7 Reasons Why A Brand Should Create a New Business Unit to Drive Innovation

Innovation is the lifeblood of business success, yet many established brands struggle to effectively execute new ideas within their existing structures. Bureaucratic hurdles, risk-averse cultures, and competing priorities can stifle even the most promising initiatives. For this reason, many forward-thinking companies are creating separate entities or innovation vehicles to develop and execute new ideas.

This approach offers the flexibility, focus, and entrepreneurial agility needed to succeed in today’s fast-paced environment. Here’s why creating a separate entity for innovation makes sense—and how it can unlock transformative growth for established corporations.

1. Overcoming Bureaucratic Hurdles

The Problem

In established corporations, decision-making processes are often slow, and innovations can get bogged down in layers of approvals, legacy policies, and organizational inertia. This environment is particularly challenging for disruptive ideas that require rapid experimentation and iteration.

The Solution

A separate entity operates independently, free from the bureaucratic constraints of the parent organization. It has the autonomy to make decisions, pivot quickly, and execute without being hindered by legacy processes.

Example

• Google’s Alphabet: By restructuring into a parent company (Alphabet) and separate entities like Google X, the company created space for moonshot projects like autonomous vehicles (Waymo) and delivery drones (Wing) to flourish without being tied to Google’s core search and advertising business.

2. Mitigating Risk

The Problem

Corporations often avoid pursuing bold innovations because of the financial and reputational risks involved. Innovation initiatives that fail can be seen as costly distractions, making stakeholders hesitant to commit resources.

The Solution

A separate entity shields the parent company from direct exposure to risk. This structure allows the innovation team to experiment and fail fast without jeopardizing the corporation’s core business operations or reputation.

Example

• Amazon’s Lab126: Amazon created Lab126 as a standalone innovation hub responsible for developing hardware products like the Kindle and Echo. If a project doesn’t succeed (e.g., Amazon Fire Phone), the failure is contained within the lab, leaving Amazon’s broader reputation intact.

3. Creating a Startup-Like Culture

The Problem

Established corporations often lack the entrepreneurial mindset and agility needed to thrive in today’s dynamic markets. Processes designed for scale and efficiency can stifle creativity and discourage experimentation.

The Solution

A separate innovation entity operates like a startup, fostering a culture of agility, creativity, and collaboration. It can attract entrepreneurial talent, embrace risk-taking, and focus solely on innovation without being constrained by the parent company’s corporate culture.

Example

• Ford’s Spin: Ford acquired the micromobility startup Spin and allowed it to function as an independent entity, helping the company enter the e-scooter market with a lean, agile approach to urban mobility solutions.

4. Focusing on Disruptive Opportunities

The Problem

Internal innovation teams often prioritize incremental improvements to existing products over disruptive innovations. These "safe bets" align with short-term corporate goals but can lead to missed opportunities for breakthrough growth.

The Solution

A separate entity can focus exclusively on high-risk, high-reward opportunities without being overshadowed by the immediate demands of the parent company. This approach ensures that long-term, disruptive projects receive the attention and resources they need to succeed.

Example

• Samsung NEXT: Samsung created Samsung NEXT to identify and invest in disruptive technologies like blockchain, AI, and IoT. This entity works independently to future-proof Samsung’s position in emerging markets.

5. Accelerating Innovation through Strategic Partnerships

The Problem

Collaboration with startups, accelerators, or other organizations is often slowed down by a corporation’s complex structure and approval processes.

The Solution

An independent innovation vehicle can more easily form partnerships, engage with startups, and invest in cutting-edge ideas. This nimbleness allows the entity to build ecosystems and stay ahead of market trends.

Example

• Unilever Foundry: Unilever launched a separate initiative to partner with startups in the fields of sustainability, digital marketing, and new product development, allowing the company to leverage external innovation quickly and effectively.

6. Aligning Incentives and Metrics

The Problem

Traditional corporate metrics (e.g., quarterly revenue, operational efficiency) are not well-suited to measure the success of innovation initiatives. These misaligned incentives discourage employees from pursuing long-term, transformative projects.

The Solution

A separate entity can establish its own success metrics aligned with innovation goals, such as time-to-market, market adoption, or patents filed. This alignment encourages teams to focus on experimentation and growth without the pressure of meeting short-term performance targets.

Example

• Boeing’s NeXt: Boeing created NeXt to explore advanced technologies like autonomous flight and urban air mobility. This unit operates with metrics tied to innovation milestones, not immediate profitability.

7. Safeguarding Core Business Operations

The Problem

Disruptive innovation projects can divert resources and attention away from a company’s core business, creating internal friction and inefficiencies.

The Solution

By isolating innovation efforts in a separate entity, the core business can continue operating efficiently while the innovation team explores new opportunities. This separation allows the corporation to protect its existing revenue streams while investing in the future.

Example

• Coca-Cola’s Venturing & Emerging Brands (VEB): This division operates independently to identify and scale emerging beverage brands without disrupting Coca-Cola’s core business operations.

How to Create a Separate Innovation Entity

1. Define the Scope: Clarify the entity’s goals and focus areas (e.g., exploring disruptive technologies, entering new markets).

2. Structure for Autonomy: Provide the entity with decision-making authority, resources, and its own leadership team.

3. Foster Agility: Encourage an entrepreneurial mindset, flexible processes, and rapid iteration.

4. Align Incentives: Create KPIs that reflect long-term innovation success rather than short-term financial performance.

5. Integrate When Ready: Plan for eventual integration of successful projects back into the parent company, if appropriate.

Conclusion

Creating a separate entity to drive innovation offers established corporations the best of both worlds: the agility and focus of a startup combined with the resources and expertise of a larger organization. By shielding innovation teams from bureaucratic hurdles, aligning metrics with long-term goals, and fostering an entrepreneurial culture, corporations can ensure that bold ideas have the freedom and support to thrive.