From the book called Billion Dollar Lessons by Paul Carroll and Chunka Mui, Portfolio Books, 2008. The book is subtitled What Can You Learn for the Most Inexcusable Business Failures of the last 25 Years.

The 7th Deadly Strategy is Consolidation Blues. Two or more companies joining together in a mature industry to be a larger force. The message is if the processes and values of the two companies are not similar, it will not work.

Watch out for – when you buy the assets, the company buys the problems of the other company. Be aware of dis-economies to scale because of increased complexity. Most companies believe they will keep all the customers of the company they buy, that is often not the case.

Ames a regional discount retailer in the northeast bought Murphy, Zayre, and Hills stores. Many of those stores did not meet up to expectations and had to be closed. DaimlerChrysler – Daimler bought Chrysler with all its problems – costs stayed high, union problems happened, engineers did not shared technology, management did not want to dilute the Mercedes brand.  Imperial Sugar Company bought others but on a razor thin margin that could not handle debt. People starting eating less sugar, the company deconsolidated. US Airways bought Pacific Southwest and Piedmont airlines to expand their reach. The systems did not talk to each other – more than once the computer systems broke down; labour costs went higher; scheduling pilots was a nightmare because US Airways rather than the pilots looked after it; the rigid hierarchical management style worked good in a mid sized company, not so good in a large one.Standardization made operations less productive.

Due diligence is needed before deciding to buy. (Ames spent one day on the Zayre buy)

There are always more questions than answers, till the next time – to raising questions