In the vast majority of cases, acquisitions result in acquirers increasing in size even after some of the acquired company’s assets are sold. As you may recall from previous management and/or economics courses, increasing the size of the company should be a positive move because it enables the company to achieve economies of scale and, as a result, develop more efficient operations. However, it also is possible that companies can be too large. After some point is reached, problems related to excess size may outweigh the benefits.
In other words, companies can reach economies of scale by growing. But, after a certain size is achieved, size can become a disadvantage as companies reach a point where they suffer from what might be called “diseconomies of scale.” This implies that problems related to excess growth may be similar to those that accompany overdiversification.
Other actions taken to enable more effective management of increased company size include increasing or establishing bureaucratic controls, represented by formalized supervisory and behavioral controls such as rules and policies that are designed to ensure consistency across different units’ decisions and actions. On the surface (or in theory), bureaucratic controls may be beneficial to large organizations. However, they may produce overly rigid and standardized behavior among managers. Establishing and implementing more formalized (bureaucratic) and centralized control systems in acquired companies is not that uncommon. In fact, such control systems may be used to help facilitate the integration of acquiring and acquired companies. But as noted previously, bureaucratic controls may reduce managerial (and company) flexibility, which can result in reduced levels of innovation and less creative (and less timely) decision making.
The seven reasons for poor performance of acquisitions or problems faced in attempts to achieve success are: