Downsizing and Divesting Business

Companies must not only develop new businesses; they must also carefully prune, harvest, or divest tired old businesses in order to release needed resources and reduce costs. Weak businesses require a disproportionate amount of managerial attention. Managers should focus on growth opportunities, and not fritter away energy and resources trying to salvage hemorrhaging businesses. Heinz sold its 9-Lives ad Kibbles ‘n Bits pet food, StarKist tuna, College Inn broth ,and All–in-One baby formulas to Del Monte in 2002 after years of stagnant sales, to allow it to focus on its core brands in Ketchup sauces and frozen foods.

William van Faasen, CEO of Blue Cross/ Blue Shield of Massachusetts, offers this advice: If it’s not core to your business, if it’s not adding value to your customer’s experience, it it’s not bolstering the bottom line, get out of it. Van Faasen learned this lesson in 1996, when Blue Cross/ Blue shield was engaged in a number of peripheral activities that were draining its balance sheet from owning and operating health centers to finding biotechnology ventures. At the same time, managed care came along and caused havoc with prices. At first the company priced services too low and then became aggressive and lost market share. The result was a $100 million loss in 1995 that served as a two-by-four ‘over the head’ for blue Cross/ Blue shield to create a clear, focused agenda. The company quickly got out of activities that were a drain on resources or not aligned with its core business.

Strategic planning is done within the context of the organization. A company’s organization consists of its structures, policies, and corporate culture, all of which can become dysfunctional in a rapidly changing business environment. Whereas While structures and policies can be changed with difficulty, the company’s culture is very hard to change. Yet changing a corporate culture is often the key to successfully implementing a new strategy.

What exactly is a corporate culture? Most business people would be hard pressed to find words to describe this elusive concept, which some define as ‘the shared experiences’, stories, beliefs and norms that characterize an organization. Walk into any company and the first thing that strikes you is the corporate culture the way people are dressed, how they talk to one another, the way they greet customers.

Sometimes corporate culture develops organically and is transmitted directly from the CEO’s personality and habits to the company employees. Such is the case with computer giant Microsoft, which began as an entrepreneurial upstart. Even as it grew to a $32 billion company in 2003, Microsoft did not lose the hard-driving culture established by founder Bill Gates. In fact, most feel that Microsoft’s ultra competitive culture s the biggest key to its success and to its much criticized dominance in the computing industry.

What happens when entrepreneurial companies grow and need to create a tighter structure? This was the case with yahoo! Inc. When the Internet icon was floundering in 2001, new CEO Terry Semel imposed a more conservative, buttoned-down culture on the freewheeling Internet start-up. At the new Yahoo!, spontaneity is out and order is in. Whereas new initiatives used to roll ahead following free-form brainstorming sessions and a gut check, now they wind their way through tests and formal analysis. Ideas either rise or fall at near weekly meetings of a group called the Product Council. The group sizes up business plans take sure all new projects benefits to yahoo!’s existing businesses.

What happens when companies with clashing cultures enter a joint ventures or merger? In a study by Coopers & Lybrand of 100 companies with failed or troubled mergers, 855 of executives polled said that differences in management style and practices were the major problem. Conflict was certainly the case when Germany’s Daimler merged with Chrysler in 1998.

Daimler-Benz AG and Chrysler Corp merged in 1998 to form DaimlerChrysler. Executives from both companies thought a host of synergies would enable DaimlerChrysler to swiftly build a global automotive empire. Fundamental differences in the way the two corporations find business, however, contributed to early departure by executives, a stock price slide, management restructuring, and even considerable losses by the American manufacturer. The two companies had contrasting management styles, Daimler preferring to operate a classic bureaucracy and Chrysler traditionally giving decision-making ability to managers lower in the ranks.

Successful companies may need to adopt a new view of how to craft their strategies. The traditional view is that senior management hammers out the strategy and hands it down. Imaginative ideas on strategy exist in many places within a company. Senior management should identify and encourage fresh ideas from three groups who tend to be underrepresented in strategy making: employees with youthful perspectives; employees who are far removed from company headquarters; and employees who are new to the industry. Each group is capable of challenging company orthodoxy and simulating new ideas.