Allowing you to merge units rather then grouping them means that an army of 40 units can be managed as well as an army of 20 units but on top of that your not limiting yourself to just 20 units you can if you wish create an army of 40 units , 30 units or even 25 units from an army of 40 units whereas simply increasing the number of soldiers in a unit means you still stuck with 20 units.
Its more flexible and allows in my opinion for superior battlefield tactics, you may want to merge 2 units of 200 men and hold a section of a wall but you may not want to send 400 men up the same ladder.
Overall what I am suggesting is that while 40 units per army could be a nightmare to manage there are means to solve the problem which could also enhance the game play.