The demise of the GE business model has called into question the wisdom of trying to find strategic and operational synergies across a diverse set of businesses. GE is stepping away from building an “industrial internet” shared platform and is rapidly paring the business portfolio.
We see a similar trend across the industries we work with, even where the set of businesses are quite closely related. United Technologies is spinning off Carrier and Otis, to focus on integrating the acquisition of Rockwell Collins to create a leading aerospace business. Campbell’s is backing away from forays into fresh foods and global bakery to double down on its core strengths of shelf-stable meals and snacks. Time Warner unwound many of its core businesses, including cable and publishing to create more focused content and digital distribution company. The new business, renamed WarnerMedia, is now a unit of AT&T. It will be interesting to see what connections, if any, are made into the broader AT&T portfolio.
Many of these portfolio changes are driven by investors. Owners are frustrated by unfulfilled promises of scale and synergy that were made by leaders who believed they could find profitable connections across customers, technologies, and back office operations.
As organization designers, we know that betting on the right components to put in the business portfolio is important. But, just as important is matching the operating model to that portfolio choice and building an organization model to execute.
The operating model sets out how leaders believe value can be created from connecting and separating functions, product lines, geographies, customer segments, and channels across the business portfolio.
The organization model details how power, accountability, decision rights, and metrics are distributed across the organization structure.
Good strategies fail when operating and organization model are not aligned. But, there is no simple formula.
I recently spent a week with leaders at Aditya Birla Group (ABG) in Mumbai, India. Here is a holding company that is actively finding places to integrate and create value across an extremely diverse portfolio of businesses. I share a bit about them here not so much as a model for others to copy, but as an illustration of how deliberate and well-designed organization arrangements, executed with commitment, can make the most unlikely of operating models successful.
Running an Integrated Company
ABG has 18 business units and 120,000 employees in 36 countries. Half of its $41 billion in revenue comes from outside India. Businesses range from metals, mining, cement, and chemicals to financial services, telecom, fashion, and retail. On the surface it looks like a classic holding company.
ABG leaders are well aware of the dangers that have tripped up other conglomerates that dared to chase synergies: a bloated corporate center, slow decisions, sub-optimized performance, lots of one-size-fits-none solutions, and wasted energy arguing about corporate controls and onerous allocations.
Yet, they see opportunities to leverage the scale and scope of these diverse assets for the new, digitally enabled economy that will be the future of India. Some of these are customer linkages. How can we take our 400 million telecom customers and connect them to our financial services and retail businesses? Some of the linkages are rooting in technology. How can we leverage innovations we’re developing in chemicals into the cement business and create new sustainable and energy efficient building materials?
ABG is using their corporate functions to be the conduits of talent and ideas for innovation. Each function is designed with a different, yet purposeful, relationship to the business units and countries. Here are a just a few examples ranging from a light touch at the center to highly directive.
- Data and Analytics: For this new capability, the belief is that this work has to stay close to the business. The Data and Analytics corporate function has the remit to foster start-up projects and encourage the businesses to learn what they need. The plan is that as this capability matures, the center can plan a more direct role in leveraging expertise and guiding investments.
- Procurement: Procurement across such a diversified portfolio doesn’t lend itself to centralization and ABG leadership is careful not to push common processes where they don’t add value. A community of practice among procurement leaders is a light touch mechanism to build professional identity and connections and allow coordinated buying to be undertaken where it makes sense.
- IT: IT is also largely embedded in the business units. Corporate IT largely serves as the interface to the larger ecosystem for cloud and shared systems. Although digital and other new technologies are important to all ABG businesses, leadership is careful not to give too much power to the center. Corporate IT has to constantly demonstrate value and prove why a service it offers isn’t better housed in a business unit or provided by a vendor.
- Innovation Center: A corporate innovation center functions as a true center of expertise. Businesses units tap into best practices in new product development and the center actively facilitates connections and conversations across boundaries.
- Human Resources: HR is completely centralized. It is charged with developing executive talent, moving talent, and building attractive careers. The “Chairman’s Series” is a sophisticated leadership academy focused on building global mindsets, digital expertise, and organization design skills along with strategy and finance depth. The 300 top leaders come together frequently in these forums to learn, build networks, and share ideas.
One of the most important roles of executive leadership is to decide where collaboration can create value across business lines. Then, the task is to design the right type of connection.
If there are synergies to gain, then well designed, fit-for-purpose corporate functions can provide the glue.
Amy Kates, Managing Partner
Kates Kesler Organization Consulting