Slimming Down to Compete Against the Focused and Fleet-Footed
From the largest consumer product firms to the biggest global banks, companies are slimming down to focus on their core businesses. Those that succeed can more effectively channel their resources to compete against fleet-footed competitors unencumbered by distracting businesses and product lines, or slowed down by legacy IT systems.
For example, in July, consumer products giant Procter & Gamble (P&G) decided to sell off 43 beauty product brands to Coty Inc. in a transaction worth $12.5 billion. 1 After spending $80 billion over two decades building up a high-profile portfolio, P&G concluded that those fashionable brands were a distraction. “We start thinking we are a beauty company and we spend all our time at the Oscars or the Grammys or in Fashion Week … and we don’t stay focused on the consumer,” CEO A.G. Lafley said about the move.2
Similarly, HSBC, the $55 billion global bank based in London, announced in June that it would focus on Asia (where 78 percent of its 2014 pre-tax profits came from), cut annual costs by up to $5 billion, and shrink its 250,000-person workforce by nearly 20 percent.3 “We recognize that the world has changed and we need to change with it,” Stuart Gulliver, HSBC’s CEO, said in the bank’s announcement.4
Indeed, the business world is rapidly changing, and the signposts are everywhere. For example, in the blink of an eye, about 100 venture capital-funded companies such as Uber, Snapchat, and Spotify have built billion-dollar businesses in this decade.5 China has surpassed Japan as the world’s second largest investor in R&D, and at its present rate could pass the U.S. by 2022.6 Marketing everywhere is increasingly digital. Some 11 percent of 2015’s nearly $600 billion global advertising spend will appear on mobile phones, and 29 percent of total ad outlays will go through digital channels.7
Major changes such as these are making life difficult for companies burdened by complexity—too many products, too many aging business processes, and too many legacy systems supporting those products and processes. As a result, a growing number of companies have embarked on major programs to weed out products, processes, and technologies that are distracting them from their core businesses. We call these initiatives ‘business simplification.’