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Diversification strategy of global media conglomerates

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diversification strategy of global media conglomerates

Within two years after becoming chief executive of General Electric inJack Welch completed one of his global far-reaching initiatives: In effect, Welch set out to focus the company on the businesses where it had the potential for greatness, and to jettison […]. In effect, Welch set out to focus the global on the businesses where it had the potential for greatness, and to jettison everything else. That was the point of his famous requirement that every business had to be No. Welch articulated both what GE did well, and what it would not do at all: A conglomerate, by definition, is a large corporation with diversified product linesowned and run by the same management. Conglomerates are defended for their synergies, and for the benefits of diversity as a hedge against failure in one sector though this argument is often oversold by management, since shareholders can diversify and thus hedge risk for themselves. But conglomerates are inherently more vulnerable than other companies. GE stumbled with Kidder, Peabody and NBC, and most conglomerates, no matter how well managed, experience similar blunders. The trick with conglomerates is to manage those diverse businesses in ways that create meaningful and relevant scale. Today, this almost always means drawing on the most distinctive, most significant capabilities that the company has — on the things it does particularly well. Every successful conglomerate we know of — GE, Honeywell, Tata and United Technologies Corporation among them — has prospered by doing two things. First, it has applied a few critical capabilities to all the disparate parts of the enterprise, Second, it diversification taken advantage of its diversity in other ways, not forcing scale where scale would merely add cost and complexity. The conglomerate might not seem, at first diversification, to stand together as a single business. But it stands together as a relatively coherent entity, through the power and universal applicability of the things it does well. GE has its strengths in the management of large-scale industries. Danaher, a smaller but very profitable conglomerate with a diverse range of manufacturing businesses, has a very different set of strengths; it applies its distinctive lean production system to a media of product sectors, conglomerates through companies that it acquires and then transforms. Even Tata, which operates in such diverse businesses as automobiles, electric power generation, tea, IT services, and tableware, has a distinctive managerial approach, grounded in its history of strategy and its philanthropic aspirations. Of course, the very diversity that strategy a conglomerate makes it hard to enforce the discipline of media. There is always a question about whether the conglomerate is at an inherent disadvantage It takes a great deal of capital, thought, and ingenuity to develop a powerful capability and apply it at the relevant scale. A conglomerate, which must conglomerates many capabilities for its various types of businesses, will sooner or later find itself slipping behind more focused competitors. How, then, can conglomerates succeed over the long term while remaining large and relatively diverse? We would offer two alternative ways to become a more coherent conglomerate. But very few conglomerates are set up to embrace this sort of abrupt shift of direction, and it takes a long time to execute. The second alternative is to seek out ways to create coherence across what may seem like very diverse businesses. Instead of simply aggregating your various business opportunities and diversification and finding commonality, build a different kind of diversity. Re-think the role that the enterprise could provide by enabling and building differentiated capabilities, media helping businesses find better ways to leverage them. You might be tempted to start by force-fitting your biggest and best capabilities to all your products and services. For example, if global have a world-class distribution system for your consumer-packaged goods businesses, and you try to merge it with your specialty chemicals supply chain; the specialty chemicals business will no longer be able to rely on the capabilities its portfolio really needs. GE, for example, has done a good job of recognizing the logical boundaries between its divisions. It does diversification force its medical systems business to adopt the same market positions or capabilities that work for major appliances or locomotive engines. Instead, start by moving toward coherence within each individual business unideveloping an internally well-aligned value proposition articulating the distinctive way you expect to approach customersa capabilities system aligned to it, and a portfolio of products and services. We have seen the market penalize that approach. Having chosen one of these approaches, the next step is to identify the few differentiating capabilities that might be legitimately shared across business units, things that one conglomerates does well and that will be relevant to others. True success comes to those that create a unique system of capabilities that fits the way they have decided to compete. You should also ask a question that often goes unasked: How might the individual businesses reconsider their strategy in light of what the enterprise media to the table? Most large companies struggle with issues of focus, even if all of their products fall into related industry sectors. Like real conglomerates, every global company pays a penalty for incoherence. And like conglomerates, all large companies have an opportunity to get on a new, more coherent path, producing more value for their customers, employees and shareholders. He is a principal with PwC US. They are the primary architects strategy capabilities-driven strategy and the coauthors of Strategy that Works: How Winning Companies Close the Strategy-to-Execution Conglomerates HBR Press, and The Essential Advantage: How to Win with a Capabilities-Driven Strategy HBR Press, Your Shopping Cart is strategy. Paul Leinwand and Cesare Mainardi. This article is about STRATEGY Follow this topic. About Us Careers Privacy Policy Copyright Information Trademark Policy Harvard Business Publishing:. Harvard Business Publishing is an affiliate of Harvard Business School.

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