Hello Innovator!

Last week we explored the RPV framework that determines whether your org is even capable of disruption. In today’s edition, we’ll build on the RPV framework to demonstrate how it can be used as a litmus test for whether your ideas should be spun out or held close to the vest.

Here’s what you’ll find:

• This Week’s Article: Orgs Can't Disrupt Themselves (But they can own the entity that can disrupt them…)

• Share This: Finding the Right Org Structure for Disruption; How do you know when to spin out an innovation vs. holding tight?

• Case Study: How an e-commerce giant spun out a cloud computing business that took over the world.

Orgs Can't Disrupt Themselves

It’s not that they don’t want to. They can’t.

Disruptive innovation doesn’t just fail inside large companies. It gets rejected like an organ from an incompatible donor. Not because executives don’t support it. Not because the ideas are bad.

But rather because the company itself—its incentives, structures, and priorities—actively works against the disruption. The same processes and priorities that make a company successful also make it extremely difficult to successfully execute a disruptive strategy.

Established businesses are wired to protect existing revenue, optimize efficiency, and serve current customers. They simply aren’t built to explore unproven markets or operate on unfamiliar cost structures.

Some ideas need separation from the core business to survive.

But not all of them. Some innovations can thrive inside the core business, particularly if they align with existing processes and values. The key is knowing when autonomy is required and when it isn’t.

How to Know When Autonomy is Necessary

Last week’s edition focused on the RPV (resources, processes, values) framework for determining organizational capabilities. The same framework can be leveraged to determine the required level of autonomy for new innovations.

A new venture inside an established company faces two key barriers:

1. Processes: How work gets done (supply chain, cost structures, decision-making, sales models).

2. Values: What the company prioritizes (profit expectations, risk tolerance, customer focus).

If an innovation aligns with how the company already operates, it can grow inside the org. No need for a spinout. But, if an innovation misaligns with either, the company will reject it.

Not even c-level support will save an effort that isn’t aligned to process and value. The only way forward is to give your innovation, and the team supporting it, autonomy.

The Four Org Structures for Innovation

1. Disruptive Innovations

When both processes and values conflict with the new business, a fully autonomous business unit is required.

Example: Amazon Web Services (AWS)
AWS could never have been built inside Amazon’s retail business. It required a new sales motion, different cost structure, and separate engineering culture. So it was launched as a fully autonomous unit. Now, it’s Amazon’s most profitable business.

What happens if you don’t spin it out?
The innovation dies. The core business has no way to support or prioritize it.

2. Hybrid Innovations

When values fit, but processes don’t, flexible autonomy is required.

Example: Apple’s Services Division (App Store, iCloud, Apple Music)
Apple’s hardware business was never structured for recurring revenue. The Services business required a different business model, but its priorities (seamless user experience, customer lock-in) fit Apple’s existing values.

Solution: Apple built an internal division with separate revenue goals and business rule, but still inside the company.

What happens if you don’t give it autonomy?
It gets starved of investment because it doesn’t fit short-term sales targets.

3. Strategic Autonomy

When the business model fits but requires a culture shift, aim to keep processes in place but enable a shift in values.

Example: GE Aviation’s Digital Unit
GE was historically hardware-focused, but saw the opportunity in data-driven aviation services. Instead of a full spinout, it carved out a separate team with its own incentives and decision-making structure, but enabled the new team to use GE’s manufacturing and distribution network.

What happens if you don’t create autonomy?
It gets stuck fighting for resources against the core business.

4. Sustaining Innovations

When both values and processes align, continue business as usual.

Example: Toyota’s Shift to Hybrid Vehicles
Toyota’s move into hybrid technology fit its existing cost structure, manufacturing process, and customer base. There was no reason to build a separate unit. Instead, Toyota focused on making the necessary R&D investment to support the innovation.

What happens if you separate it unnecessarily?
You add unneeded complexity and cost to something that could scale faster inside the core.

When to Spin Out vs. Build Inside the Parent Org.

The Mistake Most Companies Make

The biggest mistake most executives and managers make is assuming that everything must fit inside the parent org. By the time they rethink and consider that spinning out an autonomous team is an option, competitors have already taken the lead.

The best way to avoid this trap is to ask early: Is this an extension of what we already do? Or is it something fundamentally different?

That answer determines whether it belongs inside the core business or needs to be built separately from day one.