One of the largest multinational corporations in the world, Johnson & Johnson, has announced today that they will be splitting their company into two: one with a focus on consumer products, while the other focuses on pharmaceutical businesses. This split signals what I believe is the forward trend for multinational corporations: “Shrink to grow,” as David Faber put it.

When a company initially lists on the public markets, it is valuable to the market not because it is a jack of all trades, but instead because it’s serving a particular niche that the company figured out how to monetize (or not for some of these other companies, lol). The trend in the past couple of decades has been for large companies to become even larger by expanding their business offerings by acquiring different companies in different (and similar) market segments as a means to extend their scope and hopefully grow their profit margins.

$JNJ has picked up on something—which some other companies have picked up on as well—that focus is key if you want to truly grow and be in it for the long haul. Gone are the days where you have one company that does everything because the pace of technology no longer allows for a company to stay relevant if its energy is scattered. Further evidence of this can be found in J&J’s rationale for the split:

As mentioned in this video, $ABBV & $ABT provided a great case study as to WHY companies should split, especially when a company’s business offerings diverge as time progresses. There is a natural inclination for things to diverge in nature, rather than to converge, and it's smart for any person or company to bet on that likelihood, over the other. There’s an incredible amount of power in focusing, and focus is perfectly exemplified by what happens when you focus a magnifying glass on one particular point and it starts a fire, versus moving it all around and nothing happens.

Taken from the book Focus, by Al Ries, “Only when a specialist has a chance to compete with a generalist can you see the value of being a specialist. If there are no specialists, then all the winning companies will be generalists.” And when the pace of technology is exponential, it is ONLY the specialist that is well-positioned to take advantage of new technology in a way that unlocks new value for the consumer, rather than the generalist. Conglomerates are not as nimble, and it makes them much more defensive than a smaller startup that is operating on the offensive. “But as a conglomerate grows it falls victim to the flywheel effect. The larger the wheel, the faster the speed at the periphery and the greater the chances of problems developing.”

With the current wave of decentralization washing through, it’s just not good business for a company to be a conglomerate anymore. Better to be known and respected for providing quality goods and/or services to a particular niche, than to get lost in the proverbial sauce and not have an identifiable brand. This is one of the major reasons why even though J&J does have many products, they are all under the J&J umbrella; their products don’t all share the same name. “The more products and services that you hang on a name, the less focused and less powerful it becomes.” Put another way, “…in a competitive environment, more is often less because with more you lose focus.” With this info in hand, when a company boasts that they’re getting into a bunch of different markets that have no real relation to their core offering, that is a sign to RUN.

I could go on and on about how important it is to have focus in business and in really, any area of your life, but I’ll leave you with this quote: “The power in business doesn’t derive from your products or your factories. It derives from your position in the mind. And a specialist, or focused company, is in a much stronger position than a generalist.”

Welcome to the era of the specialist!