Growing New Corporate Businesses: From Initiation to Graduation

AbstractLarge companies initiate many new businesses, but few of them reach scale. The ambidexterity literature describes how companies create exploratory businesses, but says little about how they subsequently scale these businesses. The strategy literature uses real option theory to explain the transition to scale, but does not consider the complex relationships between corporate ventures and their parent organizations. By comparing six longitudinal cases of large firms' new business initiatives, we find that corporate businesses that scale undergo a graduation process in which they meet the varying expectations of multiple organizational resource providers. At the unit level, they convince established core units that the potential value from combining their resources exceeds the cost of cannibalization and internal competition. They do so by initially differentiating themselves to develop distinctive capabilities, but subsequently integrate these capabilities with those of the core units. At the corporate level, the new units demonstrate their value by adding strategic capabilities that complement those of their main organizations. They initially integrate with their corporate parents to ensure resource flows, but then differentiate themselves to develop their own strategic profile. We contribute to the ambidexterity literature by unpacking the triggers, conditions, and interaction patterns that allow exploratory units to scale. We also contribute to the strategy literature by showing the importance of multilevel exchange relationships, complementary resources, time effects, and identity dynamics for corporate decisions on whether, and when, to scale new opportunities.