How to Borrow

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From 10 Rules for Strategic Innovators: From Idea to Execution, Vijay Govindarajan and Chris Trimble, Harvard Business School Press, Boston, MA. 2005

Balance the yin of forgetting with the yang of borrowing. Create links, yes, but only to lend NewCo a crucial competitive advantage. Avoid links where conflicts are severe. Avoid links to the IT or HR departments.

Find common ground. Reinforce values that NewCo and CoreCo share. In most cases, CoreCo will have some values that are inconsistent with NewCo’s business model. Still, the senior management team can facilitate cooperation by creating a “metaculture” composed of more general values.

Be careful what you ask for. To promote collaboration, reconsider individual incentives. Evaluate and reward CoreCo managers, in part, according to their willingness to cooperate with NewCo. Avoid strong incentives tied strictly to CoreCo’s short-term performance.

Co-opt CoreCo. To eliminate resistance from CoreCo’s general manager, make borrowing as painless as possible so that he can focus strictly on CoreCo. Replenish CoreCo’s resources when NewCo borrows heavily. Set transfer prices high enough to ensure that CoreCo will consider it a priority to help NewCo but not so high that NewCo cannot realistically achieve profitability. NewCo’s profitability is a powerful symbol. CoreCo will always be more enthusiastic about helping when there is evidence that NewCo is succeeding.

Be alert to tremors. Assign a senior executive to anticipate tensions between NewCo and CoreCo and to intervene should those tensions become destructive. The senior executive must be willing to commit a lot of time and energy and must be influential and respected within the corporation. She must continually explain the rationale for the differences between NewCo and CoreCo.

Force authority uphill. Unless NewCo is in danger of damaging one of CoreCo’s assets, particularly a brand, empower NewCo in its interactions with CoreCo. Without intervention, power will naturally shift back to the larger, more entrenched CoreCo.

10 Rules for Strategic Innovators

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