On April 2, 2024, at a ceremony outside the New York Stock Exchange, General Electric stopped existing. In its place stood three companies: GE Aerospace (market capitalisation roughly 154 billion US dollars on the day), GE Vernova (35 billion US dollars, energy), and GE HealthCare, already spun off the previous year and worth around 40 billion US dollars. The parts trade today for more, in combination, than the whole ever did. A business worth close to 600 billion US dollars at its conglomerate peak in 2000, with Jack Welch still running it, had been judged by investors to be more valuable in pieces than when kept together.
The explanation bankers offer is the conglomerate discount. A study of 6,000 German firm-years between 2000 and 2019 puts the number at between 7.9 and 11.5 per cent. Globally, close to half of diversified firms trade at a discount to the sum of their parts; roughly a third have done so persistently for five years or more. Break-ups tend to produce share price outperformance in both the short and long run. The market, in short, has views on whether sprawling is a good idea, and those views are uncharitable.
Emerging Europe, our partner platform, recently argued that Italian espresso bars, Ryanair and Aldi offer a lesson in doing one thing very well. They do. The more interesting argument lies a step beyond that, because most company bosses already believe in focus, in the abstract, and abandon it in practice under cover of a word they find irresistible. That word is reinvention.
Scope creep is not reinvention
Reinvention and scope creep look similar from outside, but they behave differently. A firm that reinvents itself changes what it is. A firm that scope creeps adds to what it is. The first requires subtraction and the courage to say no. The second requires only the willingness to say yes, repeatedly, to things adjacent enough to sound strategic.
Novo Nordisk is currently showing what the harder discipline looks like in a large European business. The Danish drugmaker has spent a century working on diabetes.
Semaglutide, sold at one dose as Ozempic (for diabetes) and at a higher dose as Wegovy (for obesity), made up about 70 per cent of Novo’s 2024 sales of 290 billion Danish kroner (39 billion euros). Mike Doustdar, the new chief executive, spent his first months in office last year cutting 9,000 jobs and closing research programmes that had nothing to do with diabetes or obesity. Other projects were ‘deprioritised’. This is not a company casting around for something else to do.
Hermès is the same argument in more expensive packaging. In April 2025 the Paris leather-goods house briefly overtook LVMH in market value ( 243.65 billion euros against 243.44 billion euros), despite producing roughly a seventh of its rival’s revenue. The Hermès family owns 67 per cent of the shares. It runs one brand, slowly, with craftsmen who take 20 hours or so over a Kelly bag. Operating margins sit at 42-44 per cent, about double LVMH’s. Between 2010 and 2014 Bernard Arnault tried to take Hermès by stealth, and was eventually obliged to sell. Anyone who bought the stock when he first surfaced as a shareholder is up roughly tenfold. Arnault’s own shareholders are up six times. Doing fewer things, very deliberately, seems to be rather profitable.
CD Projekt, the Polish studio behind The Witcher and Cyberpunk 2077, sold its online storefront GOG last December for 90.7 million złoty (21.2 million euros). GOG had been part of the business since 2008 and was both profitable and well-regarded by gamers. The studio decided it was getting in the way of making games. The 851 developers who remain work almost entirely on two existing franchises and one new title. A firm choosing, on purpose, to be smaller.
The adding habit
Growth is the usual culprit. Shareholders insist on more of it. Core markets rarely supply enough. Acquisitions are the quickest way to get a fresh line on an investor-day slide, and the easiest way for a chief executive to look decisive at a board meeting. After growth come the incentives. A deal earns the chief executive a bonus, while advising on the deal earns the bankers a fee. The board gets a strategic review to fill its retreat. No one on an earnings call has yet announced ‘this quarter we added a business we’re not good at’.
Vocabulary handles the rest. New divisions arrive wrapped in transformation, innovation, digital, AI or (irresistibly) reinvention. A firm that has overpaid for a rival is not overpaying. It is making a bold bet on convergence. A bolt-on that the operating team fought against is not scope creep. It is adjacency. Shelved products become pilots. Closed offices become rationalisations. The rhetoric does the heavy lifting while the substance drifts.
Bridging the Reinvention Gap
The structural problem is the one nobody inside the firm wants to acknowledge. Innovation labs add things. Transformation offices add things. Chief reinvention officers, when firms have them, also add things. AI strategy teams, ditto. None of this apparatus was designed to close anything down. Subtraction means killing a product somebody champions, often a colleague. It is emotionally expensive, legally fiddly, and professionally unrewarded. When subtraction eventually arrives, it is usually imposed from outside by people nobody invited.
Honeywell is the textbook example. After a year-long portfolio review, and after Elliott Management disclosed a five billion US dollars stake in late 2024 and sent the board a pointed letter, the American industrial conglomerate said in February it would split into three. Its advanced-materials arm, renamed Solstice, began trading on its own in October. Aerospace and automation will separate in the second half of this year. Two or three years of corporate undoing, to undo several decades of corporate doing.
Less is dearer
Activist funds have spotted the asymmetry. Elliott, Starboard, Trian and ValueAct make a very good living telling conglomerates to break themselves up. The trade is reliable because the market rewards focus and punishes sprawl. Specialists change hands at premiums. Europe’s real winners of the past decade are all, in essence, one thing: ASML makes lithography machines, Ferrari makes supercars, Hermès makes leather goods, Inditex makes clothes, Novo Nordisk treats metabolic disease.
Governance does most of the heavy lifting here. Family firms, dominant founders, pension funds with 40-year liabilities, concentrated owners of any kind: all tend to resist sprawl better than diffuse institutional shareholders do. A shareholder who cannot sell their stock without asking their cousins’ permission thinks differently from a shareholder who can sell immediately. The Hermès cousins, above all, wanted to still be making bags in thirty years. Arnault was running a different calculation.
Proper reinvention is what serious companies do all the time. Netflix went from posting DVDs in paper envelopes, to streaming, to making its own films; it is still, recognisably, in the business of getting stories to sofas. Nvidia moved its chips from teenagers’ bedrooms to every data centre on the planet, without adding cars, phones or its own cloud. Each of those transitions required giving something up. None involved bolting on.
Most of what calls itself reinvention today is the opposite. The average corporate deck in 2026 turns an acquisition into a pivot, a new division into reinvention, a bolt-on into the future. Michael O’Leary, Ryanair’s boss, has spent nearly twenty years giving interviewers the same answer whenever they ask why his airline has no business class, no long-haul, no loyalty scheme: the day Ryanair stops knowing what it is, is the day it stops making money. The Italian barista pulling her next espresso would probably nod.
Photo: Dreamstime.
