Empire Building

Suppose we have two firms of accountants, one of which uses all the latest technology, while the other is somewhat behind the times. The first firm’s fees to its clients are quite a bit less thanks to technology (who might we have in mind ?).

It makes commercial sense for the first firm to take over the second firm and upgrade it to its own standards. Once the combined firm has sorted itself out, it is then in a position to take over a third firm, and so on. There are more profits for the firm’s owners (no apologies here) and a better deal for the clients.

This is good empire-building. Unfortunately, there is a lot of bad empire-building in this world. If two accountancy firms get together when actually there is no advantage to the combination, then we have bad empire-building. Concerning the world of accountancy, the author speaks from experience.

Arguments in favour of empire-building are anticipated economies of scale and the possible ability to provide a wider range of services. Arguments against empire-building are that the firm becomes too large to manage (doing anything requires a committee meeting) and the management does not really understand the wide range of activities that the enlarged firm is involved in.

It is not necessarily a bad thing for an empire to be broken up. Large companies frequently acquire a subsidiary, and then realise that the acquisition was a mistake. The subsidiary then gets sold again, but unfortunately it is often after a period of mismanagement which the subsidiary could have done without.