Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!news.media.mit.edu!americast.com!americast.com!usa-post Newsgroups: usa-today.bonus,americast.usa-today.bonus From: usa-post@AmeriCast.Com Organization: American Cybercasting Approved: usa-post@AmeriCast.com Subject: bonus Tue, Oct 20 1992 Date: Tue, 20 Oct 92 04:35:16 EDT Message-ID: 10-20 0000 BONUS: Companies focus on key division USA TODAY Update Oct. 20, 1992 Source: USA TODAY:Gannett National Information Network Over the rocky course of the last three decades, corporations by the thousands worshiped at the altar of diversification. Not anymore. There's a revivalist movement under way that has a simple central tenet: Focus on thy core business. Companies are jettisoning subsidiaries and divisions at a record pace to comply. One of the most visible converts is Sears, which is selling most of its non-retail firms - including the Dean Witter Financial Services Group - to return to its retailing roots. Sears' move mirrors actions at Kodak, Du Pont, USF&G, Xerox and dozens other multinationals. WHY ARE COMPANIES MAKING THE MOVE? A number of factors, including the complexity of juggling unrelated businesses, is luring firms back to the fold. But in most cases, the guiding force has been the recession. "Clearly, in difficult times, people are inclined to focus on what they do best," says Edwin Artzt, chairman at Procter & Gamble. "These are the times when companies focus on their core businesses - especially if their non-core businesses aren't profitable." HOW ARE COMPANIES FOCUSING? Companies are either selling business lines outright, spinning them off or entering into joint ventures that are managed by an independent team of executives. In the first nine months of this year, U.S. companies have announced 785 divestitures valued at $31.9 billion, a jump from 653 divestitures valued at $24.4 billion in the same period last year. HOW ARE THE SPINOFFS HANDLED? In a classic spinoff, a company distributes shares in a subsidiary to its current shareholders. In some instances, a company sells shares representing a portion of a subsidiary to other investors in the open market. This year alone, more than 40 classic spinoffs are planned or have already taken place - six times the average for an entire year, says Barbara Goodstein, managing director of The Spin-Off Report. WHO IS GETTING BACK TO BASICS? Last week, Xerox announced the sale of its Van Kampen Merritt money-management subsidiary for $360 million. The unit was purchased in 1984, during the heyday of the financial services sector: Its sale will allow Xerox to focus more effort on making copiers and printers. Xerox says it will leave any financial-services segment that doesn't return at least a 15% on equity annually. Ford has unloaded its aerospace subsidiary, put most of its tractor and agricultural implements business into a joint venture, and sold its Rouge Steel division to focus on cars and financial services. WHAT ABOUT DU PONT? Du Pont is selling its electronic divisions and abandoned a 20-year effort to go it alone in pharmaceuticals by forming a 50-50 joint venture with drugmaker Merck. Du Pont will focus on its core: fibers, polymers and chemicals. American Brands, a tobacco and liquor producer, has divested itself of scores of companies, including Pinkerton Guards and Sunshine Biscuits. WHAT IS KODAK FOCUSING ON? Eastman Kodak is trying to get out of 10 information services and technology companies, including Federal Systems, which conducts secret research and provides high-tech equipment to the federal government. Kodak wants to refocus on its bread and butter - imaging and photography. USF&G has been busily trimming financial-services arms. Since 1991, it has gotten rid of divisions and subsidiaries with combined annual revenue of $550 million. WHY IS ALL THIS HAPPENING NOW? All this activity comes on the heels of three decades of empire building. The 1960s and 1970s were the heyday of conglomerate builders such as former ITT chief Harold Geneen. The strategy of entering unfamiliar business fields was pursued with evangelical zeal. The 1980s was the era of merger mania, in which company after company gobbled up firms predominantly in the same industry. HOW HAS THE ACTIVITY CHANGED? This year, flagging profitability and shareholder pressure have drawn many companies back to basics, as was the case with Sears, whose retailing base declined dramatically while financial services performed robustly. In other cases, companies are recognizing that they don't have the resources to fight on several fronts at the same time. "Managers are now coming to the conclusion that, `Our traditional businesses may not have been very attractive, but at least we understood what the businesses were,' " says C.K. Prahalad, who teaches corporate strategy and international business at the University of Michigan. WHAT WERE THE CHANGES IN THE '80S? In the '80s, USF&G diversified aggressively into real estate and financial services. The company's management hoped that, as insurance was smacked by its normal cyclical downturns, real estate and financial services would pick up the slack. That didn't happen and CEO Norman P. Blake Jr., who came to USF&G late in 1990, has been busy hacking away USF&G's financial empire. Entities related to leasing, travel services and asset management were jettisoned. IS THE BACK-TO-BASICS MOVEMENT GOOD OR BAD FOR U.S. INDUSTRY? Definitely a positive, argues Prahalad. "There's a lot of deep introspection in American industry, and serious thought as to the nature of competition, as well as introspection about the role of senior management," he says. Companies that retreat to core businesses are apt to be better focused, will invest more time and money in specific areas and, ultimately, should become more profitable, Prahalad says. WHEN DID THE BACK-TO-BASICS STRATEGY START? American Brands started pursuing a back-to-basics strategy in 1986, before the trend became fashionable. American Brands is abandoning the food industry and other businesses to focus on five things: home improvement, office products, distilled spirits, tobacco and life insurance. Since it began moving back toward basics, shareholder dividends have increased 218%. HOW DO COMPANIES GO ABOUT DUMPING THE SPINOFFS? Corporations looking to unload divisions must do so carefully, because it's a difficult time to get good value for good companies, warns American Brands CFO Arnold Henson. His company has divested "in a very careful and orderly manner," Henson says. Bob Waterman, co-author of In Search of Excellence, says this retreat to core businesses - like the leveraged buyout craze of the 1980s and the conglomerate-building of the 1960s and 1970s - is largely a waste of time. WILL THIS TREND CONTINUE? But, once the economy recovers, the back-to-basics movement could give way to another shopping spree. Companies will "start imagining things, they'll start extrapolating curves and they'll start (looking for businesses) that are the wave of the future," says Robert Sobel, a professor of business history at Hofstra University. "And they'll want to ride the wave." Bonus Editor: Kate Coughlin. (1-919-855-3491) Making copies of USA TODAY Update (Copyright, 1992) for further distribution violates federal law. This article is copyright 1992 Gannett News Service. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. 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