politics-markets

The Conglomerate Trap: Balancing Scale and Speed

Leandro Chique

Leandro Chique

— 4 min read
The Conglomerate Trap: Balancing Scale and Speed
The Conglomerate Trap

Key Takeaways

  • Large diversified corporations risk losing strategic coherence amid competing lean business units.
  • Startups and spin-outs often benefit from focus, speed, and clearer capital allocation.
  • Fiduciary duties can delay structural change, even when such change may unlock long-term value.

The Rise and Reassessment of the Conglomerate Model

Conglomerates historically served to spread risk across sectors, leveraging scale and diversification. Over decades, many built global footprints across healthcare, energy, technology, consumer goods, and industrial sectors.

However, as markets accelerate, especially in tech, digital health, AI, sustainability, the same scale that offered protection can become a burden. Complexity in decision-making, resource allocation, and strategic alignment can slow a company’s ability to respond to disruption.

The Silo Challenge

In many large, diversified companies:

  • Business units are organized as separate P&Ls; accountability is clear in financial terms, but strategic alignment across units is often vague.
  • Capital allocation becomes a negotiation: safe and predictable units frequently receive priority over higher-risk, high-growth ones.
  • Layers of oversight and approval slow product cycles, innovation efforts, and responses to competitive threats.

Without a well-defined overarching vision, different units may drift in priorities. This can result in missed opportunities, underinvestment in emergent areas, and lagging performance relative to more focused competitors.

Comparisons: Startups, Spinouts, and Break-ups

Examples from the recent past illustrate how simpler or more focused structures can be more agile.

  • General Electric (GE):
  • Honeywell International:
    • October 2024 — Plan announced to spin off the Advanced Materials business. Honeywell+2RCR Wireless News+2
    • February 6, 2025 — Board announced intent to separate its Automation and Aerospace Technologies businesses, creating in total three independent public companies (Automation; Aerospace; Advanced Materials). Advanced Materials+2Reuters+2
    • The separation of Automation and Aerospace is expected to be completed in the second half of 2026, and the Advanced Materials spin-off is expected by late 2025 or early 2026. Advanced Materials+2RCR Wireless News+2

Fiduciary Duty and Value That Becomes Hidden

Corporate governance and fiduciary responsibility create both incentives and constraints:

  • Boards are tasked with preserving stable earnings, managing risk, and protecting shareholder value, often in short-term quarters. Any structural change (spin-off, split, divestiture) carries transitional costs and potential volatility, which markets may penalize.
  • Business units generating steady profits (“cash cows”) are often retained even if they limit growth potential elsewhere; their success in recent years may obscure underlying drag from slower or underinvested parts.
  • Startups, by contrast, usually have clearer alignment between investment, performance, and exit potential. They are less encumbered by conflicting internal demands, overlapping overheads, or legacy processes.

When Simplification Happens — And What It Reveals

Corporate break-ups and spin-offs are complex and risky, but recent examples offer lessons:

  • GE’s transformation was multi-year: starting with announcements in 2021, a spin-off in 2023, and full implementation by April 2024. The company moved from being a multi-sector conglomerate to three focused entities. Wikipedia+3GE Vernova+3Reuters+3
  • Honeywell’s plan, announced in 2025, aims to complete its restructuring over the next year to year and a half. The Advanced Materials spin-off is targeted for late 2025 to early 2026; Automation and Aerospace separation is planned for second half of 2026. Yahoo Finance+3Honeywell+3Advanced Materials+3

These transitions often lead to improved valuation for the newly independent units, clearer strategic priorities, and in some cases better operational focus. But execution risk is real: separating shared services, managing cultural change, ensuring that new entities have the mandate, talent, and resources to succeed independently.

Implications and Watch-Points

  • Clarity in vision is critical: companies that ensure mission alignment across units, with well-communicated strategic goals and shared values, tend to avoid drift.
  • Transparent capital allocation matters: investors respond when high-growth or strategic units receive investment, rather than being starved in favor of safer segments.
  • Boards and leadership should weigh long-term value, not only short-term stability. Sometimes restructuring or spin-off is the path to unlock trapped value.
  • Observing disruptor companies: start-ups or more nimble firms will increasingly push into gaps left by slower incumbents. Company leaders must monitor and respond.

Conclusion

Size and diversification remain strengths in many respects: scale brings reach, stability, and resources. But in fast-evolving sectors, complexity without coherent vision can erode those advantages. Companies that balance their scale with clarity of purpose, structure, and speed are better positioned to adapt, compete, and unlock their full value.

Sources

  1. “GE completes three-way split, breaking off from its storied past.” Reuters, April 2, 2024. Reuters
  2. “General Electric: A Legacy Splits into Three for Growth.” MarketBeat, April 5, 2024. Nasdaq
  3. “Transition of Energies: A Timeline of GE Vernova’s Spin-off.” GE Vernova, various dates from November 2021 through April 2024. GE Vernova
  4. “Honeywell Announces Intent to Separate Automation and Aerospace, Enabling the Creation of Three Industry‐leading Companies.” Honeywell Press Release, Feb 6, 2025. Advanced Materials
  5. “Honeywell to separate aerospace and automation units, spinning off advanced materials business.” Reuters, Feb 7, 2025. Reuters
  6. “Honeywell Appoints David Sewell to Lead Advanced Materials Unit Ahead of Spin-off.” Reuters, Mar 25, 2025. Reuters
  7. “Honeywell, one of the few remaining US industrial conglomerates, will split into three companies.” AP News, Feb 6, 2025. AP News

Read more