FC NOW: The Fast Company Weblog
October 26, 2005
Break It Up!
Cendant Corporation will become four companies this summer. As the article states on the bottom, this is part of a recent trend of large corporations splitting up into smaller parts. With a possible AOL Time Warner break up to come, the trend is only getting started.
I believe this trend points to companies' need to truly perform and reach consumers, something that seems only possible when a company is focused on a specific product line or market. It seems as this trend continues synergistic and diversification strategies will be forced to the fringes. Of course, some would say many of the fragmenting companies shouldn't have come together in the first place--AOL Time Warner never succeeded like common sense dictated, Time Warner's content reaching AOL's huge membership.
In our reality of information at our finger tips and an infinite number of products and services vying for our attention online, a company's output really has to truly shine and connect with the public. Perhaps that which is the product of small teams in specialized companies will be the only ones do succeed in doing that. Then again, Google keeps expanding.
Which do you think is better: diversification or specialization?
Posted by Kevin Ohannessian at October 26, 2005 3:05 PM | Category: strategy |
15 Comments
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Cendant is an exception. Companies, in general, suffer from their own version of ADD. They can't seem to focus for very long on the ONE thing they do very well. (Or is it amnesia -- they forget what they do well?)
And it's not just the "old" companies. Look at Yahoo! and Google now. They've morphed into online conglomerates.
From new/other markets, to new sales strategies, to internal management initiatives, we just stink at sticking to something. Anything. The temptation to pick up revenue and profits from a tangential market is too great.
gimmie shelter...cut Cendant up in pieces and put Henry R.Silverman back into a rowboat paddling down the Hudson. Guarantee he will have his chauffeur paddling.
Since Darth Vader has been running the company it has grown to mega-proportions, made tons of money, (for him ), and buckled everyone to their desks with golden chains. Manhattan never looked to good/gloomy to them. Thanks/no thanks.
Question? Big/little - it's always been little with me, and always will be. When ever they grew big, they grow fat, lazy, and SLOW, bueracratic and EVERY thing lynchpins on the egomaniac on top. IT IS NOT THE COMPANY, it is the top guy/gal.
With small, its always the ten people gathered around the lunch table, eating pizza, sucking down cokes, answering phones, talking about afternoon deadlines. THAT'S FOR ME.
Roger Fulton
Yuma, Az
http://spaces.msn.com/members/rogerroost/
BIG,diverse and On Track : GE-most respected in the world.
Focussed and BIG : Dell,Walmart,EXXON.
GE states their No.1 jog is people development and eeployment.
CK.Prahalad(http://en.wikipedia.org/wiki/Core_competency) is on the money. Most activities that are not part of a company's core competency should be outsourced.
M&A usually makes $ only for the bankers and lawyers.
Just ask Time Warner.
I do feel that Specialisation is better for a company rather than diversification.To support my point i would like to site an example of bharti enterprise(airtel ) in india. the company started diversification but then realised that the fields in which it was diversing were not its ore competency strengths.it finally had to outsource its call centre operations to 4 companies while airtel decided to concentrate on its core competencies which is sales & promotions.and as of now airtel is leading brand in mobile services in india.
diversification is a very hard thing to manage whilst maintaining sales, the old addage "you can't be all things to all people" rings true for me, in my business activity, I have carved out a niche that i know that i and my company are good at and maintained that stratgey for three years. YES it hurt at the implementation,it is never easy to turn down a sale, however, three years down the line, that focus on known talent and quality has paid dividends to both my company and the clients I serve!
A mix of speclization,related diversification, innovation and intergation - both forward and back ward is the new age mantra for growth and sustainabilty. Even in the tech era companies growing fast in core businessand are always oriented to think unrelated diversification would make them bigger and more profitable.
Obviously, there's no single solution appropriate to all institutions. Most banks will never become as highly specialized as State Street — nor should they. But even broadly diversified institutions can improve their financial performance and stock price by honing their strategic focus. "You should be deploying capital into businesses where you have a sustained competitive advantage — and limiting your outlays otherwise," says Thomas McCandless, a bank analyst at Keefe, Bruyette & Woods Inc., New York City.
The theory of comparative advantage, and the theory of increasing returns, both predict that free trade brings specialization. Michigan and Tennessee produce automobiles, but Delaware does not. I have heard free trade critics suggest that regions end up especially vulnerable and overspecialized
I vote for specialization, unless you can make the myriad pieces of your company work independently, like specialists. Now there's a question. What conglomerate has been able to pull this off?
Break it up, Big Boys!
Cendant would benefit from laser-like focus in this economy. Unless you're Google, you can't afford to be a big, loafing machine with multiple channels and a big dang ego driving the machine 9though i applaud the big dang ego... I believe it takes some of that to run a mamoth enterprise... though John Chambers of Cisco is my perfect example... and Steve Jobs...amazing at both ends of the ego scale).
OK, Roger Fulton above says it well: you change the world around a kitchen table, in the garage, stretched and HAVING to make it work.
Then you innovate. You change by the minute... it's survival, Baby! Maslow taken to extremes.
Our little startup is classic: RichContent and eXpertLingo Software. We bust butt, constantly. We perfect, overserve our clients, drive initiatives every day... it's AMAZING! And the handful of people who flow in and out of this office (yes, it's nearly midnight and it's STILL office time... ) are changing the world with their leverage through our creativity software.
So... yes... break it up. But do it smart, and don't do it based on an Investment Banker's program. Do it to provide real shareholder value: long-term viability.
Make sense?
Keep the Success flowing,
ME
Mark Alan Effinger
RichContent.com
ExitPath.com
So in the 90's big companies became bigger by buying up smaller companies. Sounds like the trend is now reversing. I think they are finding it is hard to put diversified comanies under one big corporate umbrella and still maintain the parent company's indentity.
From a branding perspective, simply saying we're a "subsidiary of corporate conglom X" is no longer a great differentiator. There's too many options now.
Seth Godin speaks to differentiation as a key not only to survival but to success. Company's are waking up to that fact now and that diversification is not necessarily a differentiator.
(BTW: if you are in the NYC area, Seth Godin is the guest speaker at a marketing seminar in Edison.)
Performance and control will be better in small companies.They can stress upon specilisation and work on improvement of their product.Frgamentation goes well with diversification and it is the right time for a company to do so.
I am thinking of Microsoft...
Companies merge. Competition ceases. Firings ensue. Market suffers.
Company splits back. Competition spurs. Jobs reopen. Market rejoices.
Nothing counterproductive here. Nope. None whatsoever. Just glad to know we're all the butt of some portfolio's sick, cyclical joke.
I would say specialization; the exceptions (like Google) prove the rule, in a way.
GE during and post-Welch, with its emphasis on reinvention, creative destruction, and all the outlying offices and labs that could do their own thing succeeded because this culture let lots of subcompanies specialize, even if the whole was diversified. I think a similar energy drives Branson's companies, or Semco. And I think the argument could be made that Google specializes in a type of thinknig and production. In other words, even the diversified successes are specializing--specializing in a competitive approach or a type of culture, and oh, by the way, here are some products and services we're making while we're doing it.