The Friendly Business Divorce

Will it be as natural as pulling apart an Oreo cookie or as awkward as separating two slices of melting cheese?

Kraft Foods is betting on the former. The company said today that it’s planning to split itself into two companies, with one focused on international snacks like Trident Gum and the other focused on domestic groceries such as Oscar Mayer bologna. The idea is to let each new entity concentrate more effectively on its strength.

Peter Drucker was always willing to entertain the idea of breaking companies into smaller parts. Sometimes enterprises get so big that they become complacent.  “If antitrust had not forced IBM to give up the punch card, it would never have become the computer giant,” Drucker remarked in Managing in the Next Society. “The best thing that happened to the Rockefellers was to be broken up. The Rockefellers were wedded to kerosene. They considered gasoline a fad.”

Other times, companies get so big they get unwieldy. “Certainly the industrial corporation which, for its management, requires six levels of vice presidents with six to 12 men on each level—the whole held together by five executive vice presidents and a president—has passed the optimum point, if indeed it has not become unmanageable altogether,” Drucker wrote in The New Society.

Photo credit: Pink Sherbert Photography

In fact, sometimes breaking up a company is healthy even when it’s the last thing the company wants. In The Ecological Vision, Drucker considered the case of energy titan and sometime corporate raider T. Boone Pickens forcing the breakup of old petroleum suppliers.

“Pickens forced the petroleum companies at which he leveled his guns to do something sensible: that is, to split the company into two parts, one making and selling petroleum products, one keeping reserves of crude oil in the ground,” Drucker explained. “The fact is that it makes little sense today to be an ‘integrated’ petroleum company. The interests of the people who want the earnings of the present petroleum company, and the interests of the people who look for a long-term tax shelter (and who, in other words, do not care much about present earnings), are not compatible. Therefore Pickens’s proposal, that the integrated petroleum company split itself into two pieces, made sense.”

What companies do you see out there that are overdue for a breakup?