Can’t Anybody Here Play This Game?

Give ’em points for persistence.

With the latest wave of megadeals — Disney meets ABC, Chase meets Chemical — comes more bold strategic talk: vertical integration, horizontal consolidation, global domination. In fact, these deals look like the same old story, the latest chapter in a 15-year saga in which corporate giants struggle in a competitive world they don’t understand.

Harvard Business School Professor Nitin Nohria has been tracking strategic moves by the 100 largest public companies. Between 1978 and 1993, he reports, these corporate giants…

Downsized. On average, each company announced 15 layoffs in 15 years, or one per year. Each layoff averaged 2,000 people, which means each company laid off, on average, 30,000 people over 15 years — or 3 million people total.

Restructured. Each company announced an average of 50 acquisitions or divestitures in 15 years, or 3 to 4 per year. The average aggregate value of these deals per company was $20 billion.

Networked. Each company averaged 80 joint ventures or outsourcing agreements over the 15 years, more than 5 per year.

What did all this wheeling and dealing add up to? Here’s where the research gets interesting: If you had $100 to invest in 1978, Nohria asked, would you have done better buying shares in these companies or buying conservative mutual funds — perhaps the most boring stock market investment you could make?

Answer: Only 8 of the 100 companies outperformed mutual funds. In fact, when you consider the opportunity cost of capital, only 30 companies created any positive value. The median value added per company was negative $5 billion.

“This was a period when managers decided to look outside for solutions rather than take responsibility themselves,” Nohria says. “Unless that changes, the repeated failure of American management is going to persist.”

Like we said: Give ’em points for persistence.FCS