Despite frequent attestations that conglomerates are too big to be agile and too bloated to remain profitable, they are surviving, even excelling. This can be attributed to: the “deep-pocketed” effect, whereby they can fund new ventures and business lines; surprisingly real synergies, such as knowledge-sharing between two technology business lines to spawn a new one; and in emerging economies, centralized ownership under a family or individual, which can mean leadership has a greater capacity for risk-taking.
GE, Berkshire Hathaway, and India’s Tata were used as illustrative examples.GE has a pile of cash since carving out pieces of GE Capital (which still provides 30% of revenues), is expected to spin off its consumer lending business next, and is buying up medical companies (3 last month). Berkshire Hathaway’s pile of cash is churned out by its insurance business, so that it can buy up everything from newspapers to railroads.
I don’t consider either GE Capital or GEICO to be in industries that require them to innovate or adapt, in order to last. But the industries they are focusing on now (technology devices, newspapers, and railroads) are much more so. Let’s wait to see how these companies fare in their new enterprises before declaring either one a good example of how conglomerates are in fact well-positioned to outperform for the rest of this century.
I’ll also conveniently ignore Tata, which I don’t care to investigate more thoroughly.