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Since the 1980s, Western business strategists have preached focus. To capture economies of scale, move quickly down the learning curve, and develop core competencies, 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.”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 a disparate product line. Although pan-industrials will need a certain level of focus — unlike the sprawling conglomerates of the 1960s — they will be able to operate in much broader areas than today’s more targeted manufacturers. 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 a range of industries such as medical equipment, cars, and airplanes.
Armed with the software platform and these new manufacturing technologies, pan-industrial companies will gain several advantages not currently available to either conglomerates or focused companies.
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Most traditional conglomerates exert little control over their operations. Each division has its own research and development (R&D), factories, and distribution network, and tends to share few suppliers with the rest of the conglomerate. Headquarters gets involved primarily in finance, management development, and expansion decisions because it simply can’t know enough to make more specific decisions responsibly in such diverse industries.
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1. See, for example, J. Ramachandran, K. Manikandan, and A. Pant, “Why Conglomerates Thrive (Outside the U.S.),” Harvard Business Review 91, no. 12 (December 2013): 110-119.
2. G. Baker, “Beatrice: A Study in the Creation and Destruction of Value,” Journal of Finance 47, no. 3 (July 1992): 1081-1119.
3. C.M. Christensen, “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail” (Boston: Harvard Business Review Press, 1997).
4. 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.
5. P. Moorhead, “Jabil’s Blue Sky Center: Robotic Automation, Supply Chain Control Towers, Customer Proximity,” May 11, 2015, www.forbes.com.
6. A. Kleiner, “GE’s Bill Ruh on the Industrial Internet Revolution,” Strategy + Business, Feb. 1, 2017, www.strategy-business.com.
7. T. Kellner, “An Epiphany of Disruption: GE Additive Chief Explains How 3D Printing Will Upend Manufacturing,” GE Reports, March 6, 2017, www.gereports.com.
8. S.J. Grunewald, “GE Is Using 3D Printing and Their New Smart Factory to Revolutionize Large-Scale Manufacturing,” 3Dprint.com, April 4, 2016, https://3dprint.com.
9. S. Lohr, “GE, the 124-Year-Old Software Start-Up,” New York Times, Aug. 27, 2016, www.nytimes.com.