A couple of years ago, BHP Billiton, the world’s largest mining company, announced it was spinning off its aluminum and magnesium businesses, plus several other mining entities. The remaining company was focused on just four areas: coal, copper, iron ore, and gas/oil.
BHP Billiton announced recently that it is taking yet another step toward trying to get as much focus as possible on its core business of mining. It is looking to unload its US shale assets. While the company is in the early stages of the sales process, it has reportedly received several multi-billion-dollar bids from the big oil companies, including BP, Royal Dutch Shell, and Chevron.
When the CEO was asked for the rationale for such a move, he explained that “complexity is compounded when you have too many products, when you have too many things, and you have multiple cultures in your organization.”
Selling off assets is an unusual event for a company, compared to the number of mergers and acquisitions that occur. Many people believe that this is ego-driven, with managers generally thinking that running a smaller organization makes you less important versus leading something bigger, so why investigate becoming smaller?
The bad news, which many egotists don’t want to deal with, is the fact that large size typically leads to complexity and bureaucracy, causing the following three negatives to emerge:
1.) Certain components of the organization never get their fair share of resources even though they deserve them – There are many examples of companies where a very healthy subsidiary throwing off a lot of cash ends up seeing that cash go for other components of the organization which are sick, and probably don’t deserve to be resuscitated. Hence, both of those units suffer, the winner gets starved from investment and the loser eats up a lot of cash in an unproductive manner.
2.) The healthy and growing components of the organization often don’t get the best personnel – Top performers typically get placed in the parts of the organization that are having problems. Again, the losers here are the high potential groups in the organization.
3.) Decisions take a long time since they are made at too high a level – Since the top management tries to deal with all key business decisions across all the operating divisions, everything seems to take an inordinate amount of time to get resolved.
The key takeaway from all of this is that smart leaders don’t get hung up on size. The notion of splitting things should be viewed as a useful tool to make sure the components of the organization have the best opportunity to have the biggest impact.