The Role of Diversification


Corporate diversification is everywhere. Virtually all of the Fortune 1,000 (the largest 1,000 corporations in the US) are diversified, many of them to a great extent. Some corporations consist of dozen—even hundreds—of different businesses. Besides such corporate giants, many smaller firms, some with only a handful of employees, also diversify.

What is the strategic role of diversification? Popular answers to this question have changed dramatically over the last several decades. During the 1960s, diversification fueled tremendous corporate growth as corporations bought up dozens of businesses, regardless of the good or service sold. Managers based this diversification on unrelated businesses on the assumption that good managers could manage any business, allowing the formation of huge conglomerates of completely unrelated businesses. In the 1970s, managers began to emphasize diversification based on balancing cash flow between businesses. Corporate managers attempted to diversify so that the resulting portfolio would offer a balance between businesses that produced excess cash flows and those that needed additional cash flows beyond what they could produce themselves. The 1980s brought a broad-based effort to restructure corporations, as managers stripped out unrelated businesses and focused on a narrower range of operations. Restructuring usually also involved downsizing, and the largest corporations shrank in relation to the rest of the economy. In the 1990s, corporations have once again taken an interest in using diversification to grow. But unlike the unrelated diversification that took place in the 1960s, the trend in the 1990s is to diversify into related businesses, or at least into businesses in which the strengths of a popular managerial team fit the needs of the new business being added to the corporation.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Advertisements

Revisiting Leadership


Human beings are designed for learning. Unfortunately, the primary institutions of a society are oriented predominantly toward controlling rather than learning, rewarding individuals for performing for others rather than for cultivating their natural curiosity and impulse to learn. The young child entering school discovers quickly that the name of the game is getting the right answer and avoiding mistakes—a mandate no less compelling to the aspiring managers.

 

Our prevailing system of management has destroyed our people. People are born with intrinsic motivation, self-esteem, dignity, curiosity to learn, joy in learning. The forces of destruction begin with toddlers—grades in school, gold stars, and on up through the university. On the job, people, teams, divisions are ranked—reward for the one at the top, punishment at the bottom. Incentive pay, business plans, put together separately, division by division, cause further loss, unknown and unknowable.

 

Ironically, by focusing on performing for someone else’s approval, corporations create the very conditions that predestine them to mediocre performance. Over the long run, superior performance depends on superior learning. A full one-third of the Fortune 500 industrials listed in 1970 had vanished by 1983.

 

Today, the average lifetime of the largest industrial enterprises is probably less than half the average lifetime of a person in an industrial society. On the other hand, a small number of companies that survived for seventy-five years or longer. Interestingly, the key to their survival is the ability to run experiments in the margin to continually explore new business and organizational opportunities that create potential new sources of growth.

 

If anything, the need for understanding how organizations learn and accelerating that learning is greater today than ever before. In an increasingly dynamic, interdependent, and unpredictable world, it is simply no longer possible for anyone to figure it all out at the top. The old model, the top thinks and the local acts, must now give way to integrating thinking and acting at all levels.

 

While the challenge is great, so is the potential payoff. The person who figures out how to harness the collective genius of the people in his/her organization is going to blow the competition way.

 

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

Distinctive Competence


Distinctiveness is a relative concept – an organization is distinctive with respect to a benchmark established with reference to aspirations. For example, an organization may aspire to become the largest organization of its type in a region. Thus, one aspect of distinctiveness will be related to other organizations within that region, as this is their benchmark – not elsewhere in the world. However the benchmark for distinctiveness may change as the business model or livelihood scheme is explored – aspirations may become more ambitious as the group discovers that its distinctive competences are more distinctive than they had thought. Alternatively, sometimes a group realizes that they are not exploiting their distinctiveness as fully as they might, because they have not appreciated fully the nature of their distinctiveness.

The opposite may also occur. Here, a group discovers that much of what is distinctive is also useless in relation to their current aspirations. Many distinctive competences of an organization grow over time and the organization becomes so proud of them that they forget why they needed them. Distinctiveness is therefore relative to a benchmark, usually with respect to other organizations, existing or potential, as defined by the aspirations, rather than to any absolute criterion. This means that aspirations can subsequently be changed to become less demanding if increasing distinctiveness is difficult to come by. Exploring distinctive competences and aspirations must therefore be done together.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please contact www.asifjmir.com, Line of Sight