Breaking Is Hard To Do

Recenty, there has been a fad growing among large corporations. The participating corporations include Kraft, McGraw-Hill, ITT, Sara Lee, Tyco and the fad is the dividing up of these companies into smaller companies. As I've read about the many divisions, I've wondered why large successful companies would make such drastic decisions especially when it costs the companies hundreds of millions of dollars to do so. Here are some of the reasons I think dividing a large corporation could be advantageous.

Simplicity
Many of the corporations that have split recently are actually huge conglomerations of companies in many seemingly unrelated markets. These corporations have become so large and segmented that they have lost the agility and simple operations that existed when they were founded. Management of companies has difficulty leading small companies to success, let along large conglomerates. One potential advantage of splitting a corporation is to increase the simplicity of managing it. A smaller company is easier to understand and better able to maintain focus.

Hedgehog Concept
As I mentioned, these corporations are made up of seemingly unrelated parts. Tyco has recently announced its plans to divide into three separate companies: a residential security company, a flow control company, and a commercial fire company. To unite such diverse companies and function under one mission would be difficult and as we learned from the Hedgehog Concept in Good to Great, companies should focus on what they do best. By dividing such a company into smaller more focused pieces, each company will better be able to focus on what it does best, thus being more successful.

Acquisitions
With so many interacting pieces and complexities, large corporations and conglomerates are not appealing to those who would buy these companies. There are too many moving parts to understand everything; it presents a certain level of risk. This appears to be the case with Tyco. In order to appear more appealing to these purchasing companies, Tyco has divided itself into multiple companies, thereby not scaring away so easily those who would buy them.

Source: http://www.ft.com/intl/cms/s/0/a669360a-e2a9-11e0-ba6e-00144feabdc0.html#axzz1YWj3SncN