A Separate Unit or Not?

Think Like a CEO: How to Manage and Grow a Disruptive Innovation Next to the Core Business Section 3: Six Insight on How to grow Disruptive Innovations next to core
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Transcript

Let me move on to the second point, we spend quite a bit of time on point number one, because it's very important, but we'll go through the other points more quickly. Second point is pretty straightforward. If you want to grow a disruptive innovation, it's usually, but not always better to grow the disruptive innovation in a separate unit. Why? Well, there are several reasons. One of them is to protect it from the core.

Remember, it's disruptive. So the core business managers may want to sabotage it may want to antagonize it. So one way to protect is is to separate it from the core business. The second reason is to give a dedicated attention that it deserves to put dedicated people on it with aligned incentives, in short, several reasons to put it in a separate unit. But I'm here to tell you that even though on average, it's better to put it in a separate unit. This is not always the case.

We have to realize we have many examples of companies that grew disruptive innovations within the existing organization. And they did successfully. And it goes to show that it's not necessarily the right strategy to separate them, you really have to think about it. And although there are many variables that you need to take into consideration, there are two of them that really stand out. One of them is how big the conflicts are between the innovation and the core. And I've told you there is always conflict between them.

But how big artists? Are they small conflicts and they are manageable, or are they large conflicts? The second point that I want to highlight are the potential synergies, how big are the synergies between the innovator and the core business, I always look at those two variables, and it allows me to draw a two by two matrix on the vertical axis, a half conflicts series or minor and at the horizontal axis, the potential for synergies either low or high strategic synergies. And when you develop it like this, you can see that there are at least four different strategies that you could follow better to separate or not. Let's take scenario a in which there is serious conflict between the innovator and the core business. And there is not much relatedness there is they're operating in different markets.

In this case, separating the unit seems to be the obvious choice. Now let's look at currency. Here you have a situation where there is minor conflicts between the innovator in the business and high strategic relatedness. In this case, keeping the innovator inside may be the better solution. And then there are situations like quadrant three where there are high conflict, but also high strategic relatedness. What should you do there?

Well, my suggestion is, potentially to separate it at first, and then gradually bring this insight over time to make most of these strategic relatedness. And then similarly, for quadrant D, you might want to build it inside first, and then gradually spin this unit out. And again, I'm not telling you that this is the only solutions that you can take but I'm showing you this to highlight that creating A separate unit is not always the only solution that is available. On average, I still believe that separating is the better strategy. But I highlight this so you can think about this and take into consideration the unique circumstances for your situation. Another important factor is whether you see the innovation as the future.

If this is the case, then you may be better off creating a separate unit to grow over time so that in 10 2025 years, you can simply shut down the core business and migrate to the new thing. So that is point number two do I create a separate unit or not?

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