Disruption at the door

It takes a lot of courage to sell an existing business and walk away from it. And yet, many companies are doing precisely this because it is becoming hard to generate profits sustainably from commoditised businesses. By getting out of legacy businesses, these companies are freeing capital and management time to focus on innovation and new opportunities. Call it disruption, if you will, but companies are taking bold calls and morphing so that they remain relevant to their stakeholders. In time, this trend will become more pronounced and companies that fail to take these tough decisions will atrophy. This trend, which has been precipitated by large activist investors, has a profound message for others because businesses have to be viewed/evaluated differently. Last December, ABB announced that it was selling its power-grid business, which was the least profitable anyway, to Hitachi at an enterprise value of $11 billion. Back in 2014, the global power and technologies major had announced its Next Level strategy, which sought a "shift in centre of gravity driving profitable organic growth, strengthening competitiveness and lowering risk." The company is now focused on new-age technologies like automation, robot

This article was originally published on May 23, 2019.