Are there any good reasons why a corporation should branch off to smaller companies in order to serve different sectors of purposes?

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My answer to Are there any good reasons why a corporation should branch off to smaller companies in order to serve …

Answer by Ken Larson:

Economies of scale with regard to cost elements such as common management, systems, reporting, and procurement are the main drivers corporations do not branch out often into smaller firms.

Major acquisitions pose similar issues in companies that have many of them for exactly the above reasons. Consolidation is a challenge and in many cases people adn resources have to go.

Most of my clients addressing your issue use the cost center approach to managing the different, uncommon elements of their businesses.

A cost center is a single, pricing, accounting, and billing entity within a company, organized for a group of business lines and clients with close similarities for technical and management purposes. It has its own unique overhead rate and houses the projected direct cost labor dollar base and associated expenses for that base.

Cost centers are then summarized and reported withing the company for management control purposes.

COST CENTER STRATEGIC PLANNING FOR SMALL BUSINESS SERVICE CONTRACTORS

Are there any good reasons why a corporation should branch off to smaller companies in order to serve different sectors of purposes?

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About rosecoveredglasses

2 Tours in US Army Vietnam. Retired from 36 Years in the Defense Industrial Complex after working on 25 major weapons systems, many of which are in use today in the Middle East. Volunteer MicroMentor. I specialize in Small, Veteran-owned, Minority-Owned and Woman-Owned Businesses beginning work for the Federal Government. MicroMentor is a non-profit organization offering free assistance to small business in business planning, operations, marketing and other aspects of starting and successfully operating a small enterprise. You can set up a case with me at MicroMentor by going to: http://www.micromentor.org/ key words: "Federal Government Contracting"

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