If you are part of a diversified company, when do you giveup hope on fixing a broken business?

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Q: If you are part of a diversified company, when do you giveup hope on fixing a broken business?

– Ron Adner, Fontainebleau, France A: Big companies hold onto failing businesses for all kinds of reasons: sentimental value, false hope and culture, to name just three.

For many decades in Japan, for example, every business was treated like a shrine – untouchable. Similarly, citing “tradition,” Pan Am sold off its profitable hotels business in the mid-1980s and kept its struggling airline business.

We all know the end of that story: By 1991, Pan American World Airways fell apart.

In most cases, though, inertia is what stops companies from letting go of broken companies. It’s just so hard to sell an old operation – and so messy. After all, getting rid of a fixer-upper takes patience and often the willingness to take a loss. Who in his right mind has the time or wherewithal for that?

Which is why letting go of a business has to be a corporate discipline for it to happen at all. Companies should only keep trying to fix businesses as long as they serve a strategic purpose. And they should face reality and “give up hope,” as you put it, as soon as they don’t. Look, there will always be times when companies will pour money into a floundering business to establish a position in a developing country.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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