Over the past several months, we’ve enjoyed interacting with many executives intrigued by our lead article, “Building Breakthrough Businesses Within Established Organizations,” in the May 2005 Harvard Business Review. In that article, we described an organizational approach that gives a promising new venture inside a large corporation the best possible odds of success.
Briefly, the approach is to build a NewCo distinct from CoreCo, but not isolated from it. When the design works, NewCo is able to forget CoreCo’s success formula, borrow CoreCo’s resources, and learn how to succeed in its emerging and uncertain market. The approach allows NewCo to thrive while minimizing the distraction for CoreCo, so that CoreCo can continue with its main task — sustained excellence in its proven business.
Our article has caught the attention of a number of executives who are currently in, or were once in, distressed companies. Their stories go something like this: We’re under siege. A new competitor has arrived on the scene and has completely changed the rules of the game in our industry. (Think about what Microsoft and Intel did to IBM and Digital Equipment, or what Wal-Mart did to Sears and K-Mart.) We need to build a new business, operating by a different set of rules, so that we can compete. CoreCo will have to be completely transformed in the process. CoreCo is dying.
As faculty members of the Tuck business school and consultants to corporate leaders engaging in experimental, new businesses, our response is that you needed us about a decade ago. At this point, you’re behind the curve — not ahead of it. You should have been creating something new — instead, you’re trying to overhaul something old. Instead of needing our recommendations for preventive care, you need emergency surgery.
A company that tries to redefine how its industry operates by launching a new business needs a balanced organizational approach. This method must nurture NewCo’s unproven possibilities while sustaining CoreCo’s proven operation at peak performance. A company trying to adapt a new, already proven, way of business that’s thriving under the competitor’s roof needs a wrecking ball and reconstruction crew.
One of the organizations we studied is The New York Times Company. Ten years ago, the company launched a new business — their online operation known today as New York Times Digital. It is doing well. It’s making a profit and remains a promising growth platform. The company’s ahead of the curve because they launched NYTD back in 1995, as the internet was just arriving on the scene. Someday, possibly even soon, internet media will catch on to the extent that it will quickly erode the business of printed newspapers. The New York Times Company is well positioned for this possibility: It invested in preventive care. Many of its media brethren, though, are less prepared. They may soon need emergency surgery.
Are you facing an emerging technology or a new competitor that maybe — just maybe — if it’s successful, will fundamentally change how your industry operates? If so, you have two choices: 1. Try to make it go away; 2. Launch your own answer to the threat — a better version that leverages your company’s strongest assets and capabilities.
Emergency surgery is difficult, and dangerous. Mortality rates are high. That’s not to say that launching a new venture is easy or risk free. It is not. More often than not, new ventures fail. But which would you rather lose — little NewCo or massive CoreCo?