For large technology companies, size itself is a challenge. It is difficult to grow organically at 10 percent or more when you’re a $10 billion-plus company. Big companies can no longer rely on a single flagship product or market to generate sufficient growth. Nor can they turn to diversification as a market share cure-all. They must stay focused, and they must innovate.
Despite the challenges, the pressure to create more value never stops. Activist investor activity is up 25 percent, and the recent spate of actual and proposed corporate splits is proof that companies are eager to improve their market position by redefining their portfolios. But breakups aren’t the only way to respond to the pressure. M&A activity is also on the rise.
Companies need to deal with new market pressures proactively. Whether it means breaking up, acquiring, merging, creating new products or services, or finding other opportunities to invest or optimize, they need a systematic approach to creating value.
. The key is doing it proactively, before the market grows impatient and forces choices and trade-offs that may constrain your options.
- Resize. Companies facing stagnation or outright decline should consider resizing: splitting up, spinning off, or divesting one or more businesses. . You might exit businesses that no longer conform to your strategy. Or you might choose to augment your business to emphasize the areas with the greatest potential and alignment, either organically or through mergers and acquisitions.
- Reform. . This includes reducing costs through operational initiatives, improving the effectiveness of support functions, and refining the operating model for efficiency. If selling a business is part of the plan, a company could maximize its value by first honing its efficiency.
- Rejuvenate. Companies seeking the next level of growth are ripe for rejuvenation. Fueling growth might be as straightforward as instituting a new pricing model or go-to-market strategy. It might call for doubling down on R&D capabilities and innovation, or expanding alliances and joint ventures to extend market reach. Or it could call for a cultural transformation that creates a more agile company, with new skills portfolios and open-source innovation. A company might also focus on the people side by attracting and retaining talent who align with the new strategy. A renewed focus on people can help shape the culture to better fit a new generation of technical talent.