Why Conglomerates' Fall Apart

The recent headlines tell the story: "As Disney loses sterna

. insider loses patience." wrote The New York Times. "Coming TV season could seal ABO!'s fate' ." said USA Today. Disney (T"() Michael Kismet is hanging on by a thread and could go the way of other highly touted top corporate executives who recently have found themselves out of jobs. Let's take a roll call; Jean-Marie Messier of Vivendi Universal. These men aren't among the crooks who've escaped with their shareholders investments. No. it s not crimes theyve committed, but sins. The sin of arrogance and. in pure business terms, the sin of bad strategy. These men are all victims of the same flawed business notion that bigger is better. Mere's why size isn't a strategy and conglomerates are doomed from the beginning: Synergy clashes with business reality. Strategy wonks" love the idea of synergy, a word that suggests that different kinds of animals can not only learn to play nicely together, but also complement each other. It's a great theory, but it happens to defy reality and human nature. What actually happens when you try to combine different people in different corn-panics from different industries is that they fight like hell. The result is a lot of was led lime, energy and money, not to mention failure. Bigger isn't better except maybe for the guy at the top.The executives at the top of the pyramid like to brags that their corporation is bigger than your corporation. But high companies have terrible track records when it comes to" innovation. Bureaucracy has a way of" killing new ideas before' they can make it to market. And companies that have been assembled through acquisitions such as WorldCom, often discover that merging cultures and integrating far-flung11 operations is much harder work than it sounds. The truth is, most mergers and acquisitions fail miserably. A number of years ago, Harvard Business School did an analysis of mergers and acquisitions and found that the vast majority of them were abject'" failures. Culture is one reason. Another is "aggressive accounting"; financial expectations that overstate the benefits of the acquisition, then fail to measure up. Again, it's more a matter of human nature than business logic. To make the deals look good, both the buyer and seller have a tendency to inflate15 the potential11 of the merger or acquisition1'1. Because both sides want the deal to go through, each exaggerates the economics. A few months after the deal has closed, surprise; All of sudden it's lime to admit that. well, maybe we won't make our numbers. When deals are put together by companies from vastly different industries, nations and cultures, the numbers gel even bigger. But so do the problems. It's attractive to imagine that a force of salespeople can mobilize around products and services that would ripple across different platforms inside- the same company. That was, after all, the whole rationale1'' for the AOL Time Warner deal. Unfortunately, it doesn't work that way. The whole, it turns out. is less than the sum of its parts, which is why so many of these lop executives have lost their jobs, so many of their firms have lost market valuation and so many of their employees feel as if they like it.

by: Kinhomchan

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