One of the most frequently asked questions in our Business Acumen training sessions is about large
companies selling off business units or brands. It inevitably happens after a discussion on frameworks of strategy where we share that the most successful companies on the planet choose a strategic value proposition to their customers, execute it flawlessly, and most of all, stick with it over time.
After the introduction of the framework, the typical question sounds like this, “Hey Rob, so if I understand this correctly, the best companies look at their entire portfolio and have the same value proposition for each business unit or brand? Do they have to? You see, here at XYZ Corporation, we have one business unit that is the Product Leader and has the most innovative products, another that is all about great customer service, and a third that competes as a value brand on price. Oh, but sometimes that is switched around based on region.”
What could possibly go wrong with a business strategy like that, I say.
Which brings me to today’s news that Kraft Heinz is exploring the sale of its Oscar Mayer business. Oscar Mayer is world renowned for meat and its biggest seller of the good old Oscar Mayer wiener. The reason? Kraft Heinz is reconfiguring its portfolio to target a more health-conscious, nutritious consumer and unfortunately, hot dogs and other processed meats don’t fit that goal.
The Business Acumen Lessons
In several of Advantexe’s more sophisticated business simulations that are part of a business acumen learning journey, we give participants the opportunity to sell off a business unit that no longer fits their strategy. Fresh from the classroom, here are 7 lessons to think about:
Divesting a business unit that no longer fits with the overall strategy or core competencies of a company can offer numerous benefits. Here are some of the primary benefits:
Financial Impact
- Immediate Cash Influx: Selling a non-core business unit can provide a significant amount of cash that can be reinvested in more strategic areas or used to pay down debt.
- Improved Financial Metrics: Divesting a less profitable or underperforming unit can enhance overall financial performance metrics such as return on assets (ROA) and return on equity (ROE).
Strategic Focus
- Enhanced Core Competencies: Divesting allows a company to concentrate resources and management attention on its core competencies and strategic priorities, potentially improving overall performance.
- Streamlined Operations: Removing a misaligned unit can lead to more streamlined operations and better organizational coherence.
Operational Efficiency
- Reduced Complexity: Selling a non-core unit can simplify the organizational structure, reducing managerial complexity and administrative overhead.
- Cost Savings: It may lead to cost savings by eliminating redundancies and focusing on more efficient operations within the remaining business units.
Wall Street Perception
- Improved Investor Confidence: Investors often view divestitures positively, especially if the sale demonstrates a commitment to focusing on high-growth or high-margin areas.
- Stock Price Boost: The market might respond favorably to a well-executed divestiture, leading to a potential increase in stock price.
Resource Allocation
- Better Capital Allocation: Proceeds from the sale can be reallocated to more promising investments, research and development, or other strategic initiatives.
- Talent Optimization: Key personnel and managerial talent can be redirected from managing the divested unit to areas where they can add more value.
Risk Management
- Reduced Risk Exposure: Divesting a unit that operates in a high-risk sector or is underperforming can reduce the overall risk profile of the company.
- Focus on Stable Areas: It allows the company to focus on more stable and predictable areas of its business, potentially leading to more consistent performance.
Enhanced Growth Potential
- Focus on High-Growth Areas: Freeing up resources allows the company to invest in areas with higher growth potential, enhancing long-term prospects.
- Innovation and Expansion: The company can use the capital and focus gained from divesting to innovate and expand in its core markets.
In summary, selling a business unit that no longer aligns with the company's strategy and goals can lead to improved financial health, greater operational efficiency, and a more focused and agile organization, ultimately positioning the company for sustainable long-term growth and most of all increased shareholder value.
