Big is no longer beautiful

The break-up of the Hanson empire signals a shift in favour of the medium-sized company
Click to follow
Stick 'em together, rip 'em apart, for this is the age of the Velcro company. Or that might seem the appropriate response to Lord Hanson's announcement that he plans to split up into four constituent parts the company he and the late Lord White glued together over the past 40 years. So this is to be the end game, the final fate of the Anglo-American commercial giant which, as Glenda Jackson's memorable TV ads used to tell us, was from over here but also doing rather well over there.

Ms Jackson, now Labour MP for Hampstead, has moved on to higher things, but does this break-up mean that her message has moved on, too? Is Hanson no longer doing rather well?

It's doing all right, but not as well as it used to - which raises questions about its leadership and its structure.

Leadership: it is always worth remembering that companies which owe their creation and growth to a single strong personality rarely outlive their creator's death, or even retirement. The most spectacular recent example was the collapse of the late Robert Maxwell's empire. But in a way it was also true of the Forte group: built up by the father, lost by the son.

I suspect, too, this will be true in time of Rupert Murdoch's media empire, which, far from retaining its global reach, will be split up into separate businesses. And, further into the future perhaps, so, too, will the curious, illogical but in its own way, wonderful entity being assembled by Richard Branson. Illogical? Yes, tell me the core competence that links pop music (where the fortune was made) to airlines, to financial services, to consumer products such as cola and vodka. There is none - just competent product development and a genius at self-publicity.

James Hanson is unusual among empire-builders in being wholly aware that the business could not survive him. His partner, Lord White, who was just as important a part of the duo, recently died. But even before LordWhite's death, Hanson would talk openly about the future of the business after the two of them had gone.

So he is planning to create a business that is sustainable, something that can continue, presumably under the guidance of his son, Robert. Chop off the bits that don't fit, and leave a core business that will still attract support from the fund managers.

He is doing precisely what Lord Forte failed to do before passing over managerial control of Trusthouse Forte to his son, Rocco. Rocco realised this in the desperate last few days before the takeover by Granada, but only started to cut the business into pieces (and step down from the role as chairman) when capital punishment loomed. Had Rocco acted earlier, or Lord Forte earlier still, the family would have retained control.

This leads to the second element of the explanation: the structure. What makes a company decide which businesses it should be involved in? After all, any large company can go out and buy and sell other ones. Hardly a day goes by without some news of a corporate restructuring: x company buying y division of z group. What drives this process?

It is partly fashion among the fund managers. Fifteen or 20 years ago the fashion was for conglomerates, groups of different companies locked together by a supposedly superior management. Hanson was a prime example, and so would tend to win backing for each new takeover. Now, the fashion has changed and fund managers prefer their companies in neat categories. The talk is of "core competence" or some similarly cute expression. So Hanson is being broken up into core competencies, just as Courtaulds was broken up into a textile and a chemicals business, or ICI hived off Zeneca, its pharmaceuticals arm.

But fashion is not the whole answer. Look at the way the market backed Granada against Forte. There was at least some sort of vague logic in Forte, though motorway cafes may not seem to have much to do with luxury hotels. There is precious little in Granada, for motorway cafes have even less to do with Coronation Street or World in Action. I often think that the City's logic in supporting takeovers or encouraging demergers comes down to backing people whose judgement they trust. If a management runs a business well, it will be able to get support to run others; if it makes a hash of things, it will eventually be kicked out. In other words good leadership matters just as much as logical structure.

But seeing this Hanson break-up makes me wonder whether there isn't something else happening, a fundamental change in the optimal size of companies. The glue that holds firms together has certainly become weaker. Globalism, in general, forces companies to become bigger, but technology enables them to become smaller.

If you want to operate in many different countries, you need bases in each place. That takes people. And there are powerful forces encouraging companies to look beyond their domestic markets and sell to the world. But the increased efficiency brought by technology is cutting the unit size of each operation.

Until quite recently, for at least 100 years, the trend in business has been for bigness. Big companies hired the best people and got bigger; banks merged because big companies demanded big banks to finance them; supermarkets and chain stores came to dominate our shopping; other commercial groups were formed because only by clustering together could the companies acquire national, or international, marketing presence.

For the past decade or so the rule of thumb has been that you have to be either very big or very small, a supermarket or a boutique, General Motors or TVR. The one thing you must not be is somewhere in the middle. But that trend will not go on for ever, either. Every big company is downsizing its labour force (usually while asserting that its most important asset is its people) and outsourcing all sorts of services that it previously would have done for itself. This creates opportunities for small and medium-sized companies.

These, thanks to the revolution in the information business, can acquire many of the skills and knowledge of larger ones. Indeed, because they are more nimble, they can use these more efficiently than their bigger cousins. Even giants push out more and more services to such specialists, including, when they hire management consultants, management itself.

Clearly, Lord Hanson realises that Hanson as a giant company has no future. I would like to think he's right: that we are escaping the tyranny of bigness, and moving to a world where doing something well matters more than doing more of it, where we are not forced into a homogeneous culture of identical brand names, identical high streets, identical shopping malls, identical boutiques. The Hanson break-up does not of itself, suggest that any of this is happening. But it does show that being big over there or over here is not as important as it used to be.