency of services Corporate identity of engineering excellence; and cost is seen as secondary to quality Employees and the dealership network proud of product quality buildup over time Key network obligation is to achieve consistent and superior service delivery across network PriceCo’s network Structural capital Existing network configuration across the entire UK Network ties mainly with family-owned or small business customers Lack of ties to large business-to-business customers Cognitive capital Shared proud history of being a British manufacturer echoed across the network Historically customers said to be treated as ‘kings’ in respect to accommodating requests Common culture described as being price-driven Relational capital Trust-based, flexible and accommodating relationship approach evident within the network Historical and closely coupled relationships with small and medium-sized customers Established corporate identity of flexible and relational exchange with customers not driven by processes or contracts Key obligations within the network include maximising the number of vehicles sold 383  Supply network perspective Supply Chain Management: An International Journal Mehmet Chakkol, Max Finne, Jawwad Z. Raja and Mark Johnson Volume 23 · Number 5 · 2018 · 377–395 share was 10 per cent, with 66 dealers owned by 28 firms. Appendix 2). In regions such as Greater London and southern Table IV details the key events within the QualityTruck– England, QualityTruck and PriceCo dealers operated in close PriceCo network in the post-acquisition period. vicinity to each other. These dealers were previously unable to Next, the resulting analysis of the case study is detailed service each other’s brands owing to a lack of brand-specific during the post-acquisition period for the merged network equipment and parts, know-how and skills, whilst manufacturer along the three dimensions of social capital, as well as the warranty restrictions also presented a barrier. Further, if seeking operational financial performance implications. to undertake repairs of the other’s brands, prices were much higher because of increased commissions on the original parts. 4.4 Post-acquisition structural capital However, these network ties changed as a result of the The acquisition of PriceCo caused significant disruption to the acquisition: the neighbouring dealers became part of the same structural capital for the whole network. The analysis identified a network and thus “started competing overnight” with similar number of key factors that had impacted the structural social prices, equipment and parts. These changes in the structural capital of the network in the post-acquisition period, including capital of the network had major negative effects on the network complexity, dealer rationalisation and the consolidation relationships within and performance of the network in the eyes of production, which are discussed in turn. These emergent of the customers. For instance, the large business customers of findings can be seen as influencing factors for the dissonance in QualityTruck initially welcomed the fact that the dealer network the structural social capital following the acquisition. extended throughout the UK. However, the customers experienced major issues with dealers who had previously been 4.4.1 Network complexity PriceCo in terms of service delivery and consistency. These As a result of the acquisition, the QualityTruck dealer network dealers were not trained to follow the standard service procedures configuration became more extensive and complex (see of QualityTruck. Table IV Chronology of main developments in the QualityTruck–PriceCo acquisition Year Main developments in the acquisition Year 0 QualityTruck acquires PriceCo. Synergies were expected in terms of increased market share, network coverage, service offering and economies of scale. Also, a personnel reduction of around 35% was expected to occur Dealer network: 146 dealers held by 110 different firms Combined total market share: 14.0% Year 1 The acquisition brought significant financial burdens. The QualityTruck group’s earnings, including operations outside the UK, decreased by 68% compared to the previous year: [QualityTruck’s] earnings during the period were affected by the very mixed situation among the divisions and special burdens caused by [PriceCo]. (QualityTruck Annual Report year 1 [AR 1]) As a result, efforts were increased to improve operational efficiency:... we are working intensively on utilising cost-reduction potential to the full, optimising product ranges and processes, reducing capital commitments and speeding up the application of [QualityTruck’s product technology] to all vehicles. (QualityTruck AR 1) Total market share: 14.0% Year 2 Parts of PriceCo production in the UK closed and relocated to a different European country Back-office functions merged in the UK. Personnel reduction targets increased from 35% to 53%, later realised as 56%. A new manufacturing concept was introduced whereby PriceCo products incorporated QualityTruck modules, with a view to improving operational efficiency Total market share: 11.7% Years 2–3 The original two brand ‘preservation’ strategy changed to a single brand ‘absorption’ strategy: The intention was to run the two brands. [...] [In years 2–3] we were then put under a lot of pressure to merge the organisations. (HR Director, QualityTruck) As a result of the restructuring programme and the new manufacturing concept, PriceCo operations returned to be profitable at the end of year 2. However, significant discrepancies existed with the dealer network Total market share: 10.8% Years 4–6 Dealer network reorganisation gained momentum as a result of introducing incentive aligning KPIs (key performance indicators): Part of the problem was this demotivated network, so we had to think about how we’d re-motivate a network that we were going to change anyway. (Head of Service and Support, QualityTruck) We were going to get rid of half of them because they were very bad performers. (Head of Parts Business, QualityTruck) We had a bonus scheme for parts; we didn’t have a bonus scheme for service. So we started to create Service KPIs for the dealer network in [year 5]. (CEO, QualityTruck) As a result of these actions, the market share stopped declining and started to see some positive developments in year 6 Total market share: 8.3% Years 7–8 The PriceCo brand was discontinued when the manufacturing plant in the UK shut down, including the production of parts Dealer network: 66 dealers held by 28 different firms Total market share: 10.3% 384  Supply network perspective Supply Chain Management: An International Journal Mehmet Chakkol, Max Finne, Jawwad Z. Raja and Mark Johnson Volume 23 · Number 5 · 2018 · 377–395 4.4.2 Dealer rationalisation components can also be transformed quickly and used for the A major re-configuration of the network was deemed necessary production of other parts in the merged organisation. However, following the issues faced in the network, especially to address the consolidation was initially only considered in relation to critical service delivery and consistency issues, as well as to remove components, such as engine and chassis, and did not extend to the post-acquisition competition between neighbouring include other components, such as suspension, steering and QualityTruck and PriceCo dealers. This re-configuration of the brake parts. After the acquisition, significant compatibility network involved dealers acquiring one another, leading to larger issues arose with the production of these critical components by dealerships responsible for a wider area, permitting the exclusivity the two companies. Various technical compatibility issues of servicing customers in that area. This re-configuration made it impossible to adjust the production systems and constituted a “knock-on effect” that resulted in the consolidation networks to achieve economies of scale. This led gradually to a of 146 dealers with 110 different owners into 66 dealers with only decline in parts production in PriceCo’s less productive plants, 28 different owners (see Appendix 2 for a conceptual which ultimately culminated in the closure of PriceCo’s representation of changes in the network structure). This dealer production facilities. This consolidation also impacted rationalisation took many years to complete and was partly PriceCo’s productivity, which is detailed in Figure 2. riddled with legal disputes between various dealers. QualityTruck actively encouraged this process by supporting better performing 4.5 Post-acquisition cognitive capital dealers in acquiring others. The acquisition of PriceCo caused significant issues with the In addition to the dealer consolidations, the newly merged cognitive capital of the whole network, which deterred the organisations themselves required a major restructuring, development of shared goals, values, a common language and a involving a rapid reduction of personnel. This is reflected in the shared understanding. The key factor for the dissonance in the excerpt below (see also Figure 1, which outlines the number of cognitive capital as experienced in the network during the employees in the focal companies): integration period included the differing corporate cultures that were underpinned by fragmented visions and values. I remember going to a meeting with the chief executive at the time, and going in with ninety-four people in the After Sales organisation, and coming 4.5.1 Differing cultures out of the meeting with fifty-eight people in the After Sales organisation. We had to rationalise, and we had to integrate two systems, and we had to QualityTruck and PriceCo operated in the same industry, as develop. (Head of Service and Support, QualityTruck, ex-PriceCo) competitors with similar ranges of products, yet their strategic goals, market positions and value propositions were different. 4.4.3 Consolidation of production As a result of their different strategies and values, the The consolidation of manufacturing operations was seen as a organisational cultures of the two companies were very driver for the acquisition to achieve economies of scale. Such different. The strategic vision of QualityTruck and its network consolidation constitutes appropriable organisation, whereby was focused on product quality and service excellence. the structural capital (in terms of established network ties and Conversely, PriceCo’s strategy had been predominantly based configuration) developed for the production of some on product prices and features. Therefore, the integration of Figure 1 QualityTruck’s and PriceCo’s employee numbers were considerably downsized post acquisition 1,800 1,600 1,400 1,200 1,000 385  Supply network perspective Supply Chain Management: An International Journal Mehmet Chakkol, Max Finne, Jawwad Z. Raja and Mark Johnson Volume 23 · Number 5 · 2018 · 377–395 Figure 2 QualityTruck’s and PriceCo’s productivity measured as sales per employee 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 these very different cultures post-acquisition was deemed In a short period of time after the acquisition, PriceCo lost a problematic. significant proportion of its small- and medium-sized The respective cultures of QualityTruck and PriceCo were customers. Customers perceived PriceCo no longer as a British reflected in their dealer network. As a consequence, similar institution but simply an extension of QualityTruck, resulting values were not shared across the two networks. For example, in changes to the cognitive capital within the customer network. this was evident from differing approaches to the protection of Over time, the merged network adopted the goals, values and intellectual property regarding parts and technology: language of QualityTruck, ultimately leading to the [QualityTruck] protected its business, everything, all the proprietary parts discontinuation of the PriceCo brand. were all held and all parts were numbered. In terms of after sales and parts element of the business, it was very, very protected. And then [PriceCo] 4.6 Post-acquisition relational capital was complete opposite. [PriceCo] was made up of kit parts that you could go and buy the parts anywhere in the UK, not exclusive at all. It was the As a result of the acquisition, differing employee and dealer dealer networks responsible for parts business so their dealers operated identities and legacy obligations emerged as the key factors very differently. (Head of Network Development, QualityTruck, ex- influencing relational capital in the network. These differences PriceCo) were not addressed during the initial post-acquisition period, PriceCo had historically empowered its dealer network and hence deterring the development of mutual trust and shared allowed for significant autonomy in terms of brand norms, which led to differing employee and dealer identities representation, client management and delivery of repair and and issues with legacy service obligations. We elaborate on maintenance services. However, immediately after the these points below. acquisition, QualityTruck demanded that the dealer network abide by its brand representation and service requirements. 4.6.1 Differing employee and dealer identities In addition, QualityTruck network developed a unified Following the acquisition, QualityTruck failed to implement a service language and terminology based on standardised support system to address the different identities of the two support systems and mandatory training programmes, which manufacturers and by extension their networks. Whilst were designed for the delivery of repair and maintenance PriceCo’s network lacked an understanding of the importance service contracts. However, during the initial post-acquisition of service provision, QualityTruck’s network lacked an period, PriceCo dealers were not provided with such training understanding of the need to foster trust-based, flexible and hence faced significant issues with their customers owing to relationships. In practice, this dissonance manifested itself in a number of ways. By way of example, PriceCo employees and a lack of understanding regarding the service contracts. dealers struggled to abide by the higher-level service delivery Similarly, the small- and medium-sized PriceCo customers also standards expected by QualityTruck. struggled with the new ways of operating, which was a change A senior manager pointed to the lack of plans to address the from the prior understanding that had existed between PriceCo differing identities during the pre-acquisition negotiation stage, and its customers: despite this having been identified as a key issue to consider [After the acquisition] the customers also saw [QualityTruck] as being far during integration. Post-acquisition, the focus of senior from flexible towards their needs, refusing to budge over matters like engine or gearbox options [...] [QualityTruck] simply couldn’t tune into family management shifted to internal organisational issues and dealer haulier’s wavelengths. (Fleet Manager, Customer B) network consolidation. Respondents commented that customers 386  Supply network perspective Supply Chain Management: An International Journal Mehmet Chakkol, Max Finne, Jawwad Z. Raja and Mark Johnson Volume 23 · Number 5 · 2018 · 377–395 were not adequately informed at the time about the changes. the differences in cognitive and relational dimensions compared This, coupled with the issues of standardised service delivery to the acquired firm. After the acquisition, the firms failed to across the network, resulted in a deterioration in customers’ trust: implement mechanisms and support systems to develop We have lost the trusting relationship with many customers because of cognitive and relational capital with their dealers and customers. never-ending fire-fighting of issues within the network due to the acquisition The lack of social capital contributed to major operational of [PriceCo]. We messed up the marketplace and lost many customers in the issues, which hindered the intended benefits of the acquisition process. (Head of Network Development, QualityTruck) being reaped, and, in large part, led to the complete absorption The tensions stemming from different organisational identities and discontinuation of PriceCo by Year 8 (see also Table IV). were still evident more than a decade after the acquisition. Table V provides further indicative excerpts from the data Embedded in these identity differences were notions of “us and regarding the three social capital dimensions for the reader. them”, as well as superiority–inferiority constructions, whereby Next, the impact of the acquisition on performance are PriceCo employees and dealers were considered as discussed. “problematic” by some of the QualityTruck workforce. The principal managers at dealer firms provided insights into 4.7 Post-acquisition network performance the ramifications of dealer consolidations that further affected The adjectives used by interviewees to refer to the acquisition relational capital. Dealers acquiring other dealers led to included “hugely disruptive”, “difficult”, “costly” and changes in the structural capital and inhibited the development “disastrous”. Given the retrospective nature of this study, it was of relational capital due to the apparent differences in identities: deemed necessary to verify the subjective accounts relayed and The people I took on the business didn’t like [QualityTruck]. So there was a potential for “hindsight bias” by checking these accounts with war of attrition going on between [QualityTruck] people and my people [i.e. other publically available information. Based on the annual PriceCo]. [...] We bought the [QualityTruck] dealer, and that’s where the [problematic employees] came from. And they just didn’t talk to each other, statements of QualityTruck, the acquisition was deemed they didn’t like each other, it all went downhill. (Managing Director, Dealer unsuccessful officially, as illustrated in the following quote from D, ex-PriceCo) the annual report: The lack of trust was also evident amongst the dealers. For [...] this acquisition, which made a great deal of sense from the strategic point instance, a respondent commented: of view, [...] turned out to be an economic disappointment. (AR 1, p. 7) [Post-acquisition] there was an adversarial atmosphere amongst the dealers To this end, we analysed the merged company’s financial [...] We tried to work in a nice, open and trusting relationship, but we did not have that with our dealers. (Dealer B, Managing Director) figures to substantiate the qualitative findings and verify the accounts of the acquisition not being successful. A dealer director within the network also noted how their An examination of the combined sales of the two brands managerial approach to customer relationship management revealed they had dropped by a third in just two years (Years 1–3) changed after the acquisition, mentioning how they adjusted following the acquisition (Figure 3 and Table IV). Later, the sales their norms of interaction with the customers. rose, which is partially explained by a favourable market situation 4.6.2 Legacy obligations and also by the measures taken after the post-acquisition The acquisition resulted in a build-up of the maintenance problems were recognised. The overall market development is contracts of both QualityTruck and PriceCo, which created taken into account in Figure 4, which presents the development further issues that hindered the development of shared norms of the companies’ market shares. and obligations within the network. Post acquisition, these In the following years, the total market share for the merged legacy obligations towards customers turned out to be a major business went from a peak of 16.3 per cent in Year 1 to only 8.3 issue for QualityTruck, as some of PriceCo’s maintenance per cent in Year 5 (see Figure 4). Senior executives from contracts were poorly designed and were far longer in term than QualityTruck explained: the industry average of three years (some PriceCo contracts I would say everything was great until we bought [PriceCo], and then we were even 10 years). This meant that certain contracts lost a tried amalgamating two different organisations. And that was a vertical learning curve, and I think we were probably ill equipped. We took two significant amount of money nearing their conclusion, as very large companies, in their own right. Put the two of them together customers made monthly payments based on the maintenance and then expected that we’re still going to get [the sum of total sales], needs of new vehicles for trucks that were over five years old. In and that doesn’t work like that. (Head of Network Development, QualityTruck) turn, these legacy contracts resulted in managers being erroneously accountable for losses. Apart from causing As seen in Figure 4, the combined market shares shrank every significant financial losses, these contracts also reduced single year from Year 1 until Year 5, after which the measures employee motivation and satisfaction as some managers had to taken by management improved the situation. The endure years of losing contracts which was beyond their development in the market share showed a significant control. Because these contracts were legally binding, after the improvement between Years 5 and 6, after which it stabilised acquisition, QualityTruck remained committed to meeting the at 10 per cent for the following four years. During the difficult contractual obligations. The case firms were not able to develop period, the merged company underwent significant a degree of mutual trust, shared norms and obligations with its rationalisations in its dealer networks and own organisations. dealers and customers in the initial integration period. This From the inception of the acquisition, it took five years for applied to both QualityTruck’s acquisition of PriceCo as well as the entire dealer network to agree on incentive-based KPIs for to the dealers’ acquisitions of their competitors. service provision. Once agreed, this allowed the network to To summarise, QualityTruck sought to strengthen their begin to overcome the inconsistent service delivery, whereby a network configuration, but failed to account for the impact of bonus scheme for service was created. 387  Supply network perspective Supply Chain Management: An International Journal Mehmet Chakkol, Max Finne, Jawwad Z. Raja and Mark Johnson Volume 23 · Number 5 · 2018 · 377–395 Table V Social capital dimensions, identified factors and illustrative excerpts Dimension of social capital Identified factors Illustrative excerpts Structural Network complexity [QualityTruck] did not have sufficient dealer support for our northern operations... the acquisition allowed us to use dealers even in remote locations in the northeast. (CEO, Customer A) We more than doubled our dealer locations overnight due to the acquisition. However, they did not really have a detailed plan on how to manage the complexity this created in terms of the key accounts. (Key Account Manager, QualityTruck) Dealer rationalisation [Post-acquisition] they had 146 dealerships and 110 owners. I mean today they have 66 dealers and 28 owners. So they rationalised the network, they got bigger dealers, bigger territories, better run operations. (Head of Parts Business, QualityTruck) So [the CEO of QualityTruck] said, ‘Can you take over this business [adjacent dealer]?’ So we went and negotiated that [...]. And [QualityTruck] supported us with that, so we took over that business. (After Sales Director, Dealer C) We took over many dealers in our postcode area following the acquisition. (After Sales Director, Dealer C) Consolidation of [QualityTruck] tried moving their parts into [PriceCo], which we did for a period of time, to try and sustain production it and make it viable and make it cost effective, but you cannot make trucks the way [PriceCo] used to do; it was heavily labour intensive, and when you see the production facility of [QualityTruck], and it’s all robotised, and then you look at how [PriceCo] produced its parts, it would never work. (Head of Parts Business, QualityTruck) We envisaged to produce common parts for both brands which turned out to be not feasible at all following the initial trials. (Business Development Manager, QualityTruck) Cognitive Differing cultures Putting those two organisations together, with the culture, was just incredible.... Because you had two different cultures,... you had different mentalities in your people.... (Head of After Sales, QualityTruck)...two different cultures. So that was a basket case. There were factions at work within that. (Dealer C, Managing Director) Relational Differing employee I know that there are still one or two of those old [PriceCo] guys kicking around. Personally I don’t have a identities problem with it, but they are known as being slow, laborious. I don’t think they are. But there was a guy I came across actually last week who just refused to do things. He was ex-[PriceCo], and of course everybody else was saying ‘oh he’s [PriceCo], they’re all like that’. (HR Director, QualityTruck) Differing dealer We have always identified with a personal approach to customer management. As many would agree this identities was the standard rule of engagement for [PriceCo]. But when we raised the [QualityTruck] flag and started servicing their trucks, we had to adopt a different approach where the expected behaviour was to follow a standardised service delivery. This was a steep learning curve for us and especially for the local customers. (Owner Director, Dealer A) I had people pointing at badges on their overalls saying, ‘I’m a [PriceCo] person, I do not do [QualityTruck]’. And I’d say, ‘But we have a [QualityTruck PriceCo] badge outside, it’s one brand. It’s two products, but it’s one brand now’. ‘I don’t care. I’m a [PriceCo] man. I’ve been a [PriceCo] man for 25 years’. I still get little hints of it. (Managing Director, Dealer C) Legacy obligations They’d [PriceCo] done some deals... and loss leader deals with some big customers.... and some of these deals were on very long contract terms, much longer that they were priced for if I’m honest. And it meant that towards the end of the contract life we were spending a huge amount of money maintaining vehicles. At the end of the day it was a contract that [PriceCo made], which is a company we took over. They entered into and obviously we had to accept the terms of that and see them through to the end. (Head of Service and Support, QualityTruck) [Post-acquisition] we were landed with loss making service contracts that still had two, three or even four years left on the contract with the customer paying the same premium over the contract period. (Customer Relationship Manager, QualityTruck) A common theme emerging from the interviews was the and start buying the [QualityTruck] trucks again, and they’ve just started. (Service and Business Development Manager, Dealer B) inconsistencies in service delivery performance across the networks during the post-acquisition period. This was mainly a Part of QualityTruck’s post-acquisition financial losses were result of poor dealer service or lack of customer understanding also related to the legacy contracts, which either led to and flexibility: expensive legal disputes or simply loss-making, long-term These dealers were losing bundles of money; the customers [were] really fed arrangements: up. They were really good at upsetting the customer. And we took them up, I just did a presentation yesterday; we’ve got one [PriceCo] contract left now, and it was a recovery exercise to bring that customer confidence back again, and I made a big case about this [PriceCo] truck. It’s now ten years old I think. 388  Supply network perspective Supply Chain Management: An International Journal Mehmet Chakkol, Max Finne, Jawwad Z. Raja and Mark Johnson Volume 23 · Number 5 · 2018 · 377–395 Figure 3 Annual sales dropped after the acquisition and picked up again from Year 4, along with the rest of the market 1,000 Figure 4 Market share development of QualityTruck and PriceCo We’re now four grand in profit because we’ve come up to a sensible level. In the medium-sized operators. At the time, this was seen as a “good presentation I said: ‘Let’s make our last [PriceCo] contract a profitable one’, and they all laughed. (Repair and Maintenance Manager, QualityTruck, ex-PriceCo) fit” with QualityTruck’s lack of network coverage in the northern parts of the UK and a lack of customer base in terms Overall, the findings provide evidence that inter-organisational of small-sized operators. Nevertheless, the differences in relationships are not easily transferred through M&As but cognitive and relational capital between the two organisations, rather require significant effort to transform the relationships such as differing perceptions of service, fragmented visions and over time. The main determinant for QualityTruck’s decision values and cultural differences were not taken into account to acquire PriceCo was to access its structural capital through prior to the acquisition. In addition, the post-acquisition PriceCo’s wider and more established dealer network and also operational and financial performance was influenced by PriceCo’s special customer relationships with small- and incompatible service delivery systems that resulted in losses of 389  Supply network perspective Supply Chain Management: An International Journal Mehmet Chakkol, Max Finne, Jawwad Z. Raja and Mark Johnson Volume 23 · Number 5 · 2018 · 377–395 service contracts, ongoing legal disputes and a decline in relationships “cannot act instantaneously, at the appropriate market share, leading to introduction of new KPIs across the moment, unless they have been established and maintained for network. Figure 5 consolidates the findings from the study and a long time” (Bourdieu, 1986, p. 24). shows the interplay between the identified factors that Developing a degree of consensus in the social system influenced the post-acquisition social capital and performance. requires a significant amount of time and investment (Coleman, 1990; Nahapiet and Ghoshal, 1998). This study 5. Discussion and conclusions contributes to the understanding of how social capital cannot be simply transferred from one organisation to another during This is one of the first in-depth empirical studies examining the an M&A but that relationships also need to be transformed by impact an M&A has on the supply network using a social considering the pre- and post-acquisition social capital capital perspective. In so doing, it builds on studies that explore dynamics of the merging and merged network(s). In this study, M&As and inter-organisational relations (Anderson et al., the case firms failed to address the dissonance and dynamic 2001; Kato and Schoenberg, 2014) and social capital and interaction between social capital dimensions and hence were networks (Hartmann and Herb, 2015; Johnson et al., 2013). In not able to build mutual trust, shared norms, goals and values particular, the research leads to a number of contributions and and common understanding across the network (Tsai & raises important managerial implications for consideration. Ghoshal, 1998; Adler and Kwon, 2002). When the acquisition disrupted the network, the embedded pre-acquisition social 5.1 Contributions of the study capital deterred the firms, and their associated dealers, from This research makes a contribution to the extant knowledge by adapting to the change (Edelman et al., 2004; Eklinder-Frick providing empirical insights into how structural, cognitive and et al., 2011; Ansari et al., 2012). Importantly, post-acquisition, relational capital change within supply networks due to an the firms failed to implement appropriate support mechanisms acquisition. The research shows how changes in structural and to bridge the embedded social capitals of the merging networks cognitive capital affect relational capital in the post-acquisition (Adler and Kwon, 2002; Edelman et al., 2004), deterring the network. This was evident from the increased structural development of shared social capital and contributing to a complexity within the dealer network coupled with the differing downturn of operational and ?