November 25, 2012
There's a lesson the empire builders at Big Ten Conference headquarters in Park Ridge would do well to heed if they can be convinced to stop peering out to the distant horizon:
Growth through acquisition is fraught with peril.
"In the business world you acquire new companies and you have to deal with different corporate cultures, different priorities and so forth," Robert Arnott, chairman of Research Affiliates LLC, an investment firm, said in an interview. "Merging them is often very messy and often fails. Here you're merging two teams into an existing conference and it creates risks. … Even college football teams have different cultures, different ways of thinking about how to win and different standards."
There undoubtedly was a logic behind each acquisition as the old Sears sought to expand and diversify its corporate profile. By the time the Chicago-area company's portfolio grew to include Allstate insurance, Coldwell Banker real estate and Dean Witter Reynolds stock brokerage, it was clear the increase in size was in no way matched by an increase in strength.
Rather than an all-powerful Colossus astride many sectors at once, it was reduced to an unfocused blob, bereft of identity, covering plenty of ground but hardly standing tall. Years after shedding its far-flung holdings, Sears has yet to regain its muscle, mojo or market share.
"It's hard to find a better example of a company that lost its mission and focus in the quest for growth," Arnott said.
"(Growth) may be partly a defensive move. It may be ego driven. In the corporate arena, you certainly see that in spades," he said. "When growth is through acquisition, you have to figure out what the real motivation is. Is it synergy, the most overused word in the finance community, or is it ego?"
Adding the University of Maryland and New Jersey's Rutgers University in 2014 will push the Big Ten to 14 schools and far beyond the Midwestern territory for which it's known. But doing so may not achieve what its backers envision.
Rather than spread the conference's brand, it may merely dilute it. The fit may be corrosive, not cohesive.
There is a school of thought that this is but the latest evidence that the Big Ten is not about athletics, academics or even the Midwest. Instead, it is just a television network, the schools content providers and student-athletes talent.
As it is, the overall TV payout is said to give each of the 12 current Big Ten schools about $21 million per year. They point to the Big Ten's lucrative deals with ESPN and its own eponymous cable network, a partnership with News Corp. They note that public schools Rutgers and Maryland are near enough to New York, Baltimore and Washington, D.C., to drive a better bargain with cable carriers.
To Big Ten Commissioner Jim Delany, a New Jersey native, the addition is more the result of a paradigm shift that has redrawn the college sports map over the past decade. Some conferences splinter. Others seize new turf. The result: Idaho's Boise State football team is poised to join the Big East Conference next year.
"Institutions that get together for academics or athletics have got to be cognizant that they are competing for students, they are competing for student athletes, they are competing for research dollars," Delany told reporters.
"When you see a Southern conference in the Midwest or you see a Southern conference in the Plains states or whether you see other conferences in the Midwest or Northeast, it impacts your recruitment. ... It impacts everything you do," he said. "At a certain point you get to a tipping point. The paradigm has shifted, and you decide on a strategy to basically position yourself for the next decade or half-century."
Big has always meant more than 10 in the Big Ten, an intercollegiate entity formed by seven Midwestern universities that now boasts 12 with the bookends of Penn State and Nebraska added in 1990 and last year, respectively. Last week's announcement of adding schools 13 and 14 was just a reminder that the conference has only had 10 member schools for 70 of its 116 years and won't again for the foreseeable future.
Rutgers President Robert Barchi said his school looked "forward as much to the collaboration and interaction we're going to have as institutions as we do to what I know will be really outstanding competition on our field of play."
But make no mistake, the Big Ten was born out of sports, specifically football. A seven-school 1896 meeting at Chicago's Palmer House had Northwestern among those still stinging from a scathing Harper's Weekly critique of college sports abuses, the Tribune reported at the time.
A prohibition on allowing scholarship and fellowship students to compete was shot down. But "a move towards the coordination of Faculty committees" in terms of standards and enforcement passed and the precursor to the Big Ten was born.
Along the way, the conference has added member schools and come to recognize that the Big Ten's image has much to say about how those institutions are perceived. Scandals already are no stranger to the Big Ten. But whether you play in a stadium or on Wall Street, the bigger one gets, the bigger target one becomes.
"Whoever's biggest draws scrutiny," said Arnott, co-author of a research paper, "The Winners Curse: Too Big to Succeed." "That means politicians, regulators, the general public generally don't root for the biggest. They look to take them down a notch, so it's harder to succeed as the largest. It's also harder to move the dial and move from success to success as you get really big."
Everyone talks about becoming too big to fail, but there's also too big to scale, companies that are unable to capitalize on the efficiencies of their increased size ostensibly because they are so big that they cannot be managed adequately.
"People talk about economies of scale. There are also vast diseconomies of scale, mostly in bureaucracies," Arnott said. "The more people you have involved, the more people you have who feel they have to have their views reflected in whatever's done. So you wind up with innovation by committee."
That's deadly. That's why companies break up, citing the need to get smaller so they can grow.
"If you break up companies into operating entities that are more nimble," Arnott said, "the opportunities to grow are no longer hamstrung by centralized bureaucracies that have to pursue synergies that don't exist."
Size matters in all fields of play. Sometimes smaller is better.