This Week's Herman Trend Alert

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  The Herman Trend Alert

September 18, 2002

Substantial Corporate Restructuring Ahead

Over the next couple of years, there will be a substantial amount of restructuring of corporations---including the composition of their business units, their organizational design, and the people who are on the payroll.

In their obsession to build conglomerate empires, many corporations have acquired companies that don't really fit. They have created new divisions to pursue a targeted market niche or to manufacture or sell a new product. These non-aligned business units are a drag on corporate leadership, finances, stock prices, and operations, yet they remain attached because no one has the courage to cut the umbilical cord. The current tight economy not withstanding, the cut must come. Few companies can sustain the drain on their resources.

For example, Aspen Technology is a supplier of software and service solutions used by companies in the process industries to design, operate, and manage their manufacturing processes. After purchasing Hyprotech (2001 revenue $50M) for about $100m in June, Aspen suffered significant operating losses and cash flow problems. With about 1,900 employees and 2001 sales of about $310M, publicly held AspenTech is now for sale. AZPN's market-cap has dropped from over $1B to about $140M. Observers say the company can be saved, but only with some radical streamlining.

Deep hierarchical structures will still work well for some companies, but most will find that such designs have spawned heavy, burdensome bureaucracy. Corporations will collapse under this weight if something is not done. No, this isn't about cutting more people; it's about changing the organization, changing the way companies are structured, so they can become more efficient and more effective.

A significant part of the problem is with people. Best-selling author James Collins, in his book, "From Good to Great," talks about having the right people "on the bus." There are only so many seats on that bus, so in order to bring on "A" players, the "D" players and many of the "C" players will have to go. Many of those who should get off the bus are in senior management. Top executives and corporate boards will have their hands full for a while.

++In our Herman Trend Alert of September 18, 2002, we stated that AspenTech is for sale. The company states definitively that it is not for sale at this time.

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