Saturday, March 6, 2010

The power of the basic

The power of the basic, I just thought about this today, but has been going on in my mind since some 2 years ago.  When I was preparing for my master's comprehensive exam, a certain topic on the disassembling and resassembling of the organization has to take place to create a meaningful mix of business to match structure, vice-versa. 

Often times, after reassembly, the new mix offers little change, some, it is a whole new business.  The the former is more common, organizations would always prefer to introduce little and bite-sized change(s) per milestone on their gantt charts.  We don't want to get our hands full of unforeseen issues.

Once, I have observed that when an organization matures, it tends to acquire more businesses to gain market share and consequently beef up its revenue.  When the time comes that new management takes over, particularly new CEO's, they then begin selling non-core businesses.  From being basic to complicated and back then, guess what, back to basics.  It's a cycle.  When people - in general - feel that they have so much on their hands that they feel it's too much to handle, they tend to let go what they feel are less important or that which contributes less to their goals.

Consider the analogy of a closet.  A new closet is fine, you find a location and let it stand there, you buy more clothes until its doors or the lid can no longer be closed.  We either extend our closet, buy a new one, give them away, or sell them.  But we can only fill as much as our property can contain.  What happens, we always go back to what the container can contain.  As the old adage goes, " Tama lang, walang labis, walang kulang. "

A certain company turned 40 years sometime last year, the corporation has acquired several businesses in its portfolio - which added some businesses, first to be vertically integrated in their processes, and second some non-core but promising businesses.  3 years ago, they promoted president of one of their divisions to CEO, and his experience was leading the core-business.  Under his management, he sold-off non-core businesses, and bought two more companies to compliment their business's portfolio.  A year later, they're back into looking for adjacent businesses that can help them build more revenue.  I wonder, in the next few years, when all the acquiring and building new businesses reach a complicated level, and new management kicks in, will the cycle repeat itself and go back to the basic business portfolio?

Are new managers allergic to non-core businesses?  Why does old managers keep the same portfolio even if it hurts the balance sheet?

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