No.50  July 1, 2002   The Pure Company   Shigeru WATANABE          The concepts of "selection and concentration," "core and non-core," and "returning to the core business" have been introduced as guiding principles for corporate reorganization. In general, these concepts have been applied with a view to shedding operations that do not make money and retaining those that are profitable. Although this approach could hardly be called mistaken, it does not provide sufficient criteria for determining the scope of a firm's operations.      For many years, the criteria for deciding the scope of a company's operations have been derived from the idea of synergies (beneficial mutual interactions) between different types of operations. As an opposite concept, the new idea of anergy has emerged. This concept focuses on the negative effects of the mutual interactions between the activities of different business divisions under the same management.      Anergy considers the mutual effect between (1) verticality, which is the length of the value chain of development, manufacturing, and sales, and (2) laterality, which is the breadth of the scope of different businesses. As a result of the development of a market, a wide scope of business operations does not necessarily produce the desirable synergies. In contrast, the ill-advised integration of resources within the company has led to increased anergy and the negative effects arising therefrom.      A pure company is one that squarely faces up to anergy and then defines the scope of its operations. In most cases, a company will reduce the scope of its operations by focusing on anergy.      One aspect of the application of the pure company concept is corporate modularization. Along with the trend towards outsourcing to replace in-company procurement, the number of companies that rely exclusively on outsourcing has been increasing.      As pure company reform gains ground, enterprises that are encumbered by the weight of anergy (i.e., highly diversified but nebulous corporations) will be weeded out while others will be forced to break up and adopt pure company structures--in other words, well-defined corporate strategies that eliminate anergy. Contents I Impetus Towards Pure Company Reforms 1 European and American Companies Are Ahead 2 Segmentation of Lines of Business and Unbundling of Functions 3 Criteria for Optimal Scope of Business II Anergy: The Negative Effect of Mutual Interactions 1 Anergy Dispels the Myth of Synergy 2 Internal Optimization Will Not Guarantee External Optimization 3 The Myth of Selective Intervention 4 Deliverance from Anergy III Accelerating the Momentum of Pure Company Reforms 1 Well-Developed Markets Decrease the Opportunities for Synergy 2 Modularization of Corporate Activities IV Prospects and Issues for Japanese Companies GO to PDF