Disney, HP, Morgan

Disney, HP, Morgan Stanley – all companies experiencing executive turmoil, investor dissatisfaction and less than stellar stock performance. yet from very different industries.  Is there anything that these companies have in common that might explain their current troubles?  Most of the business press coverage focuses on CEO personalities, management styles, "culture" clashes and acquisitions that never lived up to their potential.  Analysts call for breaking up the companies to unleash hidden asset values.

These commentaries miss something more fundamental.  These three companies are great examples of once "excellent" companies that lost sight of what business they were in.  Each of these businesses were highly focused product or service innovation and commercialization businesses. They had perfected techniques for designing and introducing new products and services for clearly defined market segments they knew and understood well.  All three companies departed from this focus in the 1990’s and made significant investments designed to enter a completely different business – the customer relationship business.  Disney bought ABC, Morgan Stanley purchased Dean Witter and HP invested heavily in building enterprise marketing and sales capability (the Compaq acquisition was related to this broader investment thrust, but in a way that most analysts have missed.

The performance challenges confronted by these businesses can be traced to these choices.  Product innovation businesses and customer relationship businesses have completely different economics, skill set requirements and cultures.  My article on "Unbundling the Corporation" in Harvard Business Review in makes the case that these are incompatible business types that cannot co-exist successfully within a single corporation. By trying to straddle both, these companies found that they could not be excellent in either. All three of these companies have experienced significant turnover in senior management ranks over the past several months. This turnover will yield little in terms of turnaround unless the more basic issue is addressed and difficult choices made: what business are you really in?  If this question is seriously confronted, spin-offs will surely follow, but they may not be the kind of spin-offs that most analysts are anticipating.