Chapter 13: Strategic Entrepreneurship 431
However, alliances formed to foster innovation are not without risks. In addition
to conflict that is natural when firms try to work together to reach a mutual goal, the
members of an alliance also take a risk that a partner will appropriate their technology or
knowledge and use it for its own benefit.^110 Carefully selecting partner firms mitigates this
risk. The ideal partnership is one in which the firms have complementary skills as well as
compatible strategic goals.^111 When this is the case, firms encounter fewer challenges and
risks as they try to effectively manage the partnership they formed to develop innovations.
Companies also want to constrain the number of cooperative arrangements they form to
innovate in that becoming involved in too many alliances puts them at risk of losing the
ability to successfully manage each of them.^112
13-8 Innovation through Acquisitions
Firms sometimes acquire companies to gain access to their innovations and to their inno-
vative capabilities.^113 One reason companies do this is that capital markets value growth;
acquisitions provide a means to rapidly extend one or more product lines and increase
the firm’s revenues.^114 In spite of this fact, a firm should have a strategic rationale for a
decision to acquire a company. Typically, the rationale is to gain ownership of an acquired
company’s innovations and access to its innovative capabilities. A number of large tech-
nology-based companies have acquired firms largely for these purposes. For example,
Microsoft acquired Mojang AB in 2014 to gain access to the technological capabilities of
Minecraft. Minecraft is a videogame but different from the norm. It does not provide the
context; it allows the players to construct it themselves. So, they get what they want. In
other words, they create their own (and desired) innovation. So, Minecraft is a game that
is determined by the players not a design team working for the company providing the
game. Mojang was highly profitable because of the high demand for Minecraft. In 2013,
it made a profit of $115 million on $291 million in sales for a return of almost 40 percent
(incredibly high). Microsoft paid about $2.5 billion to acquire Mojang.^115
Similar to internal corporate venturing and strategic alliances, acquisitions are not a
risk free approach to innovation. A key risk of acquisitions is that a firm may substitute an
ability to buy innovations for an ability to develop them internally. This may result when
a firm concentrates on financial controls to identify, evaluate, and then manage acquisi-
tions. Of course, strategic controls are the ones through which a firm identifies a strategic
rationale to acquire another company as a means of developing innovations. Thus, the
likelihood a firm will be successful in its efforts to innovate increases by developing an
appropriate balance between financial and strategic controls. In spite of the risks though,
choosing to acquire companies with complementary capabilities and knowledge sets
can support a firm’s efforts to innovate successfully when the acquisitions are made for
strategic purposes and are then properly integrated into the acquired firm’s strategies.^116
Firms that have not been as successful at producing innovation as needed are more likely
to acquire firms with technological capabilities, or that have new, potentially valuable
innovations, if they have enough financial capital to do so.^117 For example, in recent years
some large pharmaceutical firms that have been unsuccessful at producing new block-
buster drugs have resorted to acquisitions in order to gain access to new valuable drugs
held by the acquired firm.
The ability to learn new capabilities that can facilitate innovation-related activities
from acquired companies is an important benefit that can accrue to an acquiring firm.
Additionally, firms that emphasize innovation and carefully select companies to acquire
that also emphasize innovation and the technological capabilities on which innovations
are often based are likely to remain innovative.^118 Thus, some firms produce innova-
tions internally. Others use external knowledge and external sources for innovations.
