Big is not always better - for customers or shareholders

ANOTHER week, another mega-merger. Although recent weeks have seen a pair of well-publicised failed tie-ups, corporations around the world appear to have lost none of their enthusiasm for joining in the "big is better" rush to consolidate.

Since the impetus for these transactions comes largely from the banking community, the plans from Citibank and Travelers at least have the merit of showing they practice what they preach. But are such deals good for business? As countless executives have done before them, Citicorp's John Reed and Travelers' Sandy Weill have sought to stress the benefits to customers in terms of broader reach and to investors in terms of enhanced earnings.

But in many ways, such moves fly in the face of where commerce is going. As the recent furore over the planned mergers at the top of the accountancy profession demonstrates, customers are not always convinced of the case for consolidation.

Similarly, "shareholder value" may have reached mantra status, but the companies that are genuinely making achievements in this area are getting there by pursuing growth or creative policies rather than through economies of scale, or - as it is better known - cutting costs. Marks & Spencer, winner for the past four years of the Quality of Management Awards organised by Mori and PA Sundridge Park's management centre, is renowned neither for cost-cutting nor acquisitions and yet consistently sets the standards for the retail sector.

Moreover, while it is increasingly accepted that most sectors have only room for one or two dominant players and a few also-rans, much innovation in modern business comes from niche players who display a nimbleness that corporate behemoths cannot copy.

In the view of Tom Peters, the best-selling guru, achieving such flexibility by breaking up operations into manageable units or spinning them off is much more effective than falling into the "synergy snare".

He points to Reuters as an example of a company that has grown rapidly through organic growth and creating new markets.

Synergy - on everybody's lips in the merger mania of the 1980s - is enjoying a comeback. Executives point to their companies' complementary geographical spreads and product bases as if blending them together is a necessarily profitable task. In their recent book Synergy, Andrew Campbell and Michael Goold point out many executives fail to make the most of the links between different business units simply because they do not put enough thought into it.