If you’re part of a diversified company, when do you give up hope on fixing a broken business?
Big companies hold on to failing businesses for all kinds of reasons: sentimental value, false hope, and culture, to name just three. For decades in Japan, for example, businesses were treated like shrines—untouchable. Similarly, citing “tradition,” PanAm sold off its profitable hotels in 1986 and kept its struggling airline business. We all know the end of that story.
In most cases, though, inertia is what stops companies from letting go of broken companies. It’s just so hard to sell an old operation—so messy. After all, getting rid of a fixerupper takes patience and often the willingness to take a loss. Who has the time or wherewithal for that?
Which is why letting go of a business has to be a corporate discipline for it to happen at all. Companies should only keep trying to fix businesses as long as they serve a strategic purpose. And they should face reality and “give up hope,” as you put it, as soon as they don’t. Look, there will always be times when companies will pour money into a floundering business to establish a position in a developing country. China was just such a place, and few companies who bought or built businesses there, especially in its early open-door days, escaped a few years of “learning curve” losses. Similarly, a fundamental belief in an emergent technology often means years of struggle prior to profitability. In such cases, you have to hang on. Your strategy depends on it.
But prolonged attempts to fix a business that no longer serves such a purpose rarely make sense. Without corporate life support—which peripheral businesses usually don’t get, for obvious reasons—such businesses must fend for themselves. It’s a slow death for everyone involved. How much better, then, to give your people their best hope for a better future. The company buying your “failure” usually has grand plans for its resurrection. Fight your inertia, and let them go for it.
This question and answer originally appeared in Business Week magazine on July 27, 2007.
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