How do you uphold growth and profitability in an age in which rivals quickly erode most any competitive advantage? One option is to initiate entirely new businesses.
Consider how some companies have redefined their customer, the value offered, and the delivery method—a process we call strategic innovation:
- In 1996, General Motors formed a new business unit, OnStar, to commercialize an integrated information, safety, and communications system.
- In 2001, Procter & Gamble launched Tremor, a new marketing service for other companies.
- In 2003, the Walt Disney Company introduced Moviebeam, a wireless, no-hassle, in home video rental store.
If you follow several such innovation stories—each a tale of a new businesses (New_Company) within established and successful organization (Core_Parent_Company). You will be less interested in where the path-breaking ideas came from than how companies managed the process of going from idea to profitability. Nurturing creativity within an organization usually merits a great deal of attention, but the need for creativity is high only at the beginning of New_Company’s life. Once a business plan is in place, the need for creativity begins to decay rapidly.
An entirely new approach is needed—one that emphasizes neither the creativity that inspires New_Company’s launch nor the discipline that Core_Parent_Company demands to deliver bottom-line results.
New_Company Faces Three Distinct Challenges in Its Journey from Idea to Profitability
- Forgetting: New_Company’s business model is invariably different from Core_Parent_Company’s model. The answers to the most fundamental business questions—Who is the customer? What value do we offer? How do we deliver it?—are intensely different. The essence of the forgetting challenge is ensuring that Core_Parent_Company’s success formula is not imported to New_Company.
- Borrowing: New_Company’s biggest advantage over its competition is the wealth of resources and assets within Core_Parent_Company. The essence of the borrowing challenge is gaining access to these resources, and doing so in a way that does not damage Core_Parent_Company’s own commitment to excellence.
- Learning: New_Company’s business is highly uncertain. It must methodically resolve the specific unknowns within its approach as quickly as possible, and zero in on the best possible approach. Learning requires an entirely different approach to planning.
All three challenges obviously create tensions. To forget, New_Company must be distinct from Core_Parent_Company. At the same time, to borrow, New_Company must be linked to Core_Parent_Company.
At points of interaction, stress inherently arises unswervingly because of the differences in business models, values, styles, and priorities. Learning also leads to stress, because it requires an analytical discipline—much different from the operational discipline of execution and performance.
These are the types of tensions that can be healthy for New_Company, and when a corporation achieves them well, the journey from idea to profitability is a smooth one.
But is it worth the risk? Contemplate the risk of the alternative—sticking to the knitting—a choice that inevitably leads to decay. Without growth, CEOs lose jobs, employees stagnate, organizations become stale, and competitiveness languishes. Strategic innovation, on the other hand, can deliver breakthrough growth and generate new life-cycle curves. It enables companies to stay ahead of change by creating, growing, and profiting from new business models.