Shoemaker, stick to your last!”
The old cliché is still sound advice. The less diverse a business, the more manageable it is. Simplicity makes for clarity. People can understand their own job and see its relationship to results and to the performance of the whole. Efforts will tend to be concentrated. Expectations can be defined, and results can easily be appraised and measured. The less complex a business is, the fewer things can go wrong. And the more complex a business is, the more difficult it is to figure out what went wrong and to take the right remedial action. Complexity created problems of communications. The more complex a business, the more layers of management, the more forms and procedures, the more meetings, and the moiré delays in making decisions.
There are only two ways in which diversity can be harmonized into unity. A business can be highly diversified and yet have fundamental unity if its business and technologies, its products and product lines, and its activities are embraced within the unity of a common market. And a business can be highly diversified and have fundamental unity if its businesses, its markets, its product and product lines, and its activities are held together in a common technology.
Being the Wrong Size
A business that is the wrong size is a business that does not have the niche to survive and prosper.
Being the wrong size is a chronic, debilitating, wasting – and a very common – disease. Being the wrong size is curable in the majority of cases. But the cure is neither easy nor pleasant. The symptoms are clear and are always the same. In a business that is the wrong size, there is always one area, activity, function, or effort – or at most a very few – that is out of all proportion and hypertrophied. This area has to be so big, requires so much effort, and imposes so much cost on the business as to make economic performance and results impossible. The old American Motors furnishes the example. American Motors announced successive plans to aggressively recruit new and strong dealers and push up its sales. In order to obtain the sales volume that would have given the business a viable size, the expenses that made the business non viable had to be increased. And this is precisely what the business nonviable had to be increased. And this is precisely what the business could not afford.
The most rewarding strategy to come to grips with the problem is to attempt to change the character of the business. A business that is the wrong size is a business that does not have the right niche to survive and prosper. A comparison between American Motors and Volkswagen shows the difference between being the wrong size as a result of lack of distinction, and being the right size by occupying a distinct niche.