Traditional conglomerates such as Johnson & Johnson, GE, and Toshiba have faced significant challenges in recent years, leading to their disassembly. These companies, with histories spanning over a century, have discovered that their existing organizational structures no longer appeal to investors who seek independent entities.
However, this does not indicate a decline in the popularity of large conglomerates. Instead, a new wave of conglomerates, enabled by the internet, has emerged in the ever-evolving business landscape.
These internet-enabled conglomerates, such as Amazon and Alibaba, offer a diverse range of products and services supported by technology. They encompass areas such as retail, entertainment services, cloud computing services, gaming, and more. This paradigm shift in business diversification heralds the rise of a modern era of conglomerates.
New conglomerates
In light of this development, Columbia Business School has conducted research shedding light on the unique characteristics and strategies employed by these internet-enabled conglomerates, challenging conventional notions of conglomerate growth.
The study explores how companies like Amazon and Alibaba utilize technology and customer data to coordinate their diverse business activities and venture into new industries. Although these modern conglomerates operate in seemingly unrelated lines of business from a supply-side perspective, they strategically collaborate on the demand side. This collaboration enables them to deliver products and services to a shared core of customers, making them resilient in the face of economic downturns and responsive to customer needs.
To conduct their analysis, the researchers examined the top 100 conglomerates with the highest revenue from internet-enabled activities in 2020. They utilized data from reputable sources such as Investopedia, Motley Fool, Wikipedia, and Crunchbase.
Digitally-driven
By analyzing the proportion of revenue generated from internet-related activities and studying the disclosed financial reports and industry classification codes, they gained insights into each company’s diversification and core business activities in relation to other lines of business.
The researchers discovered that these conglomerates leverage customer data to identify shared customers across seemingly unrelated businesses and offer differentiated products. This customer-centric approach sets them apart from their predecessors and illustrates how the internet has reshaped strategies for business growth.
The findings from this research challenge traditional approaches to conglomerate growth and provide valuable insights into the future of diversification across industries. Moreover, these insights extend beyond conglomerates, offering implications for other sectors by revealing the future of unrelated diversification and its impact on various industries. As a result, this study opens up new avenues for further exploration and inquiry.
