I’ll discuss some upsides to this educational approach as well as what I’m sure are the pretty obvious downsides, in a future post.
Previously, I was a controller for a mid-size company that had been purchased by a large company. This is not the first time I have had such a job, in fact the job before this one was almost identical in situation, activity, and scope. And I had actually made a sort of specialty out of taking mid-size businesses through acquisitions, helping them adapt to the new operating environment, modifying their accounting systems and reporting to make them compliant, and implementing new policies and procedures. Having gone through this a number of times, I have noticed a very persistent pattern, and it goes like this:
A mid-sized company has through dedication and hard work created for itself a track record of success and a bright future. It is very profitable. It has a wonderful corporate culture, is actually like a large, extended family. They have parties, share their personal lives, and see each other through dating crises, marriages, pregnancies, divorces, and family deaths. Home away from home.
Then, the mid-sized company is purchased by a large company, usually in an effort for the large company to “diversify.” The mid-sized company, because of its success and bright future, is purchased for top dollar by the acquiring company.The former owners are very happy, and sometimes go away, or are worked into the new top management team for the acquired company.
The new parent company’s financial people descend on the mid-sized company, auditing, evaluating, and changing everything. They force the smaller company to wrangle their accounting and program reports to fit into the scheme of the larger company. Because the smaller company is an attempt to “diversify,” their business is by definition different from the parent’s core business. This requires the smaller company to chop its numbers into odd, meaningless pieces simply to get them to fit into the new required format. Simultaneously, they struggle to maintain their previous, meaningful accounting and program reports because these actually help the management understand the business properly. This requires the financial staff to produce double the reporting, including a set that is demonstrably meaningless. Honestly, this is not my own bitterness speaking – I’ve watched this play out time after time.
Then, because the large company wants to reduce their own expenses and improve their rates, they begin allocating a portion of those expenses to the smaller company as “corporate allocations.” Because the smaller company has shown a history of inordinately large profits, the larger company applies these allocations with an increasingly heavy hand. In short order, the allocations require the smaller company to raise their prices to the customer in order to cover the additional layer of expenses. This makes them considerably less competitive on new business, and the struggle to maintain growth and retain customer base begins.
The last company I worked for was a defense contractor, and the smaller business had benefited from government-instituted “small business set-asides” prior to their acquisition, a boost given by the government to promote the development of small domestic suppliers. Being acquired by a large company, however, the smaller company no longer qualified for these set-asides, and they lost an important competitive edge. This, too, affected their success in the marketplace.
In the meantime, the larger company is seen by the employees of the smaller company as a bit of a nuisance, but nothing more (except for the accounting and human resource departments, which struggle to keep up with considerable changes without impacting the employees any more than necessary). However, the new corporate culture begins to seep into the smaller company: Rising costs make it increasingly difficult to maintain the regular parties and fun events that maintained esprit de corps. Employee benefits change, impacting the employees and their families in ways both large and small, almost always at least troubling. Bonuses begin a steady downward trend, until they are based in large part on Corporate performance standards rather than those of the smaller company – in other words, unless the parent has a good year, nobody gets a meaningful bonus. And further, they are often skewed toward top management in spite of management's best efforts in the interest of the employees,. Even tiny holiday bonuses, which the employees had come to rely on, begin to disappear in the struggle to maintain price competitiveness.
The result is a growing dark cloud over the offices of the smaller company. Bitterness increases, and the management of the smaller company struggles to maintain even paltry incentives for its employees. At this point, usually the most talented employees begin resigning, often lured away by competitors and customers. The business base eventually deteriorates, raising the concerns of the parent company, and further stressing pricing. That’s when the hideous specter of “reorganization” begins.
The parent company, compelled to rework this marginal business into their incompatible business structure (and motivated by the high price they paid for the smaller business in the first place), begins moving the smaller company into various positions within the larger framework. They move from business line to business line, each time adding new layers of allocations and often requiring that their accounting information be presented in new and even less meaningful ways to fit the new division they have been placed in. Besides the disarray this causes the accounting department, often the human resources department finds itself in the hapless position of changing employee benefits again and again to fit the new organizations.
I’ve seen the “end game” play out in three different ways: Either the parent company puts the smaller company on the block to sell it for whatever they can salvage; or they chop it into sometimes minuscule and meaningless pieces, fitting these arbitrary chunks into existing businesses that are as close as possible to their trade; or they are consumed by the Borg and lose any semblance of their former identity. Sometimes, if it is sold to a suitable buyer, this can result in a return to some semblance of normalcy. If it is assimilated entirely, that, too, can be okay – although it has by this point lost all of its “charm.” But the endless rounds of reorganization rarely go well for either the business, the customers, or for the remaining employees.
In the meantime, the halls of the smaller company are dark and joyless due to attrition and discouragement. Empty offices scold the remaining employees, making them feel like failures for not have left the sinking ship early in the game. Often the smaller company’s management team is removed or changed, eliminating what was once a central focus of employee motivation and loyalty. This is a dreary, thankless, demoralizing process, and I have sat through this “end game” twice to completion – and that’s why I simply can’t go back.
Please note: Every bit of the above analysis is my humble opinion. I am sure that viewed from another perspective the process looked very different, and perceived (or assumed) motivations may not been the real motivations for what transpired. Nevertheless, it is cathartic to put this process as I have observed it into writing. Honestly, it’s not that the large company is an “evil empire” – they’re just trying to do the best they can to assure long-term stockholder value and a firm foundation for the future. The problem is that they often do this while instituting short-sighted, bottom-line policies that quickly undermine what they’ve acquired. They’re somewhat like a child who captures a bug in a bottle, and “loves” it to death.
In the next post, I’ll discuss the range of my recent education, and why I believe my “shotgun” approach was helpful for me (and the price I’m paying for it).
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