My first chuckle of the new year came from reading a January 1 article in The New York Times titled “In 2007, Some Giants Went Smaller.” (Of course, that shows the type of life I have when I turn to The New York Times for chuckles.) Anyway, the gist of the article was that there is an emerging trend for large, diverse companies to give up on the recently popular theories of enhance, extend, expand and go after adjacent markets and adjacent customers tied together by some vague theory of synergy. Examples of such companies are Home Depot, Ingersoll-Rand, Citigroup, Time Warner, Tyco International and IAC/InterActive Corporation. Instead, corporate managers, investors and consultants (who always follow and never lead trends) are coming to the amazing conclusion that focus on a company’s “core competencies” tends to deliver better value over time. Da!
As the article in The Times pointed out, “Corporate executives and their Wall Street counterparts are subject to fads, and they have gone through periods in which first broadening and then narrowing business portfolios have taken center stage. At the moment, scaling back appears to be enjoying the upper hand.” (Wow, what an amazing revelation by The New York Times that many corporate executives and Wall Street honchos follow the herd.)
Anyway, it seems the recently popular fad of expansion in adjacent markets with the theory of “cross selling” to adjacent consumers is falling on bad times. The logic seems simple enough. Surely it must be less expensive and more efficient to combine the common functions of divergent organizations or divisions into one be-all do-all central function that can easily sell more products to the core base of customers. It is an arrogant philosophy based on the belief that if customers will buy something from us then they will buy anything from us. There is also the egotistical belief that if we are good at selling something we can sell anything.
The problem is that the theory is a myth. It does not work in the real world for two reasons: 1) it is all but impossible to get the divergent parts of an organization supporting the efforts of another part and 2) all too often the consumer does not want to buy from a Jack of all trades but rather from a Master of one.
Experience has shown time and again that when companies understand what they are and focus on what they do best, they do better for a longer time.
A study of the forming, growth, development and ultimate success of a company will invariably show an initial entrepreneurial leader developing an entrepreneurial culture focused clearly and constantly on a vision of what the company is about and what it is to be. These companies achieve success with a philosophy of doing simple things and simply doing them, over and over again until success is achieved. Only after the success of the entrepreneurial culture has been achieved and bureaucratic philosophies begin to seep in do companies begin to think they can be more than they are and then the slide to failure begins.
The only good news is that once these companies fall far enough there is recognition of the failed philosophy of synergy and an effort is made to go back to core of the company. Unfortunately, for most, by the time this happens most of those who understand what made to company successful have departed and those who are with the company have no idea what to do.
The moral of the story is ….
Successful companies are successful and remain successful only when they understand and remain constant to the philosophies, focus and vision of what made the company successful in the first place. For many doing simple things and simply doing them may not seem fun or sexy but it is a way to build a successful company and that is fun and sexy.