Monday, 12 November 2007

NewCo / OldCo

I blogged recently on the 4 Horizons approach to corporate project portfolio management. One of the questions that frequently arises with Horizon 3 and Horizon 4 projects is whether you should try and launch these within the existing business, or within a separate start-up management structure.

The attractions for doing it within a separate management structure are reasonably obvious:
1. You can bring in fresh people with fresh ideas (rather than the existing problem who may be seen as part of the problem rather than part of the solution),
2. Who can start with a blank slate, and
3. Are not encumbered by the daily grind of problems in the old world which take up the valuable time they should be spending on developing the new proposition.

However, the disadvantages are also significant:
1. The staff working in the existing business will become alienated by (and potentially obstructive towards) the new idea,
2. It will be hard to motivate them to work on what will undoubtedly be perceived as a less exciting proposition, which will not get the investment they want to fix the problems they face every day, and
3. Ultimately (and possibly more importantly) this lack of enthusiasm in the existing business will spill over into its clients, who may start to look more actively at competing propositions. (The result being that by the time the new proposition is ready to launch you have lost the advantage of your existing client base!)

Branding the new offering becomes a complex decision. Do you retain links with your existing brand (and hence customer-base) and live with the juxtaposition of the new and the old under a single heading, or do you go for an entirely new brand with all of the investment that that requires.

At some point, if you try to separate your new and existing propositions too much, you are effectively funding a start-up from the profits generated by your existing business. At this stage the shareholders might legitimately ask why you did not return the excess funds to them so that they could decide for themselves if they wanted to invest in the risk inherent in a start-up venture. (In most cases, it would probably be inappropriate for them to do so as the risk profiles of the existing and new businesses would be so far apart.)

However, there is a win-win situation where the "new" proposition can be positioned as breathing new life into the "old" proposition. This is particularly the case where the new proposition is:
1. A product line extension, especially where the new product complements and enhances the existing product, or
2. A vertical extension, forwards or backwards into the value chain, where the new proposition represents an improved component supplied into the old proposition, or a revolutionary way of packaging and selling the old proposition.
(The launch of Egg by Prudential is a well-known example which attempted to achieve both a product line and vertical extension in a single new startup business.)

Whichever way you go, Horizon 3 and Horizon 4 projects require particularly strong leadership to inject new life into a business without alienating the those staff and customers who are heavily invested in the existing business. The aim being to bring your existing staff and customers along through a journey, rather than to canibalise them and risk destroying whatever value you have already created.