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STRATEGY

" Intrapreneurship" ? Spinning Off a New Company
 

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Are you thinking about spinning off a new venture from your existing company? Gary Hamel, author of Leading the Revolution (Harvard Business School Press), suggests that companies must learn to constantly reinvent themselves to compete successfully in the new economy. Last spring he shared with Inc. his thoughts on successful "intrapreneurship" ? the process of starting a new company from within an existing one.

Hamel: The idea of intrapreneurship goes back at least a decade and probably longer than that. I think that most of the many companies that set up internal venture divisions during the 1980s and 1990s were failures. What typically happened was someone was passionate about an idea, and that idea would get dumped into one of those venture divisions, which became orphanages for unloved ideas. Most never produced new businesses that had any material impact on the success of the parent company. Why? Companies were given very simplistic advice: "If you have a potential new business, isolate it from the rest of the organization, so it won't be infected. Give it enough space to grow." Although that advice was partly right, it meant that those new businesses couldn't tap into the resources of the existing ones, like the brands and competencies of the parent organization.

Inc.: How can companies successfully foster growth through internal start-ups?

Hamel: First, you have to cultivate a climate in which activism is encouraged. I often ask divisional presidents and vice-presidents, "Who in your organization do you believe is responsible for fundamental shifts in strategy?" Often they come back with the president, the CEO, or the head of strategy. But there is only one right answer, and that is "Everybody." Companies must create a climate in which everyone has the potential to create new things.

The real challenge for any company trying to unleash new businesses is that people have to believe that this is not an unnatural act. This is what's going to have to happen in companies -- bringing ideas, capital, and talent together from all across the corporate empires. Companies have to learn how to leverage the competencies and the assets that they already have within. They can't cut them off entirely or set them off entirely on their own.

Inc.: Is that practical for small companies?

Hamel: I think it's less a question of size and more a question of internal flexibility. Top management tends either to ignore radical new ideas altogether or, if it does buy into them, to want to control them all. The ideas never take off. Management needs to increase the pace at which new things get approved and then give a lot of freedom to the team charged with building the new thing. If the capital is not immediately available internally, management needs to allow the team to raise capital externally. It's better to do that than to debate it internally for a year or two.

Management also has to be willing to go outside for talent and resources. Small companies are going to lack many of the competencies new ideas need to take root. You need to look at the world as a reservoir of core assets. Don't just look at what you can leverage from what's inside. Ask yourself, What can we take from company A or B? When three or four companies come together, they blend capital and combine competencies.

Take the Swiss company Swatch. If you think back on it, the Swiss didn't really know anything about fashion. They didn't know how to make anything funky or cool with graphics. So they went to Italy and created alliances with Italian design houses. Also, Swiss industries didn't know how to make anything out of plastic. So they went to a Danish company called LEGO to learn how to make a durable watch out of plastic. Then they added the Swiss reputation for quality. So Swatch was able to think of the world as a reservoir of capabilities.

Inc.: So what should companies do to make sure their intrapreneurs succeed?

Hamel: Make sure they look at the world as a reservoir of competencies that they can build into their own new business models. When you set up a new unit, be careful that you steer a line between two paths: totally isolating it, which is fine if it isn't at all related to what you're doing, and giving it a bear hug, where you hold on to it so tight that it can never escape the gravitational pull of old beliefs. Never be afraid of the new business's competing with the old business, because if you do, you'll be paralyzed. I think what companies of all sizes are going to have to do is to create internal markets for ideas ? and that's a lot easier to do in small companies than in large ones, partly because the large companies have greater geographic differences and bureaucracies.

Last updated: Sep 5, 2000




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