Divide and Conquer

SoftBank’s reorganization and what’s behind the current rash of splits and spins

On March 7, SoftBank Group Corp. of Japan announced a decision to split into two divisions centered on its domestic and overseas businesses. The 35-year-old multinational telecommunications and Internet corporation has operations in broadband, fixed-line telecommunications, e-commerce, Internet, technology services, finance, media and marketing, and other businesses. Founder Masayoshi Son elected to make the split with an eye toward untangling his company’s future from its Japanese roots, which he believes could constrain its growth.

SoftBank said the reorganization is part of its strategy to reposition its two core businesses as “future growth drivers.”

In dividing SoftBank’s Japanese and overseas operations, he intends to split responsibility for managing some ¥9.2 trillion of investments spanning the broadband and mobile industries — plus a stake in Alibaba, one of China’s largest e-commerce companies. Group president Nikesh Arora will head up operations abroad, which include stakes in Alibaba and struggling Sprint. Ken Miyauchi, who leads SoftBank’s mobile operations in Japan, will lead the Group’s domestic businesses.

Certainly, there are many operational reasons behind the decision to divide up SoftBank in this way. But the split also reflects a wider trend. In November the computing giant Hewlett-Packard announced it would split itself in two in order to compete more effectively in a technology market that is retrenching. And just a few months before, eBay, the online-auction pioneer, split into two separate units, eBay and PayPal, reflecting the different clock speeds each business. These splits demonstrate what we call ambidexterity, and an effort for large established companies to stay young and rejuvenate themselves. Aging corporations become slow, inert and hence become susceptible to competitive disruption. Being ambidextrous means to excel at exploring new practices, products, and business models through innovation, while also exploiting existing ones through greater efficiencies. This ability helps them manage apparently contradicting imperatives: cutting costs to survive stiffer competition, and stepping up innovation to accommodate accelerating change in various aspects of their business.

Becoming ambidextrous is precisely what SoftBank is trying to do. In his new role, Ken Miyauchi will focus on the exploitation half of the ambidexterity equation — improving operations, applying lean principles, and gaining efficiencies in the company’s domestic businesses. Nikesh Arora, a former Google executive, will focus mostly on exploration: he will invest about US$3 billion each year to back overseas startups that could become the next Alibaba (which pulled off the world’s biggest IPO in 2014).

Ambidexterity is especially critical for companies operating in diverse and dynamic environments. Not only large established companies require rejuvenation — even some Silicon Valley companies show signs of an aging portfolio (the bay area workforce doesn’t seem to be aging, but that’s a whole different story). Tech companies are maturing faster these days, and their rapid growth inevitably also builds organizational inertia. Bureaucracy increases with a company’s size, regardless of the industry.

In an attempt to bolster ambidexterity, Google recently created Alphabet, its new umbrella organization that separates Google’s “bread-and-butter” businesses like Google Search and YouTube from riskier or non-core ventures like GoogleX and Google Capital.

SoftBank faces a similar predicament — with its diverse array of stakes in other businesses including Sprint, Yahoo, Alibaba, and RenRen Inc. (a social networking service based in China).

While it’s easy to understand the importance of ambidexterity, achieving it is another story. That’s because the skills and mindsets required for exploration differ markedly from those needed for exploitation. To excel at exploration, companies must take risks, adopt a long-term perspective, experiment with fresh ideas, and nurture a culture that can tolerate failure. To get great at exploitation, they need the opposite — including disciplined management that eliminates unplanned variance and that focuses everyone’s attention on short-term results.

Switching between exploration and exploitation is hard enough. Harder still is running both approaches simultaneously. Yet that’s precisely what SoftBank’s Nikesh Arora will have to do with the renewal of Sprint on the one hand and the exploration of new business concepts and startups on the other.

Time will tell if Softbank succeeds with its split. So far, the capital markets have responded favorably. Despite the daunting nature of mastering ambidexterity, efforts to do so can win investors’ approval.

To learn about ways to build strategic ambidexterity, read “Your Strategy Needs a Strategy”(Harvard Business Press, 2015).