This paper summarises general thoughts on the success evaluation of Corporate Spin-Off processes. I think that it is very important to well define the perspective of the evaluation. Then, the criteria can be operationalised and weighted. The interplay of the factors and the different perspectives of the parent and the Spin-Off should not be neglected.

1. Driving Factors

Although it is possible to identify a main motivation behind a Corporate Spin-Off process and relate it to one of the above types, often elements from the other type are involved, too. In a pure entrepreneurial Spin-Offs, the Spin-Off entrepreneur will search the parent’s agreement and support as this raises his probabilities of success. In turn, in restructuring-driven Spin-Offs, the future risk of the Spin-Off’s business is borne by the new owners (and managers) of the Spin-Off. So even if the decision is a "top-down" decision, the parent company has to convince and motivate the future owners (and managers) to take the risk and make the Spin-Off as a stand-alone business a success.

Thus, in both kinds of Spin-Off processes, the factors contributing to the Spin-Off decision and its results are interrelated. Some of them are displayed in the table below.

Table 1: Factors influencing Corporate Spin-Off processes

2. Evaluating the Success of Corporate Spin-Off Processes

Corporate Spin-Off processes consist of three phases, a decision, a separation and a post-separation phase (see definition). The evaluation of the whole process is the result of the evaluation of each of these three phases:

1. Was the decision to spin-off a success?
2. Was the separation-process a success?
3. Was or is the post-separation phase a success?

In the following sections, key-questions for success evaluation of the three phases will be presented.

2.1. Success Factors for the Spin-Off Decision

Judging if the decision to spin-off was a success implies evaluating ex-post whether the decision was right or not. The Spin-Off decision is characterised by a vision difference between the Spin-Off entrepreneur and the parent company concerning the future development of the Spin-Off’’s and the parent’s business. U.S. literature has found a direct relation between the divergence of opinion between owners and non-owners about the value of parent and Spin-Off and the level of excess returns at the Spin-Off announcement. This means that the stock market expects the more benefits from the Spin-Off process the higher the level of disagreement about the Spin-Off’s future between the parent company management and the owners is. It follows that the higher the vision differences of the Spin-Off’s and the parent’s future core-businesses are, the more the Spin-Off’s business being tied up within the parent is regarded as a burden. These vision differences are produced by differences between entrepreneurs and non-entrepreneurs (managers) They play an important role in the Spin-Off decision.

                    Figure 1: Vision Differences within Corporate Spin-Off Processes

                      Source: Own compilation

Research findings indicate that entrepreneurs and managers do not differently perceive risks involved in new ventures. It seems rather that entrepreneurs are more discriminating in their assessments of new venture opportunities. Entrepreneurs, when in control of the venture, rely highly on themselves for market understanding and relationships. In this case, they are inclined to take high-risk decisions. Managers take higher risks only when there is a team in place to share the ownership, possible losses and rewards. This suggests that, evaluating the Spin-Off’s vs. the parent’s perspectives, similar risks are perceived from the parent’s and the Spin-Off entrepreneur’s point of view. However, Spin-Off entrepreneurs seem to rely more on their (individual) market understanding and relationships while managers appear to take higher risks only if they are backed-up by collective support. It follows that one constituent factor for the vision difference between the parent’s and the Spin-Off’’s core business is a different understanding of and relation to the market between an individual (Spin-Off entrepreneur) and a collective (parent company). The Spin-Off decision is highly influenced by the formulation and confrontation of the two different visions. The following question relates this to the ex-post success of the Spin-Off decision:

• Has the Spin-Off decision been correct in the sense that the risks and opportunities of the Spin-Off’s business have been perceived, formulated and opposed to each other correctly from both points of view?

Another important factor constituting vision differences between the Spin-Off entrepreneur and the parent company concerns the strategic fit of the two businesses. This concept is related to the company’s resources, which are constituent factors for sustained competitive advantage (see figure 2).

                        Figure 2: The Relationship between the Resources of a Firm and Competitive Advantage

The resource-based theory explains diversification and Spin-Off strategies through resource complementarities between the two businesses. The resource-based theory sees the firm as a bundle of physical, organisational and human resources. Competitive advantage comes from synergy effects associated with the combination of similar or complementary activities within an organisation. These synergy effects make that the valuation of a combination of business unit exceeds the sum of valuations for stand-alone units. Strategic similarities in terms of similar competitive structures, technologies and customers between the two businesses have as a consequence that they can be managed with similar skills and knowledge. Further, the parent’s ability to recognise the value of new businesses is largely a function of its prior related knowledge.

Resources are all the tangible and intangible assets controlled by the firm that enable it to create, produce and offer products to the market. Synergy can be defined as the benefits accruing from sharing similar or complementary resources. A strategic factor concerning the success of the Spin-Off decision is addressed by the following question:

• Have the resource complementarities between the parent’s and the Spin-Off’s business been correctly assessed?

2.2. Success Factors for the Separation Process

The separation process comprises the strategic and organisational separation of the two businesses. It starts after the decision to Spin-Off and ends when the two units operate independently. Independent means that the parent company disposes of more than the majority of the voting rights of the Spin-Off. However, other relations between parent and Spin-Off, e.g. long-term contractual agreements, may still exist. The separation process can vary in complexity and length. In case of a hostile entrepreneurial Spin-Off without parent support, it can just be the employee’s resignation from his current job. If a large part of the parent company is spun-off, the process can be a lengthy and relatively complicated one.

Because the implementation of the separation process is regarded as the most important obstacle to Corporate Spin-Off processes, lessons learnt from separation processes constitute an important success factor.

The question addressing this can be formulated as follows:

• Has the separation process been implemented successfully?

2.3. Post-Separation Success Factors

Post Spin-Off success factors are probably the most influential ones concerning overall success evaluation, because they concern the quality of the final state the decision and separation process aim at. Various factors influence the perception of this final state, so that both the parent’s and the Spin-Off’s point of view have to be taken into account.

A primary success parameter concerns the survival of the Spin-Off company. Not only the Spin-Off entrepreneur has got major interest in making his business survive. Especially in Spin-Offs supported or initiated by the parent company, the survival of the Spin-Off company is important for the parent. A Spin-Off failure provides a bad image and can result in liabilities or losses of a supplier or client. A first question about post Spin-Off success is the following:

• Has the Spin-Off company survived?

In a second step, the extent of the success of the process for the parent and the Spin-Off can be assessed. This assessment will depend highly from the parent’s or the Spin-Off’s perspective. In any case it implies the comparison of the post- vs. the pre Spin-Off conditions. Table 2 presents success parameters related to the question:

• Are the post- vs. the pre- Spin-Off conditions perceived as a success?

2.4. Evaluation of the Overall Success

As shown before, the overall evaluation of a Corporate Spin-Off process is a result of the evaluation of the phases of the process from different perspectives. In order to profit most from previous experience with Spin-Off processes, a thorough and honest success assessment is very important. This includes taking into account all the aspects involved and relating them to the original motivations that initiated the process.

The key questions presented above can help in such an assessment. Their operationalisation would be out of scope of this paper. A catalogue of operationalised success factors and key numbers within an interrelated success evaluation framework could not only be applied to Corporate Spin-Off processes, but also to corporate venturing activities.