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Parent-Venture Product Similarity

The level of similarity between an ICV's products and its parent's products may also be influential in the ICV process. Corporations often choose to initiate ventures that pursue opportunities and venture down paths that are quite different from existing corporate strategies and capabilities. The farther a venture's competitive domain is from that of its corporate parent's product and market channels, the less relevant the parent's resources, knowledge, and expertise may become.7 1 Such divergence can seriously undermine the venture's ultimate success. However, if the products of the parent and the ICV are too similar, the success of the venture might be compromised as the venture might be limiting its opportunity to create novel, truly innovative products and services. Fighting for and relying too strongly on the existing strategic assets of its parents might not only hamstring the ICV politically but prevent venture managers from thinking outside the box.

It is generally accepted in the scholarly literature that ventures will be most likely to succeed if they compete in product domains that are similar to those of the parent company.72 However, recent empirical research suggests that product similarity between the parent and its ICVs is only marginally important to ICV success.73 The inconsistent relationship between parent-venture similarity and ICV performance may be explained by the application of the "parenting advantage" perspective.74 Parenting advantage occurs when multiple businesses that could otherwise operate independently are managed by a single parent whose influence adds to the performance of the businesses. It is likely to occur when the parent's skills, knowledge, and resources fit well with the needs of the businesses. However, where there is no fit, parent involvement is likely to be disruptive.

The literature on "relatedness" offers insight on the conditions when a parenting advantage might exist between parents and their ventures. Relatedness has been defined as how close a new business is to its parent company's current activities.75 Previous research has explored relatedness using a variety of theoretical constructs, including product relatedness,76 manufacturing relatedness,77 technological relatedness,78 and knowledge relatedness,79 among others. Firms pursue related ventures for many reasons, among these to keep development costs low by exploiting corporate know-how and skills,80 and to take better advantage of existing production facilities.81 In general, higher degrees of relatedness are expected to be associated with greater parenting advantage opportunities between the corporate parent and its ICVs. Relatedness assures that ICVs will operate in a "business space" that is adjacent in some meaningful way to the space already occupied by the parent corporation's other, more established businesses.

Similar business knowledge provides opportunities for exploitation across multiple parent businesses, and creates cross-business synergies.82 When parent-venture similarity is high, the parent corporation has relevant knowledge and resources in the ICV's product-market domain. To facilitate the transfer of the parent's knowledge and resources, the parent may choose to position the venture structurally close or within core business operations, and closely control the venture in order to provide oversight. Such involvement from the parent may be helpful to the ICV. On the other hand, when parent-venture similarity is low, the parent's knowledge of the determinants of success in the venture's product-market domain may be minimal. In these cases, the parent company may choose to position and control the ICV as an independent and autonomous unit. Since the parent has little value to add to the venture, venture management should be free to plan and manage operations. Parent involvement in the ICV would likely be detrimental to ICV performance, and rather than helping the ICV, the parent's involvement would be more akin to meddling. A model of ICV performance that proposes relationships such as those described here may go far in explaining the ambiguous effect of parent-venture similarity on ICV performance.

 
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