how empire building works
empire building is typically seen as unhealthy for a corporation as managers will often become more concerned with acquiring greater resource control than with optimally allocating resources corporate controls imposed by a company s board and upper level management are supposed to prevent empire building within a corporation s ranks on a larger scale it may lead to acquisitions or other decisions that do not ultimately benefit shareholders increase the corporation s financial health or bolster the company s long term viability economists refer to this potential conflict of interests between management and shareholders as an agency cost the failure to screen out empire builders can lead to corporate actions that do not necessarily provide the best growth opportunities for a corporation and its shareholders such as acquisitions made to boost the control of the company s executives empire building strategiesempire building can be done through a variety of strategies let s take a look at a few of the main methods mergers and acquisitions growth through acquisition is by far the most commonly used strategy of empire building there s no easier way to quickly grow the size and scope of your company than simply gobbling up other companies of course this strategy is fraught with risk as serial acquirer leadership teams often overpay and or get into industries that simply don t fit vertical integration vertical integration is a growth strategy that involves controlling all parts of the supply chain suppliers distributors and or retail locations the strategy is effective for empire building because it allows leadership to expand the company while maintaining efficiency strategic alliances forming strategic alliances is another effective way in which empires are built by creating powerful alliances a company is able to grow in a consistent and predictable manner a good example is when defense companies use government contracts to rapidly expand in the 1870s andrew carnegie used vertical integration as one of his main strategies to build a massive iron and steel empire advantages and disadvantages of empire buildingfrom the company s perspective if done right empire building can translate into possible economies of scale cost efficiency and streamlined operations vertical integration in particular is an effective way to expand the company while still being efficient from the perspective of empire building leadership empire building can maximize both job security and promotability finally empire building can increase prestige for both the company and empire builders but as we mentioned earlier empire building often leads to a conflict of interest between management and its stakeholders in other words management decisions that expand the size and scope of a company very often don t benefit shareholders or strengthen the business s long term health possible economies of scale cost efficiency streamlined operators for the company maximization of job security and promotability for the empire builders increased prestige for both the company and empire builders conflict of interest between empire builders management and stakeholdersinefficient allocation of company resourcesexample of empire buildingfor example if bob is a middle manager at xyz company and begins to hire large amounts of personnel and launch projects that increase his influence over other departments at xyz company bob could be seen as an intra company empire builder the added expense of additional employee salaries and the spending required to launch the projects may hurt company xyz in the name of bob increasing his own personal influence and profile within the company this desire creates a principal agent problem that can ultimately undermine the success of the company this term should not be confused with the landmark the empire state building empire building faqsa family empire is a large company or enterprise that is primarily controlled by a single family famous family empires in history include the waltons walmart the mars family mars chocolate the thomsons thomson reuters and the johnsons s c johnson five main building blocks of an empire include strong leadership a sound financial position practical strategies effective resource allocation and strong risk management protocols generally speaking a bureaucratic organization is shaped like a pyramid with the president and or ceo at the very top vice presidents report the president ceo managers report the vice presidents and so on the concept is related to empire building as people often become more concerned with acquiring greater resource control growing the layers of the pyramid beneath them than with being efficient 