Managing diversification: the general management process

Abstract

The objective of this thesis is to understand and conceptualize the general management process of managing a diversification move during the transition phase. The research question investigated was: What is the process of managing transition from a single product or vertically integrated company to a diversified one? It was a divided into three subareas: i) What are the major tasks of general management in managing a diversification move and how are these tasks managed? ii) How does a strategic change like diversification influence the operations of existing businesses? iii) How does the role of corporate general management change during the transition state? To answer these questions, the researcher studied the Consumer Products (India) Limited (CPIL), (disguised name), an Indian subsidiary of a multinational corporation, manufacturing and selling various kinds of food products. In the late ‘60s, due to changes in the Indian social, political and regulatory environment the company began diversifying into other businesses. As of 1977, the company had several unrelated businesses, including garments and shipping.

The methodology adopted was clinical and process oriented. The data for the thesis was collected by interviewing nearly a hundred CPIL executives at various levels of management. Other source of data was documentary evidence, including corporate records, memoranda, procedures, and minutes of meetings. As the research objective was to develop a ‘language system’ that would facilitate conceptualization of the general management process of managing diversification, this methodology was considered appropriate. A major finding of the thesis is that managing diversification during the transition phase is more than building plants and facilities for new businesses or developing functional policies for the same. It encompasses i) managing relationships with key members of the environment, ii) acquiring and learning new competences, iii) building organization and management systems, and iv) developing an integrated organization and preparing for further growth.

In the CPIL case it was found that there had to be a link between the initial strategy formulation processes and the political and administrative processes in the government. This involved an understanding of the structure of decision making and the distribution of effective power within the government. Government’s approval of the diversification strategy could be obtained only by meeting high standards of economic performance, establishing an image of efficiency of management, and proving that CPIL intended to cooperate with government and regulatory bodies. The parent company approved the choice of strategy after it was educated about the financial objectives would not be sacrificed.

To manage its diversification strategies, CPIL had to acquire three basic competences-technical, general management for new businesses, and general management for a multibusiness firm. While acquiring these competences, administrative problems arose which necessitated a change in the knowledge, skills and orientations of general managers. The process of learning a new technology had to be initiated by the corporate general management so that the basic fundamentals and ethos for the new businesses were set for each business at the initial stage itself.

Once the new businesses grew fairly well, the top management took up developing an integrated organization. This involved the assessment of the existing internal environment and creating a new one which was conductive to the growth of the diversified organization.

A second major finding of the thesis is that the four sub-processes occur over three major phase. The three phases are: initiation, operationalization, and consolidation.

During the initiation phase, CPIL general managers were busy negotiating with the government, the regulatory bodies and the parent company, besides acquiring the competence to manage new technology.

During the consolidation phase, attentation was given to building a multibusiness organization. Management structures were rationalized and formal systems and procedures introduced to effect better planning, evaluation and decision making. During this phase, the general managers developed the capabilities to manage a multibusiness firm.

A 4x3 “process model” was developed to described the process and phases of managing diversification. The model shows how the content and progress made in implementing new projects.