More than 60 percent of global GDP is produced by businesses operating in either multiple industries, multiple countries, or both. A new program from Harvard Business School (HBS) Executive Education, Building and Sustaining Value Across Markets, helps executives formulate and execute successful diversification strategies. In this interview, faculty chairs Juan Alcacer, David Collis, and Raffaella Sadun explain the goals of the program and what participants can expect.
Juan Alcacer: Many businesses diversify because diversification—horizontal, vertical, or geographic—can help a company grow profitably while reducing risk. For example, if one business line is having problems, another might be doing very well. If conditions in one country are unfavorable, the company can invest in another geography. In addition, companies typically have resources that can deliver value in multiple businesses or in multiple geographies. However, despite this considerable opportunity, more than half of these businesses are actually destroying value instead of creating it.
JA: Many firms lack a coherent, structured approach to working with a complex business portfolio. To understand the complexity, consider Ben and Jerry's ice cream in the U.S. That started out as a relatively simple business with one brand. If you managed that company, you needed to think about how to produce your product, how to source your ingredients, who you’re competing with, and how to go to market. Today, Ben and Jerry's is a wholly owned subsidiary of Unilever, which is a global company with more than 400 brands, doing business in 190 countries. That's a different animal. When multiple industries and multiple countries are involved, the complexity is enormous and difficult to manage.
David Collis: Over time, a complex business can become overdiversified if it lacks strategic discipline and focus. That’s just one way these types of businesses destroy value. Another common reason is based on geography: Many multinational corporations make more money in their home countries and don’t maximize the opportunity elsewhere because taking a business across borders is quite challenging.
JA: This program helps leaders understand the challenges and opportunities inherent in doing business across markets. It helps them design better strategies for creating and sustaining value, and growing their businesses profitably through various types of diversification. It also provides new ways to think about and capitalize on trends that are changing the strategic landscape. Finally, it helps companies analyze and manage the various kinds of uncertainty that are the new normal in today’s business environment.
DC: Conglomerates and multinational firms have existed for decades, but business conditions are different today, and companies are seeking new kinds of diversification. How can they make innovative strategic moves in completely new markets? How can they avoid typical mistakes in traditional areas where the fundamentals haven't changed? Our program provides frameworks that can help strategists make better decisions in both situations.
DC: HBS Executive Education offers a number of strategy programs, but Building and Sustaining Value Across Markets is uniquely focused on the challenges facing more complex companies. We assume participants are familiar with the basics of competitive business strategy as we focus on how to approach multibusiness and multinational strategy.
Rafaella Sadun: This program is also different because it goes beyond formulating strategy. To execute effectively, leaders need to structure their multibusiness or multinational organizations in ways that support the strategy. We help them understand the necessary transformation and then make it happen.
DC: The program is designed for executives from any company that is operating across industries or countries today, such as large conglomerates or multinationals. But it's also appropriate for businesses of all sizes that are seriously contemplating an expansion strategy involving horizontal, vertical, or geographic diversification.
JA: Participants range from CEOs, CFOs, and chief strategy officers to other corporate leaders who are involved in strategy or are being promoted into one of those roles. The program will also be helpful for business unit heads, regional managers, or country managers who want to gain a greater understanding of strategy at the corporate level. Functional leaders whose responsibility crosses units–such as those working in strategy, finance, or international operations–will benefit as well. Finally, the program is appropriate for executives at private equity firms who are involved in strategy for their portfolio companies.
RS: This is an intensive week, in which executives get outside their own company and their typical ways of thinking. They are immersed in an exciting exchange of ideas with HBS faculty and executives from other industries and countries. Through the cases—many of which we have developed specifically for this program—we'll introduce issues that complex companies face, and explore new ways to address corporate and global strategy. In addition, participants will work in small groups on a special topic of interest to them. We’ll also learn from guest speakers, who bring new perspectives on topics related to diversification.
JA: We address many aspects of value creation, but one of the key areas is identifying a source of advantage—a corporate resource—that can be used in many different ways. Our canonical example is Disney's Mickey Mouse. This character started in a film and grew as a resource to uses such as theme parks. But Disney now has Star Wars—so you have a Mickey Mouse dressed like Luke Skywalker. In other words, you started with one use of Mickey Mouse, and now you have several uses. One question every company has to answer is: What is your Mickey Mouse?
DC: We also discuss the scope of the corporation. What businesses should we be in? How do we monitor that portfolio, so we’re in the right businesses? How do we merge and acquire new businesses in a new industry? When do we divest? How do we change the geographical footprint of our operations? Do we close a plant? Where should we move our offices, bearing in mind geopolitical changes?
RS: In addition, we look at the role of organizational design. Should the company be organized by functions, by regions, by types of industries? What should be the relationship between the headquarters and subsidiaries? How does a company build effective teams with people coming from different industries, countries, and cultures?
JA: In the program, we talk about how today's businesses operate in a VUCA world—one that is volatile, uncertain, complex, and ambiguous. Uncertainties affect every aspect of both global strategy and corporate strategy. We help executives understand the kinds of uncertainty they need to manage. We prepare them to identify specific sources of uncertainty, classify them, follow them across time, and then act to either create value or minimize value destruction. Uncertainty creates risk, but it also creates opportunity. We help executives manage the risk and also take advantage of the opportunity.
RS: As Juan says, this uncertainty affects both the strategy and the organization. Leaders have to transform the organization from time to time to align with the strategy and the overall environment. If a company can get all of these different aspects—organizational structure, processes, ecosystems, partnerships, core resources, and so on—aligned in a consistent way, that creates corporate advantage and more shareholder value.
JA: Globalization contends against an upward trend in nationalism. Governments are working to drive advantage for their own industries. Given these trends, leaders need to adjust their thinking around global markets, supply chains, and operations to optimize costs and revenue. On the one hand, they may have to adjust supply chains and relocate activities. On the other hand, new types of opportunities are also emerging. We explore both the challenges and the opportunities created by these trends.
JA: We discuss how technology is disrupting many different industries, challenging incumbents and creating opportunities for new business models and new ways for businesses to work together. We explore how technology can be a source of competitive advantage. For example, a company with many units around the globe can benefit from new technologies that bring the company closer together—and closer to customers and suppliers.
DC: Technology has enabled companies to be much more connected in ecosystems that support value creation. We discuss how companies can effectively create ecosystems with other firms, manage the relationships, and maximize their share of the value created.
RS: While this is a strategy program, we want participants to be able to get to the next level—execution of that strategy. We help them choose the right organizational structure, enable effective multicultural teams, design the right business processes and systems, and build out the right functions at the corporate level. Looking ahead, we prepare them to keep an eye on trends in the business environment, so they know when and how to shift gears and transform the organization.
JA: We provide executives with tools to address the challenges of designing and managing very complex organizations. These are generally matrix organizations, and anyone who has been part of a matrix organization knows that it’s not easy—you have many different bosses and different tensions, but you need that kind of organization in order to coordinate across different areas. We provide some concrete, practical ways for executives to tackle these issues when they go back to their companies.
