Conglomerates and Marketing

One of the best examples is Litton Industries. The company is known as a conglomerate, and yet many of Litton's acquisitions were a process of creating under a single roof the might otherwise have to buy separately on the open market. Thus, some years ago, Litton acquired and combined the Monroe Calculating Machine Company and the Swedish cash register company, Sweda. Subsequently it acquired Kimball, the company that manufactures the unit control punched tickets used by soft goods retailers for monitoring product movement and inventories. Then later Litton acquired Street er  a manufacturer of retail display cases.

Thee pattern was obvious. Litton was developing a vertically integrated competence to supply packaged systems to retails system that handle all the materials, information flow, and record keeping from warehouse to display counter to cash register to computerized inventory purchasing and financial centers. Litton was creating a new "product", a retail processing system. It hoped to alter the way large retailers planned and bought the equipment that was involved buying not be individual components from separate suppliers, but a whole system from a single supplier.

To call this effort a conglomerate is to mistake the apparent structure for the operating substance. Looked at in terms of how retailers traditionally operate, Litton expanded itself in order to provide its customers with a single, integrated product system. But looked at in terms of what this did to Litton (at least one segment of the company) the result was anything but conglomerate. We would not say that Ford Motor Company's acquisition years ago of its own steel mill and tire factory got it started as a conglomerate. We would call that "vertical integration." What Litton did in the retailing field is also vertical integration. The difference is that whereas Ford created or bought a series of suppliers for which it became the single customer, Litton put together a series of suppliers such that their customer, Litton put together a series of suppliers such that their customers might have a single source. Thus instead of Litton in this case being engaged in some sort of fiscal razzle dazzle, it was performing the perfectly respectable function of trying to better serve a new kind of customer buying need.