Wednesday, November 13, 2013

The Return of the Conglomerates – In the times of Technology

Wikipedia defines a conglomerate as below: 
"A conglomerate is a combination of two or more corporations engaged in entirely different businesses that fall under one corporate group, usually involving a parent company and many subsidiaries. Often, a conglomerate is a multi-industry company. Conglomerates are often large and multinational."

Around the 1960s, the idea of conglomerates started becoming popular, and many large ones were formed as companies focused on expansion and diversification. But ideas like “focusing on core competencies” became popular and many organizations started divesting some of their businesses so that they could better focus on the others. We have some recent studies, like Leinwand and Mainardi’s “The Coherence Premium”, which reiterate that often companies that focus intensely on what they do best have higher earnings than those who don’t. But conglomerates are making a return, especially in the industries related to technology and technology services.

In May, 2011, Eric Schmidt referred to Google, Apple, Facebook and Amazon as the “Gang of Four”. These companies operate in multiple markets and industries, and are one of the most profitable companies, across all industries. They have developed a “technology based ecosystem” which touches these different industries and lets others build on top their plat forms, which further broadens the industries impacted.

Google started off as a search engine, but quickly developed capabilities to provide a platform to for advertisers, as well as content providers. They developed various productivity services like email and document manager, and also mobile applications. They developed operating systems for phones and PCs, and also started making the hardware. Social media features let them connect with more users, and they started providing digital content like books, music, movies and TV as well. Their services like maps are used in numerous industries like restaurant, hospitality, retail, heathcare, etc.

Below are just a few of the vastly varied competencies required if you are Google:
  • Understanding advertising metrics and measures
  • Creative and innovative product design
  • Robust and bug free software
  • Manufacturing knowledge
  • Digital partners’ management (book publishers, TV studios and movie studios – all of which have very different priorities)
  • Shipping

The list for Amazon or Apple would probably look very different, but be equally varied. Does it make sense for Google (or the others) to start divesting and focus solely on advertising and develop competencies only in that domain? Probably not. I guess not many traditional laws apply to these technology companies of the new generation.

References: Walton, Nigel (2013) The New Conglomerates and the Ecosystem Advantage. In: European Business Research Conference, 5-6 September 2013, Rome, Italy. (Submitted)

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