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July 12, 2008

"Leave the one who bought you" (Tom Peters)

I am a big fan of the Financial Times and I often read the site when I'm on the road. Yesterday I ran through an article talking about how GE was planning to spin off (or sell) its appliances division. That in itself is not new. What is new is the addition of the lighting and industrial branches, severing all ties with the founding technologies discovered by Thomas Edison.

...GE said it would seek buyers for the division's appliances unit. While Jeff Immelt, GE's chief executive, had noted that "scaling up" a spin-off to include the lighting and industrial branches of the business was under consideration, he also said the appliances group had drawn inquiries from several potential bidders.(Read the
Just in case you live under a rock, GE's "new thing" (since about 15 - 20 years ago maybe) is services! Higher yield, high demand, and growing like a new sprout. They have finally seen the light and moved to terminate their lower profit / high work sections.

In fact in a recent interview I saw with Jack Welch on CNBC he commented that the best businesses to be in were low on technology, high on services. Fantastic!

And they aren't alone. I recall being absolutely shocked that IBM would dump it's computer business in favor of a service/consulting model. Particularly after the big ticket acquisition of PWC in 2002. I recall thinking that they had no idea what they were doing!!

Well, turns out that they did... and they are now the clear leaders in many fields of consulting, as well as developing an even continually greater presence through purchases such as Maximo (MRO Software) and Cognos. (The Business Intelligence tool set)

If you are consulting at the higher levels then this sort of advice needs to be a mainstay in your arsenal. And hard stuff it is to deliver also...

Picture United Utilities. A private water firm operating int he UK's regulated markets. Good industry, cashflows are guaranteed and underwritten by an official regulator, and most companies can look to around 7 - 9 % yearly returns. Not bad...

But they took it a step further. The took their IT department and spun it into a gigantic IT outsourcing arm called Vertex. This hugely successful venture was sold on for £217.5 million (About $434 USD approx) in a deal that included cash, debt and a few other triggers.

It then sold of fits Electrical Distribution assets to Northern Electricity in a deal worth £1.78bn, and recently sold off its Green Energy company for around £60 million.

So in the best entrepreneurial traditions,  here is a company that is actively building businesses, then either selling them off or spinning them off  for windfall cash injections.

But whats happening at the home base? The company was founded on the water, wastewater aned electricity businesses. One of these are gone, but the other two remain.

But probably the best reinvention of the lot is their drive into the field of outsourced services. Leveraging their experience in maintenance and operations of utilities to provide services for companies across the globe. Without a doubt this is their major growth area, leaving the utilities management as the day-to-day bread money generator.

A fascinating case study in what Tom Peters termed "Leave the one that bought you"

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