GE to Spin Off Banking Operations

Interesting to see bulky corporates start to slim down.  Hewlett-Packard ($HP) did it.  Kraft spun off Mondelez.  Motorola busted itself into several pieces.  Yesterday GE ($GE) decided to spin off it’s GE Capital Arm.

I think there is a very good reason why.  Technology and innovation.

Big corporations that are multi-silo operations become vulnerable to competition from up and coming tech companies.  It’s much harder to innovate inside a big company.  I know that startup founders lament their fight for capital from venture capitalists.  But, inside big companies there is a fight for budget.  It can be every bit as brutal and guess what?  You have to work with the people after the budget fight.

How does a business grow? Innovate.  Constant iteration of products to take care of and build value with customers.  GE’s founder was Thomas Edison.  Edison ran his business the way a lot of startup entrepreneurs today.  He took the cash flow from the business and plowed it back into more innovations that could grow the business.  It’s a virtuous cycle and it grows stock prices.

Most of the time when shareholders hear about “improving shareholder value” they get a steady diet of budget cuts, stock buybacks and promises.  Somehow, the only thing lifting shareholder value is the rising tide that lifts the general stock market.

The way to improve shareholder value is build existing market share, and create new market share that didn’t exist before.  If companies can’t innovate, they aren’t going to build new markets and they won’t build shareholder value.  That makes them vulnerable.