Acquisition is a poor substitute for strategy

pacman-2Strategy guru Gary Hamel earned a reputation for casting aspersions on the myriad acquisitions of the go-go dotcom era. He believed that, almost without exception, acquisitions were a poor substitute for strategy. Companies, said Hamel, bought what they couldn’t create.

That sure seems to be the case with the announcement of PricewaterhouseCooper’s acquisition of strategy consultant Booz & Company.

Strategy consulting is where the big bucks are nowadays. Industry analysts say traditional accounting and auditing fees earned by the PwC’s of the world are flat at best, while strategy shops such as Booz grow at 20 percent annually.

So, unable to build much of a consulting practice of its own, PwC bought one.

The Omnicom-Publicis merger is another example of buying what one cannot build. The mega coupling had nothing whatsoever to do with enhancing the strategic or creative work it did for clients. Rather, both would say they’re combining in order to compete with Google in the uber lucrative search and ‘Big data’ categories. Neither Omnicom nor Publicis possessed the smarts to do it alone. So, they’re getting married.

And, then, of course, there’s the human carnage that goes along with any merger between large entities. ‘Redundancies’ and ‘rightsizings’ leave thousands of souls looking for new jobs. And, many of the downsized zombies are middle-aged, high priced managers who, frankly, are virtually unemployable.

And, so, the top guys at Booz will walk away with ungodly amounts of cash, and the big dogs at PwC will get what they couldn’t create. But, to me, it’s yet another example of a large American company failing at what our country used to be best at: innovation.

Right now, Corporate America needs a whole lot more strategy and far fewer mergers.

13 thoughts on “Acquisition is a poor substitute for strategy

  1. I couldn’t agree more, acquisitions manily happen because of a lakck of inspiration for furture strategy. It is easier to acquire something working already, than to try and create something your own, that might work, but also might not work..

  2. Methinks Sue Smith (or whoever you are) has far too much time on her hands. You should be more transparent about that. I stand by the words in my original blog. Next!

  3. Now now, Repman, you should know better than to believe every story you read! You work in PR…And to base your professional assessment on the ‘suggestion’ within an article is even a step further removed.

    Just want to be clear that you are basically saying you have no empirical data to back up a very strong claim of “they weren’t making an impact via organic growth”….that because an article ‘suggests’ something, then it must be true? If you want to stake your professional brand on that kind of consulting/stance, well that is your prerogative.

    Perhaps PwC was merely increasing scale or broadening its portfolio? Those are other reasons for acquisitions. Certainly there are always “better ways to spend one’s money” but unless you know the intimate financial details of the transaction, it’s really a bit tough to offer a bold assessment of that situation. Oh, and did you have any layoffs during your acquisition in Sept? Do you plan to? I find it interesting you say ‘we should have far fewer mergers’ but yet you yourself merged…and with most M&A, there are some losses of jobs, which damages the economy.

    As a final note, in your ‘conflicts policy’ it would have been wise to note that PwC’s direct competitor is EY, who is a client of yours.

  4. The article link certainly suggests as much. Why else would they purchase a $1 billion strategy shop? There are better ways to spend one’s money.

  5. “Wasn’t making much of an impact”….do you have empirical data to support that assessment about PwC’s consulting arm?

  6. While PwC did, in fact, have a consulting arm prior to buying Booz, it wasn’t making much of an impact. Seeing competitors capitalizing on the huge profits to be made in the space, PwC bought what they couldn’t build (hence my quoting Gary Hamel’s “acquisition is a poor substitute for strategy.”). As for our relationship with EY, it’s rock-solid, has been so for the past seven years (and, had no bearing whatsoever on this blog). I would have written the same thing about a telecomm or manufacturing company.

  7. PwC had a consulting business before this intent to acquire Booz. This was not their foray into that business. But I can see where you are coming from -either you still have EY as a client, or you are trying to win them back.

  8. PwC had a consulting business before this intent to acquire Booz. This was not their foray into that business. But I can see where you are coming from -eith

  9. Two excellent questions, Sue. We were already established in both the consumer and financial services fields when we made our acquisitions. In fact, we were representing clients ranging from Whirlpool and TGI Friday’s to Genworth and EY. We didn’t need to prove our capabilities. But, we DID want to continue to leverage opportunities in both fields. So, we went deep with our acquisitions. That’s very different than a PwC which tried, and failed, to capitalize on strategy consulting. They couldn’t do it organically, so they bought it. Make sense?

  10. And Google’s acquisition of YouTube….are they too trying to ‘buy their way into a market”? Which acquisitions and what mergers are acceptable as opposed to the ones that aren’t? Quite a broad generalisation, no?

  11. True that, Julie. We’ve seen it in the public relations agency world as well. APCO and MWW, respectively, are just two recent examples of firms that deplored the time spent as part of a larger, holding company and bought back their freedom.

  12. I totally agree with you, RepMan. Your hypothesis is proven further by the number of big corporations (i.e. Time Warner) that went on acquisition sprees in the late 80s-early 90s, only to “spin off” these very same companies because said acquisitions didn’t generate the revenue their shareholders expected. It’s like a game of buying and returning… only human lives are at stake here instead of merchandise.