WHY ICI CHOSE TO DEMERGE

Britain's Imperial Chemical Industries (ICI), founded in 1926, was for decades the dominant producer in its home market, covering almost the entire range of chemical processes. As early as the 1940s, the board wondered whether a company so big and diverse was manageable, but ICI kept growing. During the 1980s, the company sought new sources of growth to offset sluggish sales of older products. The result was increased complexity of an already hard-to-manage portfolio. Hindsight reveals that ICI should have been narrowing its focus. The stock price failed to reflect the value of many of ICI's businesses, and a takeover threatened the company in 1991. A company task force, aided by outsiders, discovered that ICI's businesses could be divided into two clusters. Synergy existed within each of the clusters but not across them. Each group needed its own style of corporate parenting, and ICI could not parent both of them effectively. In 1992, ICI announced a demerger. It spun off its pharmaceuticals, agrochemicals, and specialty chemicals into a second company called Zeneca. So far, the demerger has been a financial success. Zeneca focuses on innovative products. ICI's businesses, which are less dependent on research, concentrate on achieving world leadership in the areas in which they already have a technological advantage. Their need is to reduce overhead, to improve utilization of assets, and to raise manufacturing efficiency. ICI's story shows how parenting skills that are developed in one phase of an industry's evolution may become less relevant in the next. The challenge for managers of multibusiness companies is to recognize the shift - and act on it before a crisis.