Wednesday, December 5, 2012

To Change or To Not Change

The article Lessons in Longevity, from IBM by Steve Lohr brings out the importance of adapting your business strategy to changes in the market. IBM expanded into the services domain as markets changed. On the other hand, the article on GE – G.E. Goes with What It Knows – Making Things, again by Steve Lohr showcases the importance of sticking to your core vision.

These articles highlight the importance of having a flexible Strategy. In some industries particularly the technology sector, change is inevitable. If you do not change or disrupt yourself, someone else would and you could go out of business. But in other industries like manufacturing, such drastic changes may not be necessary – all you may need to do is incorporate changes as technology and standards for processes change. But then it also does not mean that you need not explore other sectors. Where GE failed was that it fell in the trap for not strategizing GE Capital well. They focused on the short term returns and did not respond to the warning signs of the dangers ahead.

It is quite possible to have a wide portfolio of companies. Consider the TATA group of industries in India. They are 165 year old, have companies ranging from iron & steel manufacturing to clothing & retail, from technology to hotels. Name an industry, and they would definitely have their presence there. And not just presence, they would be one of the market leaders in it. Not just in India, they have expanded their presence globally by acquiring and successfully integrating brands like Jaguar and Land Rover. The important thing here is that as you diversify, the need for focus on the company vision and Strategy increases. Long term planning and analysis needs to be done and things need to be updated or changed as the markets change.

Some industries like technology or finance are more prone to changes than others like manufacturing. But then this is how the markets are, and when diversifying your portfolio it is important that one understands the risks and is ready to change or abandon plans when things don’t work out. What do you think? Do you think the risk that such major strategic changes bring to a company are worth taking?

Sources:
HBR Article: GE Goes with What It Knows - Making Stuff, Steve Lohr
HBR Article: Lessons in Longevity from IBM, Steve Lohr
http://en.wikipedia.org/wiki/Tata_Group

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