"...that's all you need in life, is a little place for your stuff, ya know?"
In his classic and truly genius comedic skit, George Carlin highlights our absurd proclivity to acquire and then have to store our "stuff." In the U.S., the overwhelming amount of stuff has given rise to the storage industry which now supplies us with an extra 2.3 billion square feet of space to keep our belongings. Like our houses and garages aren't large enough?
Our own family recently accepted a mission to get rid of those things we truly didn't need, want or use. We are at the beginning stages of our transition, but already we are starting to feel the emotional and financial benefits. After all, unused and idle stuff does have a carrying cost associated with it.
In a similar vein, many corporations today are incurring unnecessary expense because they have too much "stuff." In this case I am not talking about physical things like plants, property and equipment. I am referring to unneeded product lines and small under-performing business units. We've seen hundreds of examples of this in our work with clients. Companies with billions in annual revenue often have closets full of five-million dollar businesses, products and service lines that cost more to carry than they generate in value.
How did we get all this stuff?
So how does a company end up with a collection of things it doesn't need? One factor is the pressure on CEOs to put excess capital to work in the business. Anyone who's been on an analyst call for a company with significant cash and cash equivalents on the balance sheet has felt that pressure first hand. So corporate development functions pursue mergers and acquisitions, and acquired businesses often come with their own closets full of unwanted stuff. Innovation groups invest in building new stuff. R&D functions develop stuff. And often customers want their own special flavors of stuff. Before you know it, the enterprise garage is full.
Why not just get rid of the unwanted stuff?
So why not just kill off superfluous product lines and sell smaller, unwanted businesses? Easier said than done. One factor is the difficulty in letting go of the associated revenue. Even if that revenue is not profitable, executives are often judged by their top line achievements. Discontinuing any business - even when top line contributions are relatively small - puts budget at risk. The situation is compounded when the true bottom line impact is masked by the company's inability to attribute true and total costs to each business or product.
Then of course there's the people factor. It is difficult to let go of a business you've invested in because you want it to work. Just like that pair of boots I haven't worn in two years, you never know if this is the year that the market demand for your new faltering product will take off. Too often, too many businesses and product lines get caught in a strategic purgatory - not essential enough to invest in, but generating enough revenue that they are hard to let go.
So what to do?
Our suggestion is to elevate the conversation about "destuffifying" the organization and make it part of the annual strategy process. Much in the way former GE CEO Jack Welch adopted a program of "fix it, sell it or close it" for under-performing businesses, executive teams should have honest conversations about the viability - and true value being created - from their business units and product lines. The discipline to have these conversations and recognize when a business or product line is more valuable now to another party than it will be to your organization in the future is a hallmark of leadership teams that know how to create value through divestitures.
Another approach is to assign a team to take on a specific initiative to review the portfolio and make decisions about what needs to go. Setting some guiding principles up front in that effort, can provide some guardrails on how deep the review needs to go.
Then once those decisions are made, follow through. There will always be emotional resistance to the thought of taking your unwanted, unneeded or unused items to the Goodwill bin; but doing so can be freeing, and improve profits to boot.