The End of Focus: A New Wave of Manufacturers Will Choose Scope Over Scale

Manufacturing technology is about to change the rules of competition and unleash a sleek new version of the old-school conglomerate: call it the “pan-industrial.”

Since the 1980s, Western business strategists have preached focus. To capture economies of scale, move quickly down the learning curve, develop core competencies, and deeply understand customers, it’s best to operate in only one industry, or perhaps a few adjacent industries. Diversifying into unrelated industries is dangerous, the thinking goes, because it leads to complexity and unmanageable size without yielding economies of scope and other operational synergies. Indeed, Wall Street has frequently penalized multi-industry companies with a “conglomerate discount.” Focused companies also tend to be quicker to exploit new technologies than their more diversified, bureaucratic rivals.1

Those dynamics, however, will soon go into reverse. New digital technologies are changing the rules of competition by expanding the boundaries of what a company can handle and introducing new sources of advantage. Big data analytics, cloud-based mobility, 3-D printing, and machine learning are combining to make complexity manageable and generate economies of scope. Entering multiple industries will no longer be a drag on operations — it will bring competitive advantage. Digital technology has already upended the media and information sectors. It’s about to do the same to the manufacturing economy, and pave the way for what can be called the “pan-industrial” strategy.

The Pan-Industrial Advantage

A pan-industrial company may look like a conglomerate on the outside, but it will run quite differently. It will be driven by a software platform that monitors, facilitates, and optimizes operations from product development to customer delivery, across the entire disparate product line. Just as Facebook’s platform automatically solicits, collects, and displays information from users and advertisers in a continually optimized way, pan-industrials will deploy sophisticated connected software systems to do the same with physical goods. While pan-industrials will need a certain level of focus — unlike ITT Corp. and other sprawling combines of the 1960s, with everything from telecommunications to food processing — they will be able to operate in much broader areas than the more targeted manufacturers of today. One could imagine, for example, “General Metals,” a company with underlying expertise in metal 3-D printing, which would be something like a combination of General Electric, General Motors, and General Dynamics, competing in industries from medical equipment to cars and airplanes.

Armed with the platform and these new manufacturing technologies, pan-industrial companies will gain several advantages not currently available to conglomerates or focused companies.

References

1. See, for example, J. Ramachandran, K. Manikandan, and A. Pant, “Why Conglomerates Thrive (Outside the U.S.),” Harvard Business Review, December 2013, https://hbr.org/2013/12/why-conglomerates-thrive-outside-the-us.

2. G. Baker, “Beatrice: A Study in the Creation and Destruction of Value,” The Journal of Finance, 47, no. 3 (July 1992): 1081-1119.

3. F. Hacklin, B. Battistini, and M. Wallin, “The Limits of Industry-Centered Strategic Thinking in an Era of Convergence,” Innovation Management.se, Nov. 25, 2013, www.innovationmanagement.se/2013/11/25/the-limits-of-industry-centered-strategic-thinking-in-an-era-of-convergence.

4. P. Moorhead, “Jabil Blue Sky Center: Robotic Automation, Supply Chain Control Towers, Customer Proximity,” Forbes, May 11, 2015, www.forbes.com/sites/patrickmoorhead/2015/05/11/jabil-circuits-blue-sky-center-robotic-automation-supply-chain-control-towers-customer-proximity/#12b7c02c7271.

5. A. Kleiner, “GE’s Bill Ruh on the Industrial Internet Revolution,” Strategy + Business, Feb. 1, 2017, www.strategy-business.com/article/The-Thought-Leader-Interview-Bill-Ruh?gko=9ae51.

6. T. Kellner, “An Epiphany of Disruption: GE Additive Chief Explains How 3D Printing Will Upend Manufacturing,” GE Reports, March 6, 2017, www.gereports.com/epiphany-disruption-ge-additive-chief-explains-3d-printing-will-upend-manufacturing.

7. S. Grunewald, “GE is Using 3D Printing and Their New Smart Factory to Revolutionize Large-Scale Manufacturing,” 3Dprint.com, April 4, 2016, https://3dprint.com/127906/ge-smart-factory.

8. S. Lohr, “GE, 124-Year-Old Software Start-Up,” New York Times, Aug. 27, 2016, www.nytimes.com/2016/08/28/technology/ge-the-124-year-old-software-start-up.html.