Craig Miller had a profitable, growing business providing temporary accounting services to companies in Atlanta. But in January 1997, the founder and CEO of MA&A Group Inc. sold the accounting operation to concentrate on information technology consulting, something he originally got into as a sideline.
Why shed a successful operation? Inadequate financial resources is one reason. "We were always having discussions to determine where the profits would go," recalls Miller, 40. "There wasn't enough to do both sides of the business."
Limited management time is another reason. "I was running the accounting side, and my wife was running the IT side," he says. "Nobody was running the whole business." The changing market for accounting employees also influenced the move. When Miller started the company as a temporary services agency in 1989, it was an employer's market. Today the temps are hard to come by, while the jobs go begging.
Miller's move would be applauded by Peter Drucker, popularizer of a concept he calls "organized abandonment." The influential management theorist says companies should look for products, serv-ices, markets, customers, channels and processes to leave behind as energetically as they seek new markets to conquer. Abandonment, Drucker says, helps entrepreneurs avoid obsolescence and frees resources for better opportunities.
One of the most notable abandonment practitioners is Enron Corp., a $34 billion Houston company that turned the electric-utility field upside down in 1993 by abandoning ownership of power plants and transmission lines, according to Steven Collier, a partner at The Institute for Management Development and Change, an Austin, Texas, utility consulting firm.
Abandonment worked well for Miller. MA&A's 1998 sales were 263 percent higher than 1997's, mostly due to a sharper focus made possible by shedding the accounting component, Miller says. He advises other entrepreneurs to follow suit by determining not what businesses to start, but rather "Do I need to get out of the businesses I'm already in?"
Mark Henricks is an Austin, Texas, writer who specializes in business topics and has written for Entrepreneur for 10 years.
Cutting The Cord
Organized abandonment is a regular and systematic search for products you should stop selling, markets you should exit and businesses you should quit. Leading candidates, Drucker says, are businesses with "a few good years left" and old or declining businesses that are absorbing resources that could best be used for other opportunities.
Think especially about abandoning established distribution channels, Drucker advises. For example, he says the automobile industry may soon have to abandon its traditional dealer network because of online automobile retailing and changing demographics among car buyers.
But organized abandonment can work in any industry and any company, and with any part of a company. Enron isn't the only electric utility abandoning activities and services once considered central to the field. Many other utility companies are unbundling or outsourcing jobs such as meter reading to other suppliers, says Collier. "They're abandoning those functions and activities they can't do competitively or that somebody else can do better," he explains.
Collier says a standard part of his consulting practice is what he calls "the Peter Drucker audit: Examine everything you do and [ask yourself,] if you weren't doing it already, would you start now?" That examination ranges from your corporate bylaws to forms employees are required to fill out. "We systematically go through [our company]," he says, "and get rid of everything that, if we were trying to capture market share today, we wouldn't do."
Another abandonment fan is Peter Weddle, an Old Greenwich, Connecticut, publisher of Weddle's Internet Recruiting Guide and Weddle's Guide to Employment Web site. Weddle advises his audience of executive recruiters to dump many of the practices that sustained them before electronic job-seeking became popular. Recruiters should stop responding to only the most qualified candidates for a position, he says. Instead, they should respond to everybody. And they should archive and keep on hand all resumes, rather than just those matching current openings, he adds.
The change is being forced, Weddle says, by a combination of the online recruiting boom and the tight labor market, which he foresees lasting at least several more years. Consequently, he says, "We have to abandon a notion of the labor market that is now obsolete."
The two biggest questions when considering organized abandonment are what to abandon and how to do it. Drucker suggests you answer them by making organized abandonment part of your business routine. He cites one company whose executives meet every month to discuss businesses to let go. Repetition sharpens everyone's eye for declining opportunities and provides a forum for developing innovative techniques for getting out of old businesses.
In addition to areas that have stopped or are about to stop growing, look for areas in which your company is no longer competitive. One of the main reasons for flagging competitiveness is that the required skills have changed. This is the case in the electric-utility industry, Collier says, where executives familiar with working in a highly regulated monopoly are ill-suited for the competitive, deregulated playing field reshaping the industry today.
Drucker offers one caveat: Before you abandon anything, do a test-run. Initiating a pilot project lets you see how you might close down the business, as well as whether the new business you want to enter or re-emphasize will perform up to standards, he says.
Even with pilot projects, organized abandonment is risky. It's hard to stop offering a service without offending existing customers, Miller says. He discovered this when telling clients he was getting out of accounting. Some were using both his IT consulting and accounting services, and others were accounting clients and IT consulting prospects. Rather than drop them cold, Miller offered referrals to other providers. "It wasn't just, `Sorry, we don't do that anymore,' " he says.
On the plus side, organized abandonment is unlike many management ideas in that it need not cost anything. In fact, it can actually add cash to your coffers, which is what happened when Miller sold his accounting services division. Remember, though, that abandonment may hurt your sales in the short term until you complete the reorganization of your company with its new focus. "When you do that switch," warns Miller, "your revenues are going to go through a dip."
You don't need any special training, technology or consulting expertise to abandon. You do need conviction, however, especially when the familiar old business beckons from time to time. "The hardest thing to do," Miller relates, "was saying no to business when we needed that revenue."
Far from being a management relic of our tumultuous times, organized abandonment may become even more important as companies strive to outpace ever-faster change. "There's going to be a higher order of abandonment," predicts Collier. "You'll start to abandon stuff before you even start it."
That's not a forecast Miller debates. "It's not easy, but you've got to do it," he says. "I don't see any business that can continue doing business the way it was doing it five or 10 years ago."
Management Challenges for the 21st Century (Harper-Business) by Peter F. Drucker is the latest book in which the management expert outlines his ideas about organized abandonment.