The idea that new businesses prosper best when separated from their corporate parents has become a commonplace. Separation is no doubt the model of choice when the new and the old differ greatly—for example, an Internet start-up launched by an industrial company. But the simple injunction to cordon off new businesses is too narrow. Although ventures do need space to develop, strict separation can prevent them from obtaining invaluable resources and rob their parents of the vitality they can generate. Two-way relationships are needed, though only a few companies have developed organizations in which such relationships thrive.
Yet a delicate blend of separation and cooperation is a prerequisite for satisfying the twin demands of today's investors: focused performance and faster growth. The 1980s were mostly concerned with performance.1 Underperforming assets were to be fixed—or sold. Diversification was viewed at best with suspicion and, when it took companies outside their areas of "core competence," regarded as a managerial crime.2 Accordingly, the decade witnessed a wave of "bust-up" takeovers as acquirers split conglomerates into focused components and sold them to buyers in related industries.
Although investors still expect top performance and high returns from a company's core business units,...