There are industries in which vertical integration is appropriate and others where very different skills are required for the various elements of the value chain. In a brief look at the rationalisations of recent media mergers, John makes a case for hard-nosed analysis over hazy dreams.
A second marriage, said Dr Johnson, represents the triumph of hope over experience. It is less than five years since the merger between AOL and Time Warner and Deutsche Telekom’s acquisition of a US mobile phone business – perhaps the two worst deals in business history. But spring is in the air, for investment bankers as well as young lovers. And the rationalisations offered for Comcast’s assault on Walt Disney and the acquisition of AT&T Wireless by Cingular resemble closely the flawed justifications for these earlier unions.
Media content needs delivery, and vice versa. And the same channels can often be used to disseminate text, images and music. This discovery was made at least 1,000 years ago by people who developed religious services, still among the most moving and spectacular multi-media displays.
But this old idea is frequently rediscovered by visionary chief executives, excitable consultants and greedy investment bankers: the people who proclaimed the AOL-Time Warner deal a marriage made in heaven. And it was revealed with Damascene force to Jean-Marie Messier, a humble French water carrier.
But activities can converge without requiring that the companies that undertake them converge. The erstwhile mâtre du monde might have drawn a useful lesson from his experience at Compagnie Générale des Eaux before his apotheosis as chief executive of Vivendi Universal: the sewers and the stuff that goes down them do not need common ownership.
There may be a compelling reason for customers preferring a mobile phone company that owns a network in 50 other countries, but I have yet to hear what it is. International roaming is valuable to some users but is achieved through common regulatory standards and agreement between operators rather than by multinational businesses. Cellular phone capabilities, like bus services and haircuts and electricity, are by their nature provided locally. None of the usual arguments for global production – economies of scale from manufacture on a single site, specialisation in low-cost locations or branding to give customers confidence in cross-border purchasing – seems to apply.
Still, the global imperative gave urgency to the acquisition ambitions of telecommunications companies. If you do not get on to the dance floor, there will be no nice girls left. In practice, suitors divorce their hastily chosen partners with sufficient frequency that a steady supply comes back on the marriage market. Orange, the liveliest belle at the ball, has in less than a decade had husbands in Hong Kong, Germany, Britain and France.
These paragraphs contain as many analogies as I can squeeze in, and more than readers should tolerate. As bid fever revives, you can hear the groans of dead metaphors resurrecting themselves from the graveyard of failed corporate activity. Such language is the stock in trade of superficial business thinking.
Fresh analogies evoke visual images – but you can be sure no one thinks of a nuclear reaction when they talk of critical mass, or sees a striding giant when they talk of a global footprint. If they did, it is just possible they might think about the substance of what they say. After all, critical mass is the point at which fissile material becomes uncontrollable, and it is hard for a giant with a global footprint to move swiftly.
These stock phrases are symptoms not just of laziness on the part of the user but also of a failure to think clearly. They are used in business discourse because they are vague. It is impossible to argue with the need for critical mass or to dispute the value of a global footprint because it is so hard to give any specific meaning to these clichés.
There are industries in which vertical integration is appropriate and others where very different skills are required for the various elements of the value chain. There are activities in which global scale is necessary, and others where pluralism and diversity are sources of competitive advantage. Some media and telecoms businesses fall into one category, some into the other, and discriminating between one and the other requires thought, not slogans. Only hard-nosed analysis that penetrates the fog of woolly thinking can develop the vision needed to establish a global platform. That is the kind of sentence you write if you spend too long reading business books.