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Disposal of liability

Disposal of Liability

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Definition & Summary: Getting rid of a toxic or obsolete component in your value chain, despite internal resistance . This means divesting, shutting down, or otherwise removing parts of the business that have become liabilities (no longer valuable and even harmful due to inertia they create).

Detailed Explanation: Over time, certain products or operations turn into burdens -- they consume resources, create inertia (people cling to them), and block evolution. Disposal of liability is the strategy of overcoming internal inertia to cut loose those parts . It could be selling off a division, discontinuing a product line, or migrating off an old platform. The purpose: free the organization to focus on future-facing elements and eliminate drag. Key principle: courage and clarity -- it often meets internal opposition ("We've always done this!"). Need to make the case that keeping it is more risky than disposing. Disposal can be outright or phased (sunsetting with support for a period).

Real-World Examples:

  • Historical: IBM selling its PC division to Lenovo (2005) -- IBM realized PCs were commoditized (low margin) and the PC business was holding it back from shifting to services and software. Internally, PCs had been a core product, but IBM disposed of this liability (sold the entire division). This allowed IBM to shed a declining business and focus on higher-value segments. Initially controversial, it proved wise as IBM flourished in services while Lenovo took on the low-margin hardware game.

  • Historical: Kodak's late 90s attempt -- Kodak had a massive film business (becoming toxic as digital rose). They did try partial disposal by spinning off some chemicals and healthcare units, but they infamously clung too long to film. A positive example is hard because Kodak mostly failed to dispose in time -- a cautionary tale that not disposing a liability (film factories, etc.) contributed to bankruptcy.

  • Hypothetical: A telecom company still runs a legacy copper network alongside fiber. The copper network is expensive to maintain and limits new offerings, but internal teams resist shutting it down for fear of losing traditional customers. The company decides to dispose of this liability by selling the copper infrastructure to a smaller firm (perhaps one that specializes in late-stage asset running) or by gradually decommissioning it region by region, pushing remaining customers to fiber or wireless. This frees the telecom from maintenance drag and allows full focus (and capital) on fiber and 5G.

When to Use / When to Avoid:

  • Use when: A part of your business is clearly past its prime and hindering transformation. Especially if maintaining it ties up significant resources or if its presence causes strategic inertia ("we can't do X because it might upset the legacy customers/product"). Use when the opportunity cost of keeping it outweighs short-term losses from disposing. Also, if market conditions for disposal (buyers or alternate providers) are favorable -- e.g., you find someone willing to acquire the legacy unit.

  • Avoid when: The liability still generates cash critical to funding new growth (timing matters -- you might milk it a bit to fund the transition, but plan disposal before it turns into a loss-maker). Also avoid abrupt disposal if you have obligations (e.g., contractual support for customers -- you may need a transition plan to avoid reputation damage).

Common Pitfalls:

  • Internal resistance: Divisions or people tied to the legacy asset will fight for survival, often underestimating the harm of keeping it. This can delay action until it's too late. Overcoming this requires strong leadership backing (possibly top-down directive since consensus may never come).

  • Customer blowback: If not handled gently, loyal customers of the legacy offering may feel abandoned. It's important to provide migration paths or partner with someone to take care of them (e.g., sell to a company that will continue service).

  • Legal/operational complexities: Shutting down can have hidden costs (layoffs, contract terminations, environmental cleanup if physical assets). Underestimating these can make disposal messier than thought.

Related Strategies: Sweat & Dump (a method of disposal via third-party exploitation), Pig in a Poke (selling off an asset under rosy pretenses), Refactoring (internal disposal by repurposing parts of the legacy into new uses -- an alternative to outright disposal). All these are ways to handle toxic legacy.

Further Reading & References:

  • Wardley Maps Forum -- "Overcoming internal inertia to disposal" . Emphasizes that your own org will fight you even when an asset is toxic, highlighting the need for resolve in disposal.

  • Business Cases: GE's divestiture of GE Capital (2015) -- once core, GE Capital became a liability (regulatory burden, volatile). GE disposed most of it to refocus on industry, which can be seen as disposal of a liability to reduce risk and complexity.

  • HBR: "Pruning the Corporate Portfolio" -- article on when and how to divest business units that no longer fit strategy (aligns with disposing of liabilities concept).