Runesta:
Sunfish that's utter crap. There are many examples of successful conglomerate approaches in the business world where corporations own many different areas or facets of business. The key to success is in how you manage the business.
I'm sorry, but it isn't "utter crap". There are many examples of conglomerates who
survive but none to my (or McKinseys) knowledge that produce returns commensurate with the assets employed
in the long term.
That, my friend, is why so many mergers and acquisitions go tits up. That is where the phrase "not a good organizational fit with our company" comes from as executives seek to explain why they are selling a business they paid $650 million for is now being sold for $200 million.
The reality is that each business is
different and that difference extends all the way to Board level. It is a fallacy to assume that all companies can be managed exactly the same way at senior level - they can't.
Then there is the idea of "synergies" which is BS, and its why Fosters is splitting its brewing and wine businesses. In theory there were "synergies" - they both use fermentation, glass bottles, and that is all they have in common. Remember Southcorp and Adsteam? - packaging, water heaters and wine? That was a classic case of a conglomerate mess.
The differences extend even to HR - how to attract, remunerate and hold a perhaps temperamental genius of a winemaker in a business whose HR practices are tailored to brewery staff? I speak from bitter experience. My first really, really senior management role was in a division of Email Ltd., a manufacturing company famously known for its penny pinching cost consciousness. I had to try an integrate a computer software business it had acquired by accident into its operations. It proved impossible because Email could not get its head around the idea that there were Twenty something kids who pecked at terminals,spoke Unix and needed to be paid a lot of money if we were to keep them.
To put it simply, the Board and Management of Jetstar need to be totally separated from the Board and Management of Qantas, and I mean really separated as in
ownership because over time they will want to go in diverging directions and keeping them handcuffed together (eg common aircraft types) just hampers both of them.
The economists worked out that conglomerates were a waste of money by about 1980 after the failure of some big ones. They reasoned that if I want exposure to the textile, aerospace and wine industry then I was better off buying shares in companies that specialised in each of those markets, not in one company trying to do all Three.
To put it another way, why doesn't Qantas sell,operate or hire Cessnas and Cirrus aircraft or start a business jet division? After all, they all have wings and fly? There must be "synergies" right?