Managers must reconsider their preconceptions about conglomerates, or multi-industry firms as they are now often called, because today's examples have much to teach us about successful corporate strategy. We examined the strategies of the largest conglomerates that have, for a sustained period, practiced the form. Four archetypes are available to managers for adding value to a broad portfolio of businesses. In top-performing firms, the bewildering diversity of end products can blind the casual observer to the intense focus of headquarters and the tight cohesion among the head office, the businesses, and the environment.
The conglomerate, when it is not being completely ignored in the business and academic presses, is derided as an artifact of old thinking. Because of the high costs of organization, the rationale declares, the widely diversified, multi-industry firm is doomed to destroy value for shareholders. Yet, any organization that has been able to master the undeniable challenges of managing such disparate operations offers the chance to uncover insights about what works (and what does not) in corporate strategy. We identified four successful conglomerate archetypes.
In undertaking our analysis, we found that a simple framework facilitated understanding the corporate strategies and the manner in which they were put into action. Corporate strategy is practiced along three dimensions. First, headquarters functions to influence the structure of, and the horizontal relationships within, the portfolio of businesses, including the creation of practices, rules, and regulations. Secondly, headquarters often houses common resources, such as legal and tax advice or merger–and–acquisition expertise, that are shared by the businesses in a vertical relationship. Finally, managing the changing contents of the portfolio forms the third dimension of corporate strategy. The key activities of head office include acquisitions, the internal creation of new businesses, restructuring, and divestiture.
We discovered that each of the sustainable conglomerate strategies was aimed at different value-adding goals and achieved cohesion along the three dimensions in different ways. Moreover, firms were configured to reach into their environments through contrasting means, seizing disparate opportunities. One of the central identities of strategic management is plainly in evidence among top-performing conglomerates: a “fit” is achieved between the corporate level and its businesses, as well as between the organization and its environment. However, the real story is how the cohesion was achieved, through the archetypes devised by managers to marry organization with opportunities. We were anxious to find out what corporate managers could possibly be doing to add value to such disparate sets of businesses.
