How to Make Multibusiness Companies Stronger at the End of the Crisis

Multibusiness companies have better weathered the crisis, as shown by investigations conducted on the economic and financial performance of US companies over the last four years. But the will the advantage enjoyed by multibusiness companies continue at the end of the current crisis, also outside the US? Some say that diversified companies will thrive after the crisis, because over the 2007-2010 period they have seized better investment opportunities with respect to their more focused counterparts. But this line of argument cannot be generalized.
In truth, multibusiness groups will have a rosy future only if they combine their advantages with those typical of a monobusiness company. How? By combining the two underlying logics that alternatively orient diversified companies: the financial and the synergic logic.
The former aims to combine growth with the maintenance of a satisfactory financial equilibrium, while the latter develops competitiveness by leveraging the synergic potential existing among the various businesses.
The financial logic is overarching when corporate strategy is about generating value for shareholders. Consequently, corporate management perceives each competitive arena as a specific entity, by assigning management responsibility for the various competitive strategies to autonomous organizational unites. Businesses are thus considered as equity assets held in an investment portfolio. In the case of listed companies, the financial logic focuses on stock market prices with the risk of excessive orientation to short-term results. At the opposite end is the synergic logic, which conceives the company as a single tree branching out various businesses. Growth is then the effect of the continuous accumulation of skills, which is turn the consequence of the priority given to markets for the provision of knowledge.
In the financial approach, quantitative objectives prevail over qualitative goals; in the synergic approach the opposite is true. In the latter orientation, the company operates in few correlated businesses, which are the byproducts of organic growth, while under the financial logic, businesses can be many and uncorrelated, as they are the byproducts of acquisitions.
In organizational terms, the synergic approach has a functional structure, control systems monitoring the behavior of business managers, and intensive coordination mechanisms. The divisional approach prevails in organizations following the financial logic, with control systems monitoring results of individual businesses, while coordination mechanisms are absent. Here the central units are small, and only undertake infrastructural (legal, fiscal) activities, having the mere role of controlling and allocating financial resources, while under the synergic logic, central units are large, they perform operational and business support activities, having the role of facilitators of synergies. Also CEOs display opposite features: the financial approach favors cold valuators of financial performance; the synergic logic requires corporate leaders sharing knowledge and emotional involvement with business managers.How to combine two apparently rival types of logic within the same company? One must start with the only certainty about multibusiness strategy: the determinant of medium-to-long term performance in a diversified company is the quality of general management, independently from the degree of diversification.

The quality of general management is high when it uses the two logics according to the characteristics of the business at hand. This occurs in an organizational structure that sees the upper echelons managing businesses according to a financial approach, and lower echelons managing businesses with a synergic approach. Only this way, by managing this seeming paradox, the two forms of risk brought by the financial logic (short-termism and speculation) and by the synergic logic (lack of responsibility and inefficiency) will be avoided.