Winning the three-legged race

Merging two trouble companies rarely resolves the underlying problems

sales going cheap

Does tying together two lame men give you an Olympic sprinter?

It’s quite common in the business world to see two second rate companies merging in the hope that their combined market share will give them enough momentum to overcoming the market leader.

The tactic rarely works as the businesses running third, fourth or fifth in a market are usually doing so because they have ordinary products or indifferent management rather than any inherited size disadvantage.

Merging two second-rate companies usually results with a pair of competing silos of mediocrity where the former workforce and management of the original business squabble over power in the new entity.

Far from being more competitive, the merged company is even more distracted with internal politics and power plays.

The story that Australian department store Myer proposed a merger with its rival David Jones is a very good example of this as two poorly run companies whose managements that have abjectly failed to adapt to the modern times, try to paper over their chronic problems by merging.

Both companies have failed internet strategies – Myer’s website managed to collapse during the Christmas sales season and no-one could be bothered fixing it for over week.

Along with lousy internet strategies, both companies have underinvested in IT systems leaving their point of sales and logistics systems antiquated and incapable of meeting modern customers’ needs.

Probably the greatest mistake that Myer and David Jones’ management made though was a focus on cutting costs through reducing sales staff.

The resulting lousy and often pathetic service resulted in both brands being seriously tarnished and had the effect of driving high value customers away.

Further damaging the stores reputation was the tactic of offering perpetual sales which trained the customers that would still shop with them into waiting for goods to be marked down rather than paying full price.

Merging the two operations would have done little to resolve any of the long term management failings of the two businesses, although no doubt there would have been some fat advisors fees for some of the boards’ friends.

Nothing fixes poor management better than getting rid of the poor managers, merging two poorly run business like Myer and David Jones does nothing.

Retailers failing as their poor management struggles to deal with changing marketplaces is an international problem, as this story about US chain Sears illustrates. The Australian experience though is a classic case study of two poorly led organisations trying to pretend their failings can be fixed through mergers.

Resolving the problems of troubled companies like Sears, David Jones and Myer involves having good management and smart investment, merging with a similarly troubled organisation solves little except perhaps putting off the day of reckoning.

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Author: Paul Wallbank

Paul Wallbank is a speaker and writer charting how technology is changing society and business. Paul has four regular technology advice radio programs on ABC, a weekly column on the smartcompany.com.au website and has published seven books.

2 thoughts on “Winning the three-legged race”

  1. Innovation, tech, innovation, tech…..Most Aussie firms have these 2 issues mainly and so getting knocked. The tech that still use are outdated. Look at most Aussies websites-the tech used there is still outdated. Some use Flash and/or JavaScript and so on. All these are hopeless when doing Internet marketing. Additionally, the marketing done via tablets, smart-phones, etc are different from PCs, Macs, Macbooks, laptops, etc. It’s also different for each browser. Do marketers truly understand these things? Answer is nope as it’s easier for an IT person who has a business background.

    Furthermore, how many rivals in Australia work together and innovate (coopetition)? Not many. How many Aussie firms use blue ocean strategies? Not many again. Rest of the world, so many firms use coopetition and innovate + have blue ocean strategies as well.

    Lastly, since it’s so easy to start a business in Australia, 90 to 99% of the businesses in Australia are SMEs. SMEs, some of them have innovations but aren’t even encouraged for it with funding while the big ones like Coles and Woolworths (which dominate the supermarket scenario) or DJ and Myers, were complacent till about a few years back-waking up late and still way behind. Australia’s main issues for decades have been innovation and technology. Add niche strategy instead of diversification and putting all the eggs into 1 basket-it’s just chaos like what has happened-automotive manufacturing bust and rest just hanging by the thread (includes the education sector including universities which used to be Australia’s 3rd largest export sector, now 4th).

  2. Sorry, please update to this as modified the previous comment (thanks) – Innovation, tech, innovation, tech…..Most Aussie firms have these 2 issues mainly and so getting knocked. The tech that firms still use are outdated. Look at most Aussies websites-the tech used there is still outdated. Some use Flash and/or JavaScript and so on. All these are hopeless when doing Internet marketing. Can be seen by using analytical tools like Woorank though how many use analytical tools other than Google Analytics? Google Analytics does have weaknesses compared to heatmapping tools as well. Additionally, the marketing done via tablets, smart-phones, etc are different from PCs, Macs, Macbooks, laptops, etc. It’s also different for each browser. Do marketers truly understand these things? Answer is nope as it’s easier for an IT person who has a business background.

    Furthermore, how many rivals in Australia work together and innovate (coopetition)? Not many. How many Aussie firms use blue ocean strategies? Not many again. Rest of the world, so many firms use coopetition and innovate + have blue ocean strategies as well.

    Lastly, since it’s so easy to start a business in Australia, 90 to 99% of the businesses in Australia are SMEs. SMEs, some of them have innovations but aren’t even encouraged for it with funding while the big ones like Coles and Woolworths (which dominate the supermarket scenario) or DJ and Myers, were complacent till about a few years back-waking up late and still way behind. Australia’s main issues for decades have been innovation and technology. Add niche strategy instead of diversification and putting all the eggs into 1 basket-it’s just chaos like what has happened-automotive manufacturing busted and rest just hanging by the thread (includes the education sector including universities which used to be Australia’s 3rd largest export sector, now 4th).

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