Creating Cohesive Conglomerates
Episode 173 - Conglomerate performance post-financial crisis [Source: http://www.youtube.com/watch?v=_Z3f5io3h2Q]
In the field of organizational theory and management, no entity has been both highly respected and at the same time roundly derided as the conglomerate. In the 1950s, these large companies came into their own. It would not be unheard of for a conglomerate to manufacture everything from breakfast cereal to car batteries and ladies' shoes (and every product in between).
For generations, shareholders loved conglomerates. They were companies that were involved in so many businesses that no matter what happened in certain markets or economies, the conglomerate could weather the storm because of the sheer variety and expansiveness of its exposures to different sectors.
Like any popular concept or organizational model, the conglomerate began to show its age. It slowly fell out of favor when management experts began saying that enterprises were more valuable when they concentrated on a core competency. One well-known conglomerate sold off many of its business lines if that line wasn't either first or second in its particular sector. You can well imagine that the president of a business that was third in its sector did everything he could to ensure it grew enough to keep that subsidiary from being put on the auction block.
There's a saying that everything old is new again. The reason that the conglomerate is going to become a popular management model isn't simply because its time has come again. It's because the structure of an organization that's focused on innovation and market disruption/creation can, perhaps, work more effectively if it's in a number of disparate business lines. In fact, the very act of building tomorrow's enterprise includes redefining the marketplace.
A conglomerate is also an entirely different proposition today than it was one generation ago. Because everything within our organizations are more connected than ever before, it's OK to dabble and experiment in new markets and extend your reach beyond your core competency. There are certain backroom endeavors that are streamlined by the right software solutions, so it doesn't matter if a subsidiary's accountants, for example, are dealing with manufacturing tennis rackets or jet planes.
Mark my words: the next few years will see the tech-savvy conglomerate make its big comeback.