Platt Perspective on Business and Technology

Acquisitions and divestitures 1: right-sizing and orienting for business strength and growth

Posted in strategy and planning by Timothy Platt on March 30, 2013

I have written on occasion in this blog about acquisitions, and the acquisition process, generally in combination with a discussion of mergers and about how both impact upon operations and strategy, or upon specific management or leadership issues (see for example, Transitioning into Senior Management: M&A Leadership Part 1 and Part 2.)

I have also repeatedly written about lean and agile operations and strategy, and on developing an organization for financial soundness and competitive strength according to a lean and agile approach (see, for example my series Virtualizing and Outsourcing Infrastructure, at Business Strategy and Operations as postings 127 and loosely following.) And as a significant part of that I have written about prioritizing for what a business does best and for what creates its defining value propositions and sources of strength. And I have written about the need for maintaining the right balance of resources needed for that, while identifying and limiting the organizationally disconnected and irrelevant that have come to serve more as cost centers than sources of positive value.

I have not, however, discussed divestitures per se, and the development of excess or disconnected resources as commoditizable market offerings that could be sold off as a route to their being cut away. Resources cut back upon should not necessarily just be discarded as write-offs for equipment, supplies and raw materials, or physical plant, or be downsized and forgotten for excess staff.

• What is strategically disconnected for one organization for achieving its goals and creating value, and strategically ineffective and wasteful to maintain, at least in-house, might be worth a great deal to another business that would see this as meeting its own direct high priority strategic needs.
• These now strategically disconnected resource bases can include what for the selling business would be considered unneeded physical resources, or organized and expertly trained teams that have been working with those physical resources and with proprietary business knowledge in doing so, or include some combination thereof. The point here is vitally important – what might be excess fat for trimming in one place and context might be gold and essential for maintaining competitive strength and business vitality elsewhere. For a combined-package commoditizable resource base with equipment, proprietary knowledge and trained staff, think of a business divesting itself of a complete coherently organized division or other organizational subsystem that no longer fits into its strategic planning or needs determination.

When viewed in this light, cutting out the extraneous and the strategically and goals-determined unneeded, should not just be about cutting back to an essential core of capabilities and somehow discarding everything else. It can also be about repackaging and selling, and as a path to gaining, or at least recouping value from investments made that would not simply be retained and continued in-house. And when done effectively and through best practices approaches this can generate very significant one-time revenue gains as well as enabling longer-term business collaborations and the forming of ongoing new revenue streams. I have only mentioned sales up to here but licensing and related options can be important here too.

1. This posting is a first installment to a new series in which I will discuss in at least some detail, what might be offered as a commoditized product and why, and
2. How specific resource selection for this would be determined, and how resources might be organized and bundled, and marketed for third party use.
3. Terms of use models have to be included here too and I will also address at least some of those issues, and
4. I will move on from a general discussion of the decision making and operational processes involved in divestitures to discuss two very different but important acquisitions and divestitures business models, where this type of divestiture product development and commerce flow based upon it can become a major source of ongoing revenue and even the primary source of incoming revenue for a business. One of these models, starting with the negative side of this overall phenomenon, is what I call the chop shop model (after businesses that “acquire” cars to dismantle them and sell them for parts). The other basic model focuses on creating overall systematic value, and generally that means unique sources of value for the acquiring companies. This, I call the value added model.

This is just a rough outline for what is to follow in this series, and I will be filling in more details to this starter contents listing as I go along. I am going to begin that process in my next series installment with point one of my above numbered list. Meanwhile, you can find this and related postings at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.

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