Spin-off dilemmas

Because traditional companies are now under less pressure from dotcoms, should they consider bringing their e-business spin-offs...

Because traditional companies are now under less pressure from dotcoms, should they consider bringing their e-business spin-offs back in-house to improve integration with off-line businesses, especially since such spin-offs are unlikely to go to IPO in the current financial climate?

I would be keen to learn your views on how best to improve integration between on-line activities and the company's core (off-line) business. How can I go about achieving this within my company?

Roland Hanbury

Historically, organisations set up separate e-business units because of the need for speed (either in pursuing the IPO goal or for first-mover advantage), and because the activities from the parent company are largely standalone. For many areas of e-business, neither of these still apply.

First, the pace of development has slowed considerably, so there is no particular argument to say that e-business decisions need to be made any faster than many other business decision. Second, the focus of e-business activity has also shifted, from "do all you can to build an audience" to "show me the money" projects. This almost invariably means that e-business is starting to be applied to increase the sales or reduce the costs of the parent company's products, and a relatively high degree of integration is required for this.

So the question is not really whether to integrate the e-business unit back into the corporation, but how? Unfortunately, this could be painful. If the goals and culture of a standalone e-business to date have been sufficiently different from the parent, it might be wise to consider integration, as if it were a merger, and set up a project to manage it as such.

The starting point is to build the top-down benefits case - how much money can we make through integration? This will get management buy-in. To get staff buy-in, you will also need to identify how the jobs of those affected by the changes will benefit.

Enterprise-wide e-business strategies will bring the most business benefit to companies over the coming years and, ideally, divisional managers should be targeted with achieving specific e-business benefits in their operations, with the e-business group sharing the same targets.

Neil Barrett

I would take a slightly different angle on this question and suggest that even without the associated pressure from dotcoms, it might still be advantageous to leave such spin-offs to twirl in their own separate orbits.

The principal reason for suggesting this is related to security; not the obvious aspects of security risks inherent in bringing such business into the fold but rather some of the other business risks.

Inevitably, it seems e-business ventures end up being targeted by hackers. This might be because of the nature of the software in use, or because of the particular sector in which the business is involved, or purely opportunistic. However, given the large numbers and the high profile of e-businesses already successfully - and publicly - hacked, it would not be sensible for any business to base a strategy on the assumption that it won't happen to them.

Because of this, the business has to ask the question, 'How will any successful hack against the e-business affect the main business?'

Where the spin-off is in-house, any weaknesses are, of course, weaknesses to the main business; the PR, legal and reputational damage can affect the whole operation.

Conversely, where the e-business is a distinct entity, spun off and separately managed, resourced and identified, the hack is damaging to the e-business, but is little more than an irritant and a few group board level questions. My advice would be to retain the e-business as a separate entity.

Charles Lowe
BT Stepchange

The question is whether the online company is just an Internet-enabled version of the parent company or whether it is doing something different from the parent. One of the few ways in which established companies have been able to successfully re-invent themselves is by establishing a unit separate from the parent, where people can work in ways different to the norms imposed in the parent company.

In the spin-off, people can establish different values that would enable them to invest in, say, product development, where the forecast of initial sales would be far lower than the parent company would require to authorise such an investment.

Radical product development does not normally occur in large organisations because there is too much pressure to keep focusing on the products that produce the greatest revenue. Therefore, to exploit a disruptive technology, a separate unit is needed where the new business can be incubated.

In this case, bringing it back into the parent would destroy innovation. So, the right choice would be to ask the board to invest in the spin-off with the parent organisation treated as a cash cow - encouraged to maximise profits and given just enough funds to keep going while there remains demand for its products.

If, however, the online company is really just performing the same task in cyberspace that the parent is doing in the real world, then there is little justification for keeping it separate.

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