How to (Gradually) Become a Different Company [HBR] Hult Blog

A number of recent headline-grabbing announcements of divestments and split-ups by companies such as HP (spinning off its PC and printer businesses), GE (the sale of its appliances business to Electrolux), Bayer (the flotation of its MaterialScience chemicals business), and Royal Philips (its separation into two autonomous companies, Lighting and HealthTech) are putting the spotlight again on the phenomenon of â€Å"core shifting†: how a company, through a sustained process of acquiring and divesting assets, changes the mix of its business portfolio and thus purposefully shifts the core of its activities. PPG (originally â€Å"Pittsburgh Plate Glass†) is a splendid example of such a transformation. The US-based company used to be a diversified industrial group, with activities in all types of glass, chemicals, paints, optical materials, and biomedical systems. Through a raft of acquisitions and divestments since the early 1990s, it has transformed into a focused world-leading coatings manufacturer with $15 billion in sales. Since 1995, when glass and coatings each accounted for about 40% of sales, the split has evolved to 93% coatings and 7% glass today. What makes such a transformation successful? From our analysis of a number of core shifts and conversations with the CEOs who have undertaken them, we have drawn five keys to success: 1. Allow time and persevere. Pulling off a core shift takes many years, if not a decade, as PPG and other companies have shown. For example, it took Umicore, a global materials technology group, five years (2002–2007) to lay the basis for its transformation from a commodity supplier of base metals into a premium provider of emission control catalysts, rechargeable battery materials and other value-added solutions. It initially lost about half of its revenues by divesting its copper and zinc smelting business, but by 2010 it had quadrupled its revenues to â‚ ¬2 billion through a combination of acquisitions and organic growth. A core shift takes time for several reasons. First, such transformations consume resources, both financial and human. A company needs the financial firepower to make the required acquisitions on top of the capital investments in its ongoing business. Even more important, it takes management time to align all teams, including those of the acquired businesses, to the transformation initiative. Second, finding value-creating acquisition and divestment opportunities requires patience. Third, some stakeholder groups may want to see confirmation of the positive impact of a given move before consenting to continue on the chosen path. 2. Be clear about the destination, yet flexible about the path. To keep all stakeholders aligned over the course of the transformation, the company’s executive team should be clear and unrelenting about the vision of its future and the rationale thereof. Consider Eaton, which used to be a manufacturer of vehicle components such as axles and transmissions. During the past two decades it has transformed into a provider of electrical, hydraulic, and mechanical power management solutions. Throughout this period it has been communicating regularly about its leitmotif of becoming a diversified company with more consistent earnings. Accordingly, it has systematically published figures about the evolution of its business portfolio in terms of sales by segment (e.g., vehicles decreasing from 40% of total in 2000 to 17% in 2013), by destination (e.g., the U.S. from 80% in 2000 to 50% in 2013), and by exposure to the economic cycle. While the overall desired direction of the transformation should be clear, the actual path to get there is unpredictable. The executive team should not commit to specific moves, as factors outside of their control might require a change of plan. For example, the company may have identified the perfect acquisition target, but be outbid by a rival. Or the economic cycle may suddenly turn and thus make it impossible to divest an activity as planned at a fair price. What is important is to create options and exercise them as the right opportunities arise. 3. Go for the occasional mega-acquisition. Acquisitions are part and parcel of a transformation. While the number may vary from one year to the next, companies such as PPG and Eaton have been acquiring on average one company every quarter for the last two decades. Having said that, what really gives traction to a core shift is the occasional mega-acquisition that is emblematic of the vision and that catapults the company forward. For example, Umicore’s 2003 acquisition of PMG increased its revenues by 50%. Eaton’s acquisitions of Westinghouse’s distribution control business (1994), Aeroquip-Vickers (1999), and Cooper (2012), increased revenues by roughly one-third with each addition. Of course, it takes time to digest such acquisitions and restore the company’s financial firepower, which often results in a transformation pattern in which a period of consolidation follows a period of acceleration. 4. Communicate consistently and transparently. Clearly communicating about the vision and its rationale is crucial to keeping everyone committed, whether they’re employees or external analysts. Particularly important are the managers and staff of businesses that have been earmarked for divestment. Clear, open, and up-front communication about the company’s intention and the rationale thereof is essential to keep them motivated and prevent value destruction. Their business should not be labeled a â€Å"cash cow† or a â€Å"problem,† and their staff must not feel second-class. The message is that the divestment should be beneficial to the business concerned, as its future owner normally will see greater opportunities to create value than its current owner does. The best way to demonstrate the veracity of that message is to continue to do business as if the divestment decision had not been taken, i.e., continue to recruit, invest, and even acquire smaller ent ities that strengthen the value of the business to prospective buyers. 5. Safeguard the short-term performance of the ongoing business. While MA transactions absorb much of senior management’s attention and attract great interest from financial analysts and the business press, the company’s operational performance will ultimately make or break the transformation. If short-term performance slips, pressure will mount and stakeholders will question, rightly or wrongly, the pertinence and/or viability of the long-term transformation. The experience of Chiquita Brands International provides a case in point. Some 10 years ago, the company embarked on a transformation that was meant to reduce the exposure to the volatility and asset intensity of the legacy banana business by shedding ships and farms on one hand, and by acquiring and developing branded healthy snacks on the other hand. However, a significant decrease in profitability and free cash flow over time led the company to change course in 2012 and return to the former core of branded commodity produce, under the leadership of a new CEO. As is always the case with tips, use them wisely, as fits best. They may not all be applicable in the same way and to the same extent at every company. But when it comes to shifting your business’s core, it usually pays to be tenacious, visionary, bold, transparent, and results-oriented. This article was written by  Herman Vantrappen and Hult Professor Daniel Deneffe, for the Harvard Business Review Blog Network and originally published on the Harvard Business Review Blog network. Global Webinar: ‘Innovate or die – Redefining strategy for the innovation economy’, Mike Grandinetti, Hult Professor of Entrepreneurship, Innovation, Management, and Marketing Grow your leadership capabilities with an MBA in international business at Hult. To learn more, take a look at our blog Hult ranked Hult Rotation offers you a chance to study in a truly global way. Our rotation program allows you to study and be immersed in some of the finest cities in the world. 📠¸: @jasminmanzano . Hult Rotation offers you a chance to study in a truly global way. Our rotation program allows you to study and be immersed in some of the finest cities in the world. 📠¸: @jasminmanzano . Each year, Hult seeks to enroll a talented and ambitious incoming class from all over the world. We look for diverse students with a wide range of experiences, perspectives, and interests—students who will thrive in our unique educational atmosphere. Are you ready for a truly global experience? 📠¸: @iambrunadiniz . Each year, Hult seeks to enroll a talented and ambitious incoming class from all over the world. We look for diverse students with a wide range of experiences, perspectives, and interests—students who will thrive in our unique educational atmosphere. Are you ready for a truly global experience? 📠¸: @iambrunadiniz . We’re excited to start 2020 on a ranking high! Hult is proud to have been placed #28 in Poets Quants 2020 rankings for Best Undergraduate Business Schools in the US. Taking a huge leap of 32 places from our 2019 position, we’re also very happy to have secured top positions in key categories like: life-changing experience, practicality of the degree, and global immersion. . With five global campuses, a student body of over 130 nationalities, and a learn-by-doing approach—Hult offers a student experience like no other. . We’re excited to start 2020 on a ranking high! Hult is proud to have been placed #28 in Poets Quants 2020 rankings for Best Undergraduate Business Schools in the US. Taking a huge leap of 32 places from our 2019 position, we’re also very happy to have secured top positions in key categories like: life-changing experience, practicality of the degree, and global immersion. . With five global campuses, a student body of over 130 nationalities, and a learn-by-doing approach—Hult offers a student experience like no other. . â€Å"I’m from an engineering background and needed a whole new skill set for the industry I wanted to switch to. I learned a lot about myself and how I deal with being out of my comfort zone. I learned both soft and hard skills, from how to work in very diverse teams to key accounting metrics and strategy. I was surprised by how weak I was at certain tasks in English or how strong I actually was in other areas. Hult gave me opportunities to try new things and meet people from places I never thought I would have friends. . My internship experiences gave me the chance to broaden my view of different cultures and different companies. I had the opportunity to work and live with people whose values differed from people in my home country. I thought that this would be difficult, but it gave me the chance to reflect on my own values and assess if they were a result of my home country environment or if they were intrinsically mine. . Diederick ter Kulve (@diederick.terkulve) Netherlands Masters in International Business . â€Å"I’m from an engineering background and needed a whole new skill set for the industry I wanted to switch to. I learned a lot about myself and how I deal with being out of my comfort zone. I learned both soft and hard skills, from how to work in very diverse teams to key accounting metrics and strategy. I was surprised by how weak I was at certain tasks in English or how strong I actually was in other areas. Hult gave me opportunities to try new things and meet people from places I never thought I would have friends. . My internship experiences gave me the chance to broaden my view of different cultures and different companies. I had the opportunity to work and live with people whose values differed from people in my home country. I thought that this would be difficult, but it gave me the chance to reflect on my own values and assess if they were a result of my home country environment or if they were intrinsically mine. . Diederick ter Kulve (@diederick.terkulve) Netherlands Masters in International Business . Say a big hello to our Bachelor of Business Administration program cover star, Elisa Orus Plana âÅ" ¨ . â€Å"I’m excited for the future—especially that I cant predict whats going to happen. Maybe Ill end up in Mexico working for a trading company or maybe in Africa, developing my own business. Everything is possible, and the options are constantly changing. I love the idea that Im never going to be stuck doing the same job until the end of my life if I dont want it to be like this. . Hult really supports me and my ambitions and truly believes that we deserve to be considered as professionals as well as students. Here, I get to express not just my opinions but all elements of myself. From my creative side with the Fashion Society to my finance and business sides in Trading Club and the Management Consulting Club. We get a different type of learning here. Not just essential knowledge and theory, but practical skills and mindset. The school is always evolving. We’re encouraged to innovate and to always look for new ways of doing traditional things. We learn how to be more confident and become aware of how we can impact our environment. The school aims to help you become a better version of yourself and to stand out from the crowd.â€Å" . Elisa Orus Plana French Bachelor of Business Administration Class of 2021 Say a big hello to our Bachelor of Business Administration program cover star, Elisa Orus Plana âÅ" ¨ . â€Å"I’m excited for the future—especially that I cant predict whats going to happen. Maybe Ill end up in Mexico working for a trading company or maybe in Africa, developing my own business. Everything is possible, and the options are constantly changing. I love the idea that Im never going to be stuck doing the same job until the end of my life if I dont want it to be like this. . Hult really supports me and my ambitions and truly believes that we deserve to be considered as professionals as well as students. Here, I get to express not just my opinions but all elements of myself. From my creative side with the Fashion Society to my finance and business sides in Trading Club and the Management Consulting Club. We get a different type of learning here. Not just essential knowledge and theory, but practical skills and mindset. The school is always evolving. We’re encouraged to innovate and to always look for new ways of doing traditional things. We learn how to be more confident and become aware of how we can impact our environment. The school aims to help you become a better version of yourself and to stand out from the crowd.â€Å" . Elisa Orus Plana French Bachelor of Business Administration Class of 2021"> During the final days of 2019, you probably reflected on what you’ve accomplished this year—and even this decade—and what you’d like to achieve in 2020. Let us know in the comments below. During the final days of 2019, you probably reflected on what you’ve accomplished this year—and even this decade—and what you’d like to achieve in 2020. Let us know in the comments below. â€Å"The first time we did group work on the program, I went head-to-head with a colleague. It taught me a lot about how I see people, how people see me, and how conflict can be resolved in a kind and productive way. The best feedback you get, when delivered constructively, is the most critical because it really feeds into how you lead. I’ve completely reversed my leadership style—the result is so much richer and more powerful when you lead from behind and lead with strength. . Studying in tandem with working, whilst challenging, gave me the perfect platform to directly apply learning concepts into my business environment, the competitive landscape, and the real-estate industry as a whole. When I started the program, I was very happy in my corporate role. But my courage and aspirations grew to the point that I took on a whole new direction. Having my career coach, Joanna, as a sounding board allowed me to really be strategic and get to know myself. She coached me thro ugh all the interviews, the research, and the questions. It went in parallel with what I was doing academically and after six months everything just clicked. . I went into the EMBA knowing I had nothing to lose and I’ve come out with everything. Great strength, global friends, amazing learning, mentors from professors, a job I love, and the knowledge that I can set my mind to achieve anything and with the right support and resources I’ll get there.† . Kashani Wijetunga British, New Zealand Sri Lankan Associate Director Senior Strategy Consultant CBRE EMBA Class of 2019 . â€Å"The first time we did group work on the program, I went head-to-head with a colleague. It taught me a lot about how I see people, how people see me, and how conflict can be resolved in a kind and productive way. The best feedback you get, when delivered constructively, is the most critical because it really feeds into how you lead. I’ve completely reversed my leadership style—the result is so much richer and more powerful when you lead from behind and lead with strength. . Studying in tandem with working, whilst challenging, gave me the perfect platform to directly apply learning concepts into my business environment, the competitive landscape, and the real-estate industry as a whole. When I started the program, I was very happy in my corporate role. But my courage and aspirations grew to the point that I took on a whole new direction. Having my career coach, Joanna, as a sounding board allowed me to really be strategic and get to know myself. She coached me thro ugh all the interviews, the research, and the questions. It went in parallel with what I was doing academically and after six months everything just clicked. . I went into the EMBA knowing I had nothing to lose and I’ve come out with everything. Great strength, global friends, amazing learning, mentors from professors, a job I love, and the knowledge that I can set my mind to achieve anything and with the right support and resources I’ll get there.† . Kashani Wijetunga British, New Zealand Sri Lankan Associate Director Senior Strategy Consultant CBRE EMBA Class of 2019 . â€Å"It was now or never. I knew that I’d have likely stayed in my neighborhood for years to come if I didn’t take this opportunity. I’d not lived or studied outside of the U.S. before. So I left my job as a global strategist at an advertising agency and moved halfway around the world. I’ve come back a more culturally aware, well-versed person. I’ve realized that everything is a learning experience and an opportunity for growth. Ill definitely carry this mindset with me into the future. Technology and social media allow us to be different people in several places at once. Im excited to see how I can establish myself in whatever city Ill be lucky enough to call home and still maintain deep connections with people all over the world. I’m inspired by my classmates every day. Hearing some of their life stories and how getting this degree fits into their greater mission has been very humbling. My biggest challenge has been finding the ‘right’ path for me. There have been rooms Ive felt like I shouldnt be in, but now Im proud to feel as though I truly belong, wherever I am.† . Dwayne Logan, Jnr. American MBA Class of 2019 . â€Å"It was now or never. I knew that I’d have likely stayed in my neighborhood for years to come if I didn’t take this opportunity. I’d not lived or studied outside of the U.S. before. So I left my job as a global strategist at an advertising agency and moved halfway around the world. I’ve come back a more culturally aware, well-versed person. I’ve realized that everything is a learning experience and an opportunity for growth. Ill definitely carry this mindset with me into the future. Technology and social media allow us to be different people in several places at once. Im excited to see how I can establish myself in whatever city Ill be lucky enough to call home and still maintain deep connections with people all over the world. I’m inspired by my classmates every day. Hearing some of their life stories and how getting this degree fits into their greater mission has been very humbling. My biggest challenge has been finding the ‘right’ path for me. There have been rooms Ive felt like I shouldnt be in, but now Im proud to feel as though I truly belong, wherever I am.† . Dwayne Logan, Jnr. American MBA Class of 2019 . Happy New Year, Hultians! . Happy New Year, Hultians! .