Size does matter

For the past few years, we've seen numerous mergers & acquisitions in every market and industry. Whether you're in banking, insurance, it, utilities or travel; consolidation is the key. Until recently. It seems the sky has its limits after all. Within just a few weeks, 'scalability' has become highly overrated. 

Is it really? Or have we simply been overambitious, neglecting what was so obvious: there's big and there's 'too' big. Does size really matter? And, if so, than what size should we strive for? What's feasible? And perhaps more important: what's not? 

Let's have a look at the current financial crisis and Fortis bank in particular. Less than six months ago, Fortis was the pride and glory of the Belgian financial industry, solid and trustworthy (listed on the Brussels' stock market Euronext). Without doubt, our largest and most successful bank. It even grew beyond our borders through several mergers and acquisitions. 

It's management took pride in turning Fortis into a top player in the European finance theatre. For years they build on the company's future, the latest milestone being the acquisition of ABN Amro. But timing sucked, so it seems. In just a couple of weeks, Fortis is back to square one: a regional, small and even partially government owned bank. Was ABN Amro a bridge too far? 

Some argue profanity drove Fortis' management to buy ABN Amro. Others don't care about the reasons why, but simply found it too expensive. Honestly, I don't know the answer. But I can imagine that - together with many managers - the board at Fortis really believed that 'scalability' is an important catalyst in today's highly competitive world and therefore they simply had to proceed. 

Scalability is the mantra of modern management. It is the number one explanation for the consolidation wave we've seen in every industry over the past years. But is it always to a company's advantage? Look at Fortis: can one manage a company with over 85.000 employees? Does 'being big' implies 'being efficient'? I believe that size does matter. Scalability comes at a prize: inefficiency.

Sure, scalability can be to the advantage of two separate companies, especially when their markets or products are overlapping and both companies are still in a growth scenario. However, if they're active in complementary markets or produce complementary products, I'm not convinced that the combined companies can turn their scalability to their advantage and become more efficient.

An oil tanker can be larger than life, but that does not make it any more manageable, and when the storm's coming I can imagine you're better of in a smaller, more manageable vessel.  

So, if scalability is no guarantee for success, shouldn't we refrain from our consolidation plans? Small can be beautiful, even if it's not scalable. Remember, to everyone's surprise, it was not the hare who won the race. It was the tortoise.