Spin-offs

Sometimes, it happens that an employee comes up with a great idea for a new product. If it is different from what the company ordinarily produces, it might be hard to develop it internally. In this case, a new small company might be created, fully owned by its parent company. Its purpose is to research, develop, manufacture, and market the new product. It is called a “spin-off”.

Spin-offs are not created because of a lack of competences in the parent company.

Spin-offs exist because they solve an incentive problem. In an established company, projects and careers are assessed using short-term ROIs (Return-On-Investment ratios). A product that needs years to be brought to market cannot live in a company that has shorter lead times.

Spin-offs are tools to avoid organizational misalignment.

I talk more in detail about setting expectations in my “Best Practices For Operational Excellence” and in my “Teams Are Adaptive Systems”.