Why are big corporations splitting up?

Amanda Peacher Nov 12, 2021
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Toshiba joined this week's parade of corporate breakups, which include Johnson & Johnson and General Electric. Kazuhiro Nogi/AFP via Getty Images

Why are big corporations splitting up?

Amanda Peacher Nov 12, 2021
Heard on:
Toshiba joined this week's parade of corporate breakups, which include Johnson & Johnson and General Electric. Kazuhiro Nogi/AFP via Getty Images
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Seems that more megacorporations will be splitting up. Earlier this week, it was General Electric. On Friday, it was Johnson & Johnson, which said it will divide its business into a drugs and medical devices division and a consumer products division. Japanese electronics giant Toshiba announced it plans to split into three.

Some of these soon-to-be-separate operations seem less far apart than, say, GE splitting aviation and health care. But they’re all aiming — or so they say — for more focused corporate structures.

These big corporations are saying their new, smaller companies will be more flexible, responsive and targeted. Over the decades, that way of thinking has had fewer adherents than the bigger-is-better strategy.

Going back to the ’60s, conglomerates were all the rage. “And this idea that if you were good at managing one thing, you were good at managing other things,” said Jarrad Harford, a finance professor at the University of Washington.

Consumers believed that too. A buyer who was content with his or her GE fridge might have turned to GE when shopping for a digital camera.

But our digital devices, new platforms and direct-to-consumer sales have changed brand loyalty, according to Dipanjan Chatterjee, vice president and principal analyst at Forrester.

“As consumers, we also are willing to experiment much more with new companies,” he said.

Companies, Chatterjee said, that are single-minded — think Allbirds shoes or ThirdLove bras. “Perhaps we are saying, ‘Hey, when it comes to companies, when it comes to brand, your small is beautiful.'”

“Small is beautiful” might also be a way to appeal to shareholders, said Jay Brown, a law professor at the University of Denver.

“We have a crazy, wild stock market that just keeps increasing every single day,” Brown said.

Companies are under tremendous pressure to perform, Brown added. Shareholders might not be impressed with meager corporate stock growth when others are rocketing upward.

“The individual pieces are a bit more agile and can respond to market forces,” he said.

Brown said he could see corporate breakups becoming more of a trend. But, he added, each company should make sure that’s the right choice and that they’re not just following the competition.

Correction (Nov. 12, 2021): An earlier version of this story mischaracterized how Johnson & Johnson is splitting its operations. The two divisions will be drugs and medical devices, and consumer products.

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