It is almost axiomatic that when big companies buy dynamic small companies they screw them up.
It is one of the reasons why so many acquisitions fail, but at a dinner organised by Foresight, a leading investment management group, I met someone who had been through the mill and could explain at first hand what went wrong. The problem, he said, did not come from the people at the top; rather, it came from service departments such as IT and human resources, which – as he put it – would come in from the flanks. They would arrive clutching the company manual and insisting that the new acquisition scrap all its existing processes and procedures and conform instead to the “worldwide” standard and processes used by the rest of the group.
In small, successful firms, HR and IT are usually close to the front line in supporting the business-getters. Replacing these functions with something generic and nonspecific to their needs has an immediate and dramatic effect on the ability of the front-line staff – in sales or production – to do their job as well as they did before.
So the acquired management has a choice. It either wastes time and effort trying to keep the group bureaucracy at bay, in which case it is less focused on growing its business. Alternatively, it lets the bureaucrats come in and impose their processes, in which case performance suffers and morale collapses. Either way the bad drives out the good, and the dynamic business adjusts down to the level of comfortable mediocrity enjoyed by the group as a whole.