With deteriorating economic conditions, many companies find themselves struggling. A company’s strategic choices can impact how well the business weathers a recessionary downturn. For example, the degree to which a company focuses can make a difference in how well the business performs when the economy worsens.
We are reminded of this when reading the recent Wall Street Journal article “Microsoft’s Future Seems Bright“, which ran on July 28, 2022. It points out that, despite experiencing some weakness due to the current downturn, Microsoft has been doing much better in today’s dismal economy than Apple, Google, Facebook or even Amazon. The article attributes Microsoft’s success to being less narrowly focused than its other big tech counterparts. The article says, “Microsoft’s diversity is a relative strength compared with its megacap tech peers. The other four—Apple, Amazon, Google and Facebook—are more than 80% reliant on the singular markets of hardware, retailing, and advertising, respectively.“
As I see it, although less focus can offer a safety net if the diverse businesses are affected differently by downturns, this doesn’t mean that all businesses should lessen their focus. After all, performance can be hampered if the degree of focus gets too scattered. Thus, it is important to think through the business’s strategy and try to manage focus in a way that is a good fit for the particular company. The right amount of focus is not one size fits all. This is important to remember when determining what new businesses to enter as well as when deciding which businesses to shut down or spin off.
Furthermore, two companies diversifying into the same recession proof business can be end up with a different level of protection against downturn due to other factors impacting their business. For example, like Microsoft, Amazon has the advantage of being in the cloud business, which offers continued growth during today’s economic downturn. But, Amazon has to deal with its recent heavy investments in growing its online retailing and with higher costs taking a big bite in that sector. Thus, Amazon’s performance is not as well protected by diversification as Microsoft’s is. Nonetheless, despite the diversification advantage, Microsoft is not completely free of recessionary challenges.
In conclusion, companies need to think through their mix of businesses. They should focus in a way that offers the most benefits and builds on the company’s strengths.