What Is Consolidation Strategy?

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Business consolidation is the process of combining two or more business units or companies into a larger organization. The goal is almost always to reduce costs and improve efficiency by eliminating redundant processes and positions, but the strategies for doing this can vary.

In the short term, consolidation (also known as amalgamation) can be a chaotic and complex process, and using the right strategies is vital if you plan to reap the rewards of greater profitability and a stronger presence in the market.

TL;DR (Too Long; Didn't Read)

Consolidation strategies include how one company will merge with or acquire another, how the products and services will be branded or rebranded and how human resources will integrate one workforce and organizational structure into another.

Company Consolidation Strategies

There are several ways for companies to consolidate. The most common consolidation strategy examples include:

  • Statutory consolidation: The operations for two or more businesses are combined into a new company before being shut down.
  • Statutory merger: One company buys another, liquidates its assets and shuts it down. The buying company may or may not choose to incorporate some of the other company's operations during the process.
  • Stock acquisition: One company buys a majority share (more than 50%) of another company, and both companies remain in operation.
  • Variable interest entity: One company buys a controlling share of another company that isn't based on having a majority in voting rights. 

The prime factor in a successful consolidation strategy is knowing when conditions favor making the move. There can be several external forces that can make consolidation more profitable, like changes in technology, changes in the size of a market or a change in government regulations.

One of the most important factors for a company looking to acquire another is a downturn in the economy. Companies that fail to invest in their operations during high points in the economy may be open to acquisition when sales slump. Robust companies, on the other hand, are then in a stronger position to acquire their weaker competitors.

Brand Consolidation Strategy

You must plan what to do with the products and services in a consolidation. There are essentially four different strategies from which to choose:

  • Keep both brands: Retaining the identity of each individual brand after a merger is the most conservative strategy. Even if the products are made by the same plant, they appear to be separate to consumers.
  • Brand Fusion: Brand identities, including their names (and sometimes even their logos) are fused together, such as "AOL Time Warner Inc."
  • Stronger Horse: The brand with the strongest reputation or the brightest future in the market absorbs the other brands, which are discontinued.
  • New Brand: The merged brands are discontinued, and a new brand is created. Verizon, for example, was created when GTE merged with Bell Atlantic. 

Consolidation Strategy in HRM

Consolidation can be particularly challenging for human resource management. It's always best if HR communicates with employees throughout the transition, explaining why the consolidation is necessary and how it will benefit them. In most cases, some employees will be let go, and the reasons for this should also be explained to those who are remaining.

Small businesses should consider appointing an HR leader to handle the consolidation or hiring an HR consultant who can be free from the daily duties of HR to focus on the changes and their effects on personnel and to create an HRM strategy. To develop this strategy, the leader should first assess differences and similarities in:

  • Corporate cultures
  • Organizational structure
  • Compensation and benefits
  • HR policies

Once this is done, she can then determine the best organizational structure and policies to keep after the consolidation and how to educate employees in what will change and what will remain the same.

References

Resources

About the Author

A published author, David Weedmark has advised businesses on technology, media and marketing for more than 20 years and used to teach computer science at Algonquin College. He is currently the owner of Mad Hat Labs, a web design and media consultancy business. David has written hundreds of articles for newspapers, magazines and websites including American Express, Samsung, Re/Max and the New York Times' About.com.

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