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Having a Corporate Perspective
Peter Drucker famously said that there are two functions of a business: innovation and marketing. Running the business is about getting and retaining customers, and constantly improving the business to be more effective and efficient. While this helps focus those general managers in charge of business units, those in charge of running companies have much different concerns. The effective ones understand the corporate perspective.
Earlier this fall, General Electric announced it was selling off its appliances unit to Electrolux, a Sweden-based company. The unit associated with the famous slogan, “We bring good things to life” was still profitable. So why would GE get out of the appliance business? The simple answer is that GE management did not feel they were able to compete effectively in that business anymore. Not only was GE a distant second to Whirlpool in appliances, GE was no longer willing to invest in the support needed to upgrade product designs, or in the promotion for those new products. From a corporate perspective, the sale seems the right thing for GE and, perhaps, Electrolux as well.1
A company can be thought of from three unique perspectives: corporate, business and support. These perspectives can be thought of as three interlocking circles.
Those running the business(es) are focused on selling to the market(s), distributing, and servicing the product offering(s). The CEO and managers who report to the CEO (when they are not running their functions or business units), however, have a very different focus, as they are concerned about survival of the firm. They must decide what businesses the company should conduct, how to win in the markets they enter, and what technologies or capabilities to invest in that will position the firm to win.
So while those managers running GE's appliance businesses were focused on competing successfully, GE executives, led by CEO Jeffrey Immelt, were contemplating other questions:
For those in charge of the company, understanding the corporate perspective is essential because it helps them focus on these questions when they are planning for the company. Often, general managers must think at both levels (corporate and business). That is, they must at times plan specifically for making their business or function effective, efficient, and economical. But at other times they may be pulled into planning discussions or efforts that are more about the company; for example, they may be part of a corporate team focused on some version of the four questions above.
- What kind of company are we today, and what kind of company should we be? Not even a large multi-business enterprise like GE can be everything to everyone. The answer by GE executives, signaled by their sale to Electrolux, was that “GE is a high-tech infrastructure company.” No business is sacred, as it must fit within the corporate domain. Also, no single business lasts forever either—each will eventually mature and ultimately decline.
- How can we win? GE felt it could not succeed in appliances given the current nature of the market—at least not like other opportunities that aligned more closely with their domain. The firm had already poured $1 billion since 2008 into sprucing up the product offerings in the appliances unit. It was apparent that GE would have to do even more just to keep treading water—and at the opportunity cost of investing in its now core activity of high-tech infrastructure. They likely did not see any advantages they could exploit to win in the appliance business.
- What kind of support is required? When the range of businesses changes, the support required will change also; those at the corporate level must assess when support becomes unwieldy, inadequate or misaligned. The design, promotion and production support required for appliances was likely to become increasingly separate from other industrial support needs of the businesses associated with infrastructure.
- Where should the company play? After declaring what GE is today, Immelt dropped the other shoe to say what they were not: “We’re not really a consumer-products company (anymore).” The "where-to-play" question can be about what businesses to conduct. Sometimes the "where-to-play" question is about international expansion as firms weigh the challenges of doing business in different countries—an issue that may stress the support function in ways that compromise effectiveness and/or efficiency.
For the record, GE is also said to be considering shuttering its lighting division, as well, in the near future. In considering how this business fits with their corporate domain, some argue that the lighting business might survive, since 70% of its customers are contractors rather than consumers. This may mean that the business fit may still be valid, as it could present opportunities the firm will want to pursue. A stated corporate goal for GE is to have 75% of its earnings come from industrial businesses by 2016.
Smaller, even single-business companies would do well to spend time planning from the corporate perspective. A good way to start is to determine answers for the four simple, but challenging, questions above.
1“GE moves further away from consumers with sale of appliances unit.” Ted Mann, Wall Street Journal, September 8, 2014.
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