Companies, like People, Have Herd Instincts

Human beings prefer to live in groups. For thousands of years survival of an individual depended on the ability of his or her tribe to feed itself and defend itself against rival tribes.

Groups of people have the same instincts when threatened. Witness Microsoft’s offer to Yahoo, precipitated by Google’s increased domination of the search advertising market. With jet fuel prices soaring higher than the airplanes themselves, even the larger airlines are merging or forming alliances to cut costs in an effort to survive.

The dominant firm in any industry will run afoul of anti-trust rules if it tried to merge, even in today’s more flexible stances in Washington DC. But how much effort should the dominant entity expend to monitor and anticipate mergers and alliances among smaller, possibly struggling competitors?

Not much actually. Struggling competitors who align out of weakness usually see minimal benefits from the merger. And they focus internally on combining the operations instead of maintaining their diligence on competitors.

Compaq Computer Corporation bought Digital Equipment Corporation largely to obtain its services capabilities. Subsequently, Hewlett-Packard (HP) acquired Compaq to bulk up its PC business and to add to its services operations.

What happened? HP just inked an agreement to purchase EDS to increase its ability to compete against IBM for services opportunities. IBM has been doing extremely well. While the fit between the two appears good from a business viewpoint, the cultures of the two organizations are very different and will take a great deal of careful integration to create benefits from the combination.

So you work at the dominant organization in your industry, keep monitoring your merging competitors, but basically just keep doing what you’re doing right in the first place.