-->

Nominations for the 2022 KM Promise and KM Reality Awards Now Open

Fusion, fission, or something else?

Article Featured Image

Not fusion and fission in the nuclear sense. We’re talking organizational. Many enterprises looking to succeed in today’s global economy believe that achieving sustained growth means choosing between two opposing strategies. The first, fusion, seeks to grow organically, through acquisition, or a combination of both. At the other end of the spectrum is growth by divestiture, i.e., fission. Each one has pluses and minuses. The trick is knowing which strategy to apply for a given set of circumstances. 

The case for fusion 

This may sound like a throwback to the Industrial Age, but fusion’s greatest strength lies in economies of scale. The key, and this is critical, is the degree to which the components are either tightly or loosely coupled. Tight coupling can result in faster response. But processes tend to become brittle and inflexible. Loose coupling supports greater flexibility and autonomy, but with less consistency, increased redundancy, and reduced efficiency. 

In the old days, the fusion-based approach was focused on gaining efficiencies in materials flow and, more recently, workflow. Both remain essential in today’s business climate. However, managing and optimizing knowledge flows have become even more important, especially in large organizations. 

A prime example is Amazon. With just under 1.3 million employees, they are the second largest company in the world. Yet they’ve remained remarkably competitive. Amazon does this in part by pushing decision-making down to the working level. By leveraging technologies such as analytics, AI, and machine learning, Amazon gives its employees, suppliers, and customers access to the knowledge they need to make timely, on-the-spot decisions. 

However, fusion presents a major challenge. As organizations and their bureaucracies expand, they incur penalties in the form of ever-increasing consumption of time, money, energy, and other valuable resources. Eventually, the law of entropy kicks in, centrifugal forces take over, and the organization can no longer hold itself together. At this point, one of two things can happen. The organization either collapses under its own bureaucratic weight or breaks up into smaller pieces. The recently announced divestitures of GE, Johnson & Johnson, and Toshiba bear this out. 

The case for fission 

GE is no stranger to divestiture. You may recall former CEO Jack Welsh’s strategy of jettisoning any business unit that wasn’t in the top two or three in market share. For example, after 80 years, GE spun off its credit business, which originally had the sole purpose of providing credit to buyers of its vast portfolio of products and services. That unit, now Synchrony Financial Corp., has grown into one of the U.S.’ largest banks, with more than $87 billion in loan receivables and annual revenues in excess of $19 billion. Similar success stories include Ferrari’s spinoff from Fiat Chrysler, which netted a return of 34.9% for Ferrari and 14.8% for Fiat Chrysler in the first year alone. 

According to McKinsey, two red flags often point to the potential failure of a spinoff. One is a lack of proper due diligence. The other is poor allocation of talent, such as when the best talent remains with the parent company to the detriment of the spinoff company. Both of these are obvious opportunities for KM, not only in allocating resources across the pieces more equitably but also reconnecting them in new and synergistic ways. Let’s take a look at a third strategy in which KM can help make this happen. 

KMWorld Covers
Free
for qualified subscribers
Subscribe Now Current Issue Past Issues