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Kai Ryssdal: When the manufacturing conglomerate ITT was founded back in 1920, the initials stood for International Telephone and Telegraph. The company eventually grew into one of the world’s biggest firms. It did everything from heavy industry to baking bread to running hotels. ITT sold off the telephone and telegraph part of its business a while ago. It’s been streamlining since the 1990s.
And today, ITT announced plans to split itself into three separate companies, because it seems big is not necessarily better.
Here’s our senior business correspondent Bob Moon.
Bob Moon: More than one business writer referred to ITT today as “the ever-shrinking conglomerate.” But don’t write the whole idea off just yet.
Larry Hrebiniak: Conglomerates aren’t dead — not all of them.
At the University of Pennsylvania’s Wharton School, business professor Larry Hrebiniak says witness Warren Buffett’s Berkshire Hathaway, which continues to do well with a vast collection of businesses.
Hrebiniak: If we run a portfolio like a portfolio of stocks, and as long as we just buy good companies and if they’re making money, the conglomerate does OK. You know, it’s a pooling of profits, basically it comes down to that. If they’re profitable, the conglomerate looks good.
In other cases, the idea behind the conglomerate has been sharing executive know-how, and finding overlapping efficiencies between businesses. That’s something known in the corporate world as “synergy.” From media to banking giants, though, those synergies haven’t always panned out.
Ed Lawler is a business professor at the University of Southern California’s Marshall School.
Ed Lawler: It calls for, in some ways, unnatural behavior, in the sense that you’re saying to executives, managers, technical people, it’s not enough to just think about your area, you’ve got to think about and be aware of and coordinate with what’s going on in these other areas.
In those cases, Lawler says it can makes sense to let corporate managers pay specific attention to their particular businesses — especially when tough economic conditions and keener competition call for a sharper focus. Today, analysts were focusing on one of the biggest names in conglomerates, suggesting anew that General Electric might benefit from just this kind of streamlining.
I’m Bob Moon for Marketplace.
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