Most organizations pursue consolidation as a means of expanding scale, but as mergers and acquisitions occur more frequently, does scale still serve as an advantage?
Nicco Mele, a senior fellow at the USC Annenberg School for Communication and Journalism, says not so much.
"Far from seeing consolidation as a sign of strength, I view the recent spate of enormous deals as indication that big firms are desperate to forestall their demise," Mr. Mele wrote for Harvard Business Review. "They are being dragged kicking into the future."
Across multiple and diverse markets, industries are 25 percent more to be "highly concentrated" than they were in 1995, a recent USC study found. At the same time, America's largest companies are more than twice as likely to lose market share than they were in 1980.
"What is going on?" Mr. Mele wrote. "I believe that industry consolidation may be the death throes of mature industries as they struggle to compete with America's return to a more entrepreneurial, craft economy."
Mr. Mele gave the example of consolidation in the beer industry. Regulators are currently considering the proposed merger of Anheuser-Busch InBev and SABMiller, which would control 30 percent of the world's beer market. M&A activity in the beer market has been frenzied in the last decade. However, at the same time, more craft breweries have popped up all over the country. At the end of June 2015, there were 3,739 breweries, 699 more than the same time last year, and there are an additional 1,755 breweries in planning, according to USA Today.
Maxwell Wessel, a venture capitalist at Sapphire Ventures, wrote in a 2012 article in HBR that scale — "one of the last bastions from the competitive storm" — is no longer profitable or safe. Previously, technology afforded large players a competitive edge because no one else could afford it. Now, the connectivity of our digital world enables small business to collaborate in ways that lend the equal capabilities to those of giants like Walmart or Ford Motor Company.
In his book The End of Big, Mr. Mele argues trends such as consolidation among big companies will lead to a more craft-centric economy. However, big companies won't go down without a fight. For many, growing even larger seems to provide a defense against a multitude of craft businesses, but eventually smaller companies will be able to out-compete them.