Building Breakthrough Businesses Within Established Organizations
The Idea in Brief
Why did toy and gaming giant Hasbro unload its new software division at a rock-bottom price just five years after launching it? Like many other established companies, Hasbro learned the hard way that new ventures rarely coexist peacefully with the core businesses that launched them. The company failed to nurture its nascent division--and the venture stumbled badly.
Innovative ideas aren't enough to fuel breakthrough growth in a new business. To thrive, new ventures must surmount three challenges:
Forget some of what has made your core business successful--such as which skills to acquire and which customers to serve.
Borrow only those assets from your core business--brands, sales relationships, manufacturing capacity--that provide a distinct competitive advantage.
Learn quickly. The faster you resolve your venture's inevitable unknowns, the sooner you'll zero in on a winning business model.
To master these challenges, you must redesign virtually every aspect of your new business--from hiring, performance evaluation, and budgeting to compensation, definitions of success, and reporting relationships. Hard work? Yes. But the payoff is worth it. By artfully blending forgetting, borrowing, and learning, the New York Times Company's new Internet division turned around a dismal start and generated profits just a few years after launch.
The Idea in Practice
To translate breakthrough business ideas into breakthrough growth:
Forget
Your new venture has unique answers to the questions 'Who's our customer?' 'What value do we offer?' and 'How do we deliver that value?' Yet institutional memory (stories about the established company's history, or traditional performance measures) can prevent the new business's leaders from forgetting the old answers. Your strategy? Restructure the nascent division.
Corning launched Corning Microarray Technologies (CMT) to make glass laboratory apparatus for the emerging genomics industry. CMT stumbled initially, after adopting Corning's traditional product-development model--which didn't apply to genomics work. Only after Corning restructured CMT did the division launch a successful product. Changes included appointing a new general manager, who facilitated communication between businesspeople and scientists and consolidated far-flung CMT employees to develop a unique culture.
Borrow
Borrow assets from your core business only if they afford such a competitive advantage that you'd highlight it in a pitch to outside investors. Typically just one or two areas (e.g., Corning's expertise in glass manufacturing) will meet this criterion. Once you've borrowed, manage the resulting tensions between your new and old businesses.
When the New York Times Company's Internet business, New York Times Digital (NYTD), borrowed the newspaper's branded content and advertiser base, an 'us versus them' undertone developed. The paper's editorial staff worried about protecting its brand; its circulation department accused the Internet business (which offered free content) of cannibalizing newspaper subscriptions.
To manage the tension, company leaders conducted analyses showing that the Web site was generating new newspaper subscriptions. And during performance reviews, managers stressed the importance of cross-unit collaboration. Results? After becoming profitable, NYTD began generating $30 million-plus annually on revenues of $100 million.
Learn
By analyzing disparities between your new business's predicted and actual performance, you can develop a winning business model or exit a hopeless situation in time. Expect that early predictions will be wild guesses. Resist the temptation to discard them: In time, your guesses become informed estimates and then reliable forecasts.
To accelerate learning, create and review simple business plans at frequent intervals. Evaluate your new division's and core business's performance in separate meetings. Don't judge performance of the nascent unit's leader against standards used in the old business. Instead, evaluate his or her ability to learn and make good decisions.
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Copyright 2005 Harvard Business School Publishing Corporation. All rights reserved.
Further Reading
Articles
Harvard Business Review
September 2003
by Gary Hamel and Liisa Välikangas
This article emphasizes the importance of forgetting business models and strategies that worked for your established business but may impede your new venture. Established companies have to 'get different.' That is the key challenge facing Coca-Cola as it struggles to raise its 'share of throat' in noncarbonated beverages--and the task bedeviling McDonald's as it tries to restart its growth in a burger-weary world.
A new business's success rides on its ability to dynamically reinvent itself. To achieve this strategic resilience, nascent ventures have to eliminate denial, nostalgia, and arrogance. They also must learn how to create a wealth of small tactical experiments, as well as reallocate financial and human resources to areas where they can earn the best returns.
Darwin and the Demon: Innovating Within Established Enterprises
Harvard Business Review
July-August 2004
by Geoffrey A. Moore
Attempts to launch a new venture are often thwarted by the inertia created by the established business's success. To overcome the inertia demon, managers must make savvy choices about what types of innovations to introduce when--and who will lead them.
Introduce different innovation types at different phases in your market's life cycle. For example, in a mature market--in which category growth has flattened and commoditization has increased--disruptive technological innovations and product innovations generate less growth than marketing innovations, such as improved customer-touching processes.
Different innovation types also require different leaders. For instance, for a marketing innovation, assign your marketing VP as executive sponsor and your marketing manager as the innovation team's leader. For a business model innovation, the CEO is the sponsor; the general manager, the innovation team leader.