Insights


Non-core businesses are created usually from acquisitions, mergers or as a result of synergies with the core group activities.

They can be the “forgotten child” of business. Once purchased or set-up, the original recognition of the unique features that would add value to the group is forgotten and the core business takes over focus, to the detriment of the non-core business.

It is common to see ASX 200 companies divest non-core businesses to focus on their core activities.

However, boards and Group Leadership Teams (GLT) really do need to understand and care about  non-core businesses for them to succeed.

There can be value in retaining a non-core business.

These businesses are often the home of innovation, profitability and entrepreneurship.

They can set benchmarks for the group because they have something to prove and can’t rest on their laurels like the core business.

They challenge the status quo.

Understanding how a non-core business operates, where it fits in the group and what its key success factors and key challenges are is essential for creating an effective union and secure future within the group.

Challenges for non-core businesses:

  • Smaller turnover means non-core businesses are considered less significant by the Board and GLT
  • They are seen as different and not a nice fit with the group (i.e. square peg in a round hole)
  • There can be a push by the Board/GLT for them to blend with the core business. One rule fits all, or does it?
  • Lack of Board and GLT focus and support
  • Board and GLT often don’t  spend the time to understand the non-core business
  • Resources and capital are not as readily available
  • Their risk profile is different – often higher, which can be seen as negative rather than looking at the higher return that often comes with it
  •  There can be a constant battle to retain the identity and key differences that are essential to the value of the non-core business
  • Internal politics can see core staff competing with non-core staff
    80/20 rule – Board and GLT concentrate on the core business and brush over the non-core business.

Keep or sell a non-core business?
This is the million dollar question. The pros and cons have to be carefully weighed up.

For the parent company, the benefits of retaining can include profits, innovation, utilising synergies and keeping group activities diversified. On the other hand, non-core businesses can drain focus and attention and increase risk profile.

From the perspective of the non-core business, the benefits of being retained include synergies that can deliver value to the whole group. But a sell-off may see the business get better understanding and support from a like-minded new owner, with less time spent trying to educate the group on the nature of the business.

Understanding non-core businesses
The reason why non-core businesses are there in the first place is to add value to the group.

Understanding how a non-core business operates, its fit with the greater group and its key success factors is essential for a happy and effective union and future.

Here are some key questions for Boards and GLTs to consider:

  1. Do you really understand your non-core businesses?
  2. Are you optimising their value and synergies?
  3. Do you know what is required to do this?
  4. Have you evaluated your group activities to clearly understand what is core and what is non-core?
  5. Do you have the right organisational structure to ensure you optimise core and non-core businesses?
  6. If your non-core business is not performing as well as expected, are you looking at the top as well as the bottom for answers?
  7. Are you prepared to change the perception of non-core – that the Board and GLT don’t understand their business well enough and therefore are not helping them reach their potential?

If you focus more on your group’s non-core businesses you may well discover a future core business.

I’m interested to hear your experiences, either as a Board member, GLT member or as a leader of a non-core business.

Barbara Ould is a Client Director in the Melbourne office of Vantage Performance, Australia’s leading business transformation and turnaround management firm – solving complex problems for businesses experiencing major change.

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