Industrial Conglomerates making way for Tech Conglomerates?
In 19th century, electricity helped companies like Siemens (using telegraphy to replace Morse code), GE (light bulbs, sockets etc) to grow into Industrial conglomerates. Both these companies and others, who followed in their footsteps, became conglomerates of electric power / machine-driven innovation.
In 1999, when Steve Jobs was still fiddling with iMacs, Fortune magazine proclaimed Jack Welch, then GE’s chief executive officer, the best manager of the 20th Century.
Few under the age of 30 would remember Kodak and fewer still would remember that General Electric Co. was once a model of corporate greatness. The old GE model is dead as proved by $100 billion wiped off GE’s stock market value in current year alone. With mounting cash-flow problems even the dividend is at risk of being cut. The last time GE chopped the payout was in the Great Recession — and before that, the Great Depression.
At its peak, GE led the thinking for everyone in the Industrial sectors with terminology such as Six Sigma quality control, strict performance metrics, management boot camps, business analytics and more. The goal for conglomerates like GE, Siemens and others was to acquire businesses in different sectors and be either No. 1 or No. 2 in its industry. By the time Jack Welch retired, in 2001, GE’s market value had soared from less than US$20 billion to almost US$400 billion. Now, John Flannery, GE’s new CEO, is struggling to win back the trust of anxious investors. On Monday he is set to detail his turnaround plans and has said he’ll consider every option – possibly ‘de-conglomerate’.
The industrial conglomerate model has fallen sharply out of favour on Wall Street. Today, electricity is replaced by internet as growth driver. Companies powered by Internet, compete and dominate the digital age, resembling similar strategy of last century.
Google reorganized under new company Alphabet, to reach well beyond its original mission “to organize the world’s information.” Self-driving cars, longevity, and other similar ventures. Apple is also moving towards similar path by growing beyond iPhones and Macs. Facebook has amassed a collection of tangential businesses—Instagram, WhatsApp, Messenger, Oculus VR. Alibaba has seemingly entered every conceivable digital industry in China.
By managing these far-flung endeavors separately, these giants are guarding against the same kinds of changes that made them big in the first place. In other words they are learning from the mistakes of eBay, Yahoo, Microsoft, and others that made big bets and acquisitions, only to fold them into a declining core business.
As they say history repeats itself. I’m just watching the “wheels go round and round”