By John Ukoh
DIVESTMENTS, or di vestiture as is called by some, is the deliberate business process of letting go of an asset or investment, by the owner or investor to another company or investor. It is an age-long business practice usually undertaken for a diverse number of reasons. It could be as a tactical restructuring exercise, or some necessary measure necessitated by business survival or the desire to harness and optimise potentials.
Divestment: Strategy’s missing link, published in the ‘Harvard Business Review’ of May 2002 illustrates the power that can be unleashed with the deliberate adoption of divestment as a focus-strategy. The article notes how “smart apple farmers routinely pick and discard some perfectly good apples, ensuring that the remaining fruit gets the energy needed to reach full size and ripeness. Only through such careful, systematic pruning does an orchard produce its highest possible yield”.
The lesson is that managers and corporate entities need to embrace divestitures by pruning off non-core business units to achieve greater operational efficiency.
Famous author, Zig Ziglar, affirms same in one of his bestsellers. He notes that: “You will never realise more than a small fraction of your potential as a wandering generality. You must become a meaningful specific”. Broken down, this counsels that one needs to subject one’s aspirations to the difficult virtue of single-minded focus to unlock fully, the most returns on our core skills and competencies.
Creating greater shareholder value
A McKinsey & Company study of the performance of the 200 largest U.S. corporations from 1990 to 2000 revealed that companies that actively combined divestment in managing their business portfolios created substantially more shareholder values than those that passively held their businesses.
Some legendary executives that leveraged tactical divestiture programs to remarkably enhance the fortunes of their organisations, according to the earlier Harvard Business Review, include Jack Welch. He is on record to have divested 117 business units during the first four years of his tenure as CEO at General Electric. In the process, Welch transformed the performance of the energy giant to levels unprecedented before his stewardship.
Proactive divestment fast becoming a trend
Unsurprisingly, major organisations across markets and sectors worldwide are increasingly embracing divestment to strengthen their hold as market leaders. Some of the significant corporate decisions of the past 6 to 12 months are evidence:
In September 2019, General Electric (GE) commenced the process of offloading its 50.4 percent ownership in Baker Hughes, an oil and gas company in continuation of a series of strategic divestments from non-core business concerns to focus on its core business of manufacturing of jet engines, power plants and renewable energy.
•Sweden’s auto giant, Volvo AB in December 2019 announced plans to sell its Japan-based UD Trucks business to Isuzu Motors as part of efforts to improve its cash pile and refocus the company to where it is most potent.
•Kellogg Co revealed in March, plans to sell some assets including cookie brands Keebler and Famous Amos, as well as its fruit-flavoured snacks, pie crusts and ice-cream cones businesses to Nutella maker Ferrero Group to focus on its core strength of cereal and snacks businesses.
•In April 2020, FBN Holdings revealed it was in discussions to divest from its insurance business as part of a broader strategy to focus on the group’s core business of banking.
Strategy Imperative to financial services sector challenges
Current realities in the financial services sector headlined by the incursion of smart FinTechs, resources-rich Telco operators, and nimble Mobile Wallet providers leveraging a plethora of technological innovations to meet the financial services demands of the ‘NOW’ marketplace, are forcing many traditional banks to reconsider their operations in the new competitive landscape. Marketplace exigencies demand they execute a fundamental shift in their operating structures and customer engagement models to an always-on approach to be able to earn and retain today’s 24-7/365 demanding customer.
However, this shift requires new tools and massive investments. Like FBN Holdings, more banks are turning to divestments as a strategy that will unlock both the greater efficiency required to cope through a streamlined business model and the investments essential to the adoption of requisite technologies and tools.
According to the Ernst & Young 2020 Global Corporate Divestment Study, 85 five per cent of financial services respondents plan to divest businesses, assets and portfolios within the next two years. And according to Tim Buckley, Director of Energy Finance Studies at Australasia in the IEEFA Report for 2019, “over 100 globally significant financial institutions have divested from thermal coal…”.
FBNH: Pivoting to core banking
Following FBN Holdings’ just concluded divestment from FBN insurance, the Group GMD, U.K. Eke stated that “the successful divestment is one more step in the direction of our medium to long term strategic objective of focusing on our area of core competence, for greater efficiency, and deliver greater value to all our stakeholders”.
The core competence he referred to is the banking business which has been contributing the most to the Group’s bottom line. In the Financial Report for the Year ended 2019: First Bank contributed 88.2% to Gross Earnings, and 85.2% to the Profit Before Tax of the Group.
New generation and shared leadership
For over a century, First Bank held sway as the leader in Nigeria’s financial services sector. Though it remains the most valued banking brand, the increasing dynamism in the sector has seen the bank cede some part of its sectoral leadership to a couple of other institutions that gained market shares following their emergence as new generation banks in the 1990s.
Smart Leadership & Solid Strides in Digital Economy
In pursuit of its brand purpose to always put customers, partners and stakeholders at the heart of its business, while standardising customer experience and excellence in financial solutions across sub-Saharan Africa, the management at FBNH has taken strategic steps at reclaiming category leadership of the banking sub-sector in recent years. One such measure has been the deliberate re-tooling of its operational models with technology and innovations.
This committed effort to upscaling its digital banking in Nigeria has been quick to yield commendable results:
•First bank was the first to issue over 10 million debit cards in Nigeria.
•Over 228 million users on its USSD banking service through the nationally acclaimed *894# banking service
•First Bank pulled in over 3.4 million users on its Firstmobile platform.
Primed for full banking sector leadership
However, these substantial strides are about to get better for the Nigerian banking public going by the words of Dr Adesola Adeduntan, CEO of First Bank. Commenting on the bank’s performance in the 2019 financial year, he said: “Overall, we are pleased with the progress that has been made in our digital journey as over 85% of our customer-originated transactions are now processed on digital channels. We will continue to leverage technology to offer superior customer service and enhance operational efficiency.
With this divestment therefore, the apple farmer has pruned the vineyard, letting go of a perfectly good insurance business apple. The FBNH orchard is about to deliver bountiful harvests of first-class modern banking solutions in a technology-immersed future to the youth and the youth at heart.
•John Ukoh, an investment analyst, wrote in from Lagos.