Unbundling is a transformative process where a company divests certain assets, product lines, divisions, or subsidiaries while retaining its core business functions. This strategic move aims to create a better-performing company, either by freeing up resources, raising capital, or allowing for a more focused business model. Unbundling can also mean offering previously bundled products or services separately.
Key Takeaways
- Unbundling optimizes business operations by selling off specific assets or divisions.
- It facilitates offering products or services separately that were once packaged together.
- Unbundling can raise capital or distribute cash to shareholders, thereby improving share performance.
How Unbundling Works
The decision to unbundle can emerge from either the board of directors or company management. Shareholders may also influence this decision if the company’s stock is underperforming, there’s a need to raise capital, or there’s a desire to distribute cash to shareholders.
Unbundling can also refine the company’s core focus and make it a ‘pure-play’ that analysts can easily benchmark against its industry peers. This heightened clarity often improves the company’s visibility and, consequently, its stock price.
Managers may call for unbundling to enhance company performance. Unbundling often improves stock prices and can bring significant strategic advantage, especially if a company includes an acquisition scenario where unwanted assets are divested shortly after the purchase. In other instances, unbundling could mean reorganizing operations into separate entities while still retaining control, fostering better opportunities for long-term success.
An example of product unbundling is the mobile phone industry trend, where cellphones and their service plans are no longer sold together but as distinct, selectable options.
Benefits of Unbundling
Product unbundling could be immensely beneficial in providing diverse options for consumers. Offering individual products instead of bundled packages allows companies to meet specific consumer needs, potentially increasing revenue. An unbundled approach opens up the possibility for more consumer-tailored offerings and leverages more strategic market experimentation.
When customers prefer purchasing individual products over a bundled package, unbundling meets this demand, often boosting the company’s revenue by capturing different consumer segments. The flexibility enables the company to innovate and adapt according to market needs and consumer behavior.
Example of Unbundling
Take the example of Cisco’s unbundling move in 2001. Cisco spun off a division to form Andiamo Systems, while retaining partial ownership. This allowed Cisco to continue contributing to and benefiting from the new product line, delivering a competitive advantage. }
Related Terms: subsidiary, shareholder, benchmarking, competitive advantage.
