Wednesday, December 19, 2012

Maersk to shift away from shipping. Cisco to leave home routers. What to do when your high-margin ship has sailed?


STORY: Maersk to switch focus from shipping >>

The Financial Times reported last month that the world's largest shipping company, Denmark-based Maersk, plans to shift away from its core business of shipping as competitive pressures and slowing demand decay profitability in the segment. Maersk management plans to invest more in oil, drilling, and terminals services in order to fill the gap being left by its iconic cash cow.

When it comes to reliable cash cows, at what point does a company need to move to greener pastures? How weak does pricing power have to be and low do profit margins have to go to walk away from a dog?

IBM left the personal PC business earlier in this century and successfully concentrated on the market for business services. That's an impressive journey. IBM is the eponymous creator of the market for devices once called "IBM clones." But commoditization pushed prices and profits down. Maersk to move its business focus from shipping sounds nearly as strange as IBM leaving the PC business. But companies move on.

The news that Cisco is getting ready to off load its Linksys unit is another decision of leaving a dog —I say that in a BCG Matrix manner and is no reflection on its products— behind. Motorola once made car radios and televisions. Nokia made boots and tires.

Over the coming years we will see companies pick up and leave the handset industry as profit margins continue to thin out. Those companies will try to move into adjacent markets, perhaps mobile advertising, mobile finance, mobile enterprise services. Some will succeed.

It's difficult not to fall in love with an industry and breaking up can be hard to do. But avoid falling in love with any business segment, no matter how sexy: it will only cause you pain. It's important to recognize when your growth ship has sailed. Then you need to reach for the stars.

No comments: