Toshiba Announces It Will Split into Three Companies

And why that’s a great thing

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11/16/2021

Deborah Hawkins, Colin McMahon

 

Three days after announcing that it would not split into three companies, Toshiba reversed course, announcing that it indeed would split into exactly three companies. Confusion aside, the weight and uncertainty associated with this announcement has been keeping many awake at night.

 

The three new companies will be:

  1. As yet unnamed company focused on energy and infrastructure services
  2. As yet unnamed company focused on electronic devices and storage solutions
  3. Toshiba holding its shares in Kioxia Holdings Corporation (KHC) and Toshiba Tec

 

The separation will allow each distinct company to increase its focus, facilitate more agile decision-making, and allow for leaner cost structures. The split has come about (in part) due to recent Japanese tax reform legislation, which encourages spin-offs—a sharp contrast from the Japanese industry of old. Toshiba’s case is the largest ever spin-off in Japan at a time when many industries, including document imaging, are in reformatory phases.

 

 

Why the Split Helps Toshiba’s Public Image

This announcement has been a long time coming. In 2015, a massive accounting scandal shocked the world and severely tarnished Toshiba’s reputation, resulting in the departure of a number of managers and culminating with a private equity group (CVC Capital Partners) making an unsolicited takeover bid earlier this year. The reorganization is expected to complete by the second half of 2023, which (particularly for the activist investors that have been instrumental in change) feels slow. But, as we know, this is pretty much new territory for the Japanese industry giants.

 

This black eye has dogged Toshiba mercilessly since it came to light, costing the company greatly not just in public relations but at the bottom line, as well. Branding, especially today, matters more than ever before. Any perspective client Googling Toshiba before announcing a deal would see the scandal in all its depth and infamy, and be forced to consider whether they wish to associate their brand with such a group. By distancing their workers from the Toshiba name, the company is allowing itself freedom from the past to grow and be associated with modern accomplishments, rather than what came to light in 2015.

 

 

However, there is another incentive for the split—one put into the spotlight by the COVID-19 pandemic.

 

Toshiba’s Split Spurs Agile Development

The principles and foundations of agile development originated in the software field, but these strategies can be applied almost universally across numerous industry verticals. As its name suggests, agile development techniques argue for stripping out everything in corporate structure that is not essential, rebuilding as a customer-alignment, transparent organization with streamlined processes designed to get the job done (and little else). Any changes from clients (such as a change in needs) are reflected deeply within the company, rather than added as an after-thought to a pre-existing mission statement.

 

The Future Is Agile
Toshiba is an old company, first founded in 1875. That’s literally over a century of tradition and expectations (internally and externally). While there is nothing wrong with a storied history or with growing organically as a company into new areas and new products, it can create a bloated infrastructure—one that cannot react to a sudden change no matter how violent or massive that change is (such as a global pandemic, for example).

 

Our research has seen that many larger, older companies are struggling with digital transformation, as larger companies frequently silo their data and (improperly applied) automation just leads to automated siloes, not a true corporate ecosystem. By breaking into smaller, more targeted organizations, Toshiba gives its workforce the ability to be agile. They can now drill down into industry-specific workflows and obligations, rather than existing as only departments in a massive whole.

 

Toshiba’s split speaks to the demand of the times rather than any adherence to tradition. For clients looking for modern solutions to complex problems, this is reassuring. It shows that Toshiba’s vision is firmly where it belongs: toward the future.

 

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