Cutting your way to growth
Unlocking value through divestitures
Learn why more and more companies today are splitting into separate entities, selling off pieces of the business that are no longer core to operations, and yet still maintaining growth.
Ready, cut, grow
When Hewlett-Packard announced it was splitting its legacy personal computer and printer business from its enterprise technology infrastructure, software and services business, its stock jumped nearly five percent in a single day. The news came on the heels of a similar declaration from eBay that it was spinning off PayPal—its payments processing business—an announcement that garnered it a seven percent boost in share price. Not long ago these companies were fixated on growth, snapping up smaller entities, multiplying their products and services, and moving into adjacent businesses. But that growth had a downside, loss of focus due to numerous competing priorities. What we are seeing now is a form of “reverse diversification” in which enterprises are slimming down in order to concentrate their resources on a narrower customer base or set of products and services.
Even within a business that serves a relatively circumscribed customer segment, there are three distinct business types operating in tandem: an infrastructure management business, consisting of high-volume, routine processing activities such as logistics, manufacturing, maintenance, or call center operations; a customer relationship business, organized around gaining a deep understanding of specific customers and using that knowledge to help them find the products and services that best meet their individual needs; and a product innovation and commercialization business that involves coming up with ideas for new products and services, developing them, and bringing them to market. Maintaining these three business types under the aegis of a single corporation is a vestige of a vertical integration approach that made sense when huge companies dominated the business landscape and scale trumped just about anything else. But today, juggling the needs of each can place large players at the mercy of more nimble competitors that concentrate on just one and do it extremely well.
Read the article to learn more about how business leaders can take a hard look at their portfolio of businesses, as well as the business types within each, and answer some important questions to determine if their company should cut its way to growth.