jump to navigation

When Getting Bigger Isn’t Better March 14, 2010

Posted by David Dirks in business strategy, Diagnosing performance problems, Fixing performance problems.
Tags: , , , , ,
trackback

A recent headline in the Wall Street Journal: Monster to Acquire HotJobs.  As soon as I read that headline, I knew it meant trouble.  Let me put this headline into context for you: When companies run into major challenges (aka trouble) and can find few answers to meet those challenges, they resort to buying another big competitor.  Remember when HP bought Compaq a few years ago?  HP was trying to find it’s way through a dismal personal computer market and groped for an answer by buying Compaq, which was also groping along.  Two gropes do not make for a good business strategy.  Result for HP?  The CEO was ousted after the HP board ran out of patience waiting for good to come out of that mega-merger.

On the surface, its very tempting to buy a rival who sometimes can be bought cheaply…sometimes not so.  The typical formula is this:  merge – cut costs wherever possible during the merger + instant market share = profits that flow from being bigger.  Well maybe.  In too many cases, buying another competitor to gain market share and profits means more of the same problems just in a bigger package now.

Sears buying Kmart is another great example of when getting bigger is not better.  Sears has been looking for a purpose for decades now and was already sickly.  At the time of the merger, Kmart was just about on a death watch from a retailing perspective.  The result?  The disease never went away.  Sears and Kmart are just as dismal performers than ever.

The giant job search database called Monster has seen it’s market strength zapped by low-cost players like LinkedIn and by savvy recruiters who now use business networking and social media platforms like Facebook to find great job candidates.  More companies are providing financial incentives for their employees to enlist their help in the recruitment effort.  Monster, once the king of the job search road, has found itself searching for ways to grapple with declining revenues and aggressive social media competitors.  The landscape for job search databases is forcing change.

For its part, Yahoo is looking to shed assets for cash but ends up the real loser.  According to the WSJ, Yahoo bought HotJobs in the heat of the dot com era for $436 million and is now selling it to Monster for a mear $225 million in cash.  Nice going Yahoo.

Getting bigger as a way to answer for declining revenues and market share is generally not a good business strategy.  History is full of great examples of this strategy.  Despite the hindsight, companies continue to grope for answers by spending money that could probably be used elsewher

Advertisements

Comments»

No comments yet — be the first.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: