Why ICI Chose to Demerge

Why ICI Chose to Demerge

• Under what conditions could ICI have avoided a split up?

The long existing and successful company, ICI, faced a serious crisis during the eighties, due to a large mismatch between its corporate strategy and the needs of its individual businesses. Only the beginning of the next decade would bring relief: ICI decided to demerge into two separate firms, Zeneca and the new ICI. This huge decision could have been avoided under the following conditions.

First of all, this large multinational tended to look inward, not outward. Hostage to its legacy, ICI's policy was dominated by consensual decision making which retarded the procedures, tradition and emotional ties. Even though a series of changes were implemented during the eighties, ICI kept overlooking external conditions like fast growing and developing technologies and changing market and competition tendencies. A more open, aware corporate policy could have weakened the call for break-up.

Secondly, the ICI demerger could have been avoided if the company had not been so ambitious. Being the dominant producer in its home market, ICI became too big and overdiversified. It pushed its limits oversees since the domestic market was saturated.

This large international expansion proved to be incompatible with the persisting wish to control and coordinate all divisions to the same extent. To avoid the 1993 demerger, the focus should have been less on size and global scale and more on internal linkages and synergies and on the shareholders' needs, which were overlooked in the 60's and 70's.

Would it only have focused on its most successful and cost advantageous products, and not try to maintain a varied full-line production on numerous geographic fronts, the ICI headquarters could have reacted earlier, faster and more quickly on events.

Finally, the ICI demerger pre-empted the possible bid by Hanson Industries to take over ICI. The fact that ICI restructured on its own volition made the company a far less tempting target, since the company was able to realize the kinds of values that a raider would look to achieve. Thus, the threat of takeover forced ICI to split itself into two smaller, leaner, more competitive companies.

• How can companies find out that they need to redraw their corporate scope?

From the moment the balance between corporate control and diversification goals gets disrupted, the company better redraws its corporate scope or at least parts of it.

When one notices that the managers of the corporate firm abuse their