What Is Empire Building?
Empire building is the act of attempting to increase the size and scope of an individual or organization's power and influence.
In the corporate world, this is seen at the intra-company level when managers or executives are more concerned with expanding their business units, their staffing levels, and the dollar value of assets under their control than they are with developing and implementing ways to benefit shareholders.
Empire building can also occur in the larger public arena when corporations take steps to acquire competitors or other firms that might offer downstream or upstream integration or other synergies.
A corporation might attempt to control a larger market share or form a conglomerate to branch into other industries in an attempt to grow the corporation's influence, assets under control, and influence.
Key Takeaways
- Empire building is the pursuit to enlarge the size, scope, and influence of an individual or organization's power.
- Increasing market share, buying power, or deal-making influence are all elements to empire building.
- Empire building can be considered as a negative for a corporation because management can become fixated on controlling resources and influence than with optimally allocating resources and maximizing profits.
- Empire building can be done through a variety of strategies including mergers and acquisitions, vertical integration, and strategic alliances.
- Advantages of empire-building include possible economies of scale for the company, job security for the empire builders, and increased prestige (for both the company and empire builders)
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 Strategies
Empire 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 Building
From 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.
Advantages of Empire Building
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)
Disadvantages of Empire Building
Conflict of interest between empire builders (management) and stakeholders
Inefficient allocation of company resources
Example of Empire Building
For 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 FAQs
What Is a Family Empire?
A 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).
What Are the Building Blocks of an Empire?
Five main building blocks of an empire include strong leadership, a sound financial position, practical strategies, effective resource allocation, and strong risk management protocols.
How Does Empire Building Relate to the Pyramid of Bureaucracy?
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.
