The main definition of a spin-off is “a product that develops from another more important product.” Many people probably associate spin-offs with the film and television industry. What it means is that you take the secondary character who is very popular with the audiences and create a separate movie or TV series with them as the main hero. There’s a new plot connected to the original, but also introducing a lot of new stuff along the way.
Spin-offs can take place in corporations (and are also known as spin-outs or starbursts.) Although this phenomenon is well known and happens quite often, not everyone knows that it’s called that way. It is a situation in which a company decides to take a certain department away from its structure and make a separate company based on this department. This creates new units with varying degrees of independence. Those units can use the parent company’s assets, workforce, technology, intellectual property or products.
Spun-off companies already have the experience, staff and some prestige, which they receive automatically thanks to their relationship with the parent organization. However, the fact that a given company spun-off from a larger, well-known corporation is sometimes not that obvious or such information doesn’t reach many people.
Therefore, to help their “children” have a successful start on the market and appear in the minds of consumers, parent companies can decide to take on several supporting activities, such as investing in equity, being the first customer, providing the right space and infrastructure needed for work (desks, telephones, internet access, etc.) or offering legal and financial assistance. Thanks to that the spun-off companies can grow as soon as possible and build their own independent brand and strong position.
What’s probably the most interesting is why companies decide on spin-offs? There are many reasons, but the most important are:
- Innovation and new image – there’s no doubt that companies with an established position and many years of experience are seen as strong and trustworthy. However, the market can change very dynamically and consumers constantly expect new products to be launched. A spin-off is a great solution in this case because it perfectly combines both these worlds.
- Change in the structure – if a company wants to be innovative and introduce new products or modern technologies to the market, it often has to change the way it operates. The decisions must be made faster, the communication process must be easier, and project management methodologies must be more agile. Introducing these changes to the entire organization can be extremely time-consuming, which is why by separating one department with great potential and giving it a new structure and management method, this time is significantly reduced.
- The decision to further develop some promising ideas that have been postponed because they are not a priority at the moment.
- A narrower specialization or developing a product that doesn’t fit with the rest – a company may have an extensive product portfolio, and some of them may be more popular while some may not really match the others. Creating a spin-off will allow you to focus on these products while still taking care of the rest and at the same time managing your budget in a better way.
- Profit – in the vast majority of cases, independent spun-off companies are worth and earn more than if the department was still part of the parent company.
- Dealing with history – this reason is rare, but it still happens from time to time. Unfortunately, there are companies that suffer from some mishaps or major scandals. Such situations have a negative effect on the public’s opinion and can lead to loss of customers. To soften the blow, such companies create spin-offs that resing from the option of linking them to the parent company.
- Lack of good offers – some companies decide to sell those departments that are unprofitable or don’t really match the brand. However in some cases, when they don’t get good offers, they decide to create a spin-off instead of closing those departments completely.
Do you know any corporate spin-offs?
Do you think that there are any cons to this solution?