Partner Article

Should BT be more hands on with Yorkshire’s Plusnet?

A classic management issue concerns how much to integrate or separate new businesses, when they are part of a larger company. British Airways kept its new business GO fairly separate, but still found that the larger company mentality caused problems for the new business.

The default recommendation to managers, described in my book “Strategy for the Corporate Level” comes in two halves. First, make sure that the new business is insulated in some way from the risk of unthinking interference and smothering by the parent organisation. The stories of subtracted value by well meaning, but overbearing, corporate managers are legend.

Second, identify precise areas of synergy or support and put in place integrating mechanisms targeted at these opportunities, always choosing mechanisms that have a lower risk of negative side effects, so long as they are likely to deliver most of synergy. In other words, protect a new business from interference first and then look for a few targeted areas of synergy.

Does Plusnet benefit from sufficient insulation? Its performance suggests that it does. Plusnet continues to grow fast and gain market share against its much larger broadband rivals. But, its new CEO, Andy Baker, is a BT man. He used to run the Wi-fi division at BT. Will he inadvertently apply normal BT rules of thumb to this business without realising that they are inappropriate?

In a recent interview in Yorkshire Business Insider, Baker talks about the degree of separation that Plusnet has, explaining that it is run as a completely separate entity. A quick search of Plusnet’s website showed nothing about its link with BT. Yet inevitably, his BT background will throw a shadow or a rainbow over Plusnet.

Interestingly Baker was less crisp about the sources of synergy between BT and Plusnet. He talked about the confidence that BT brings: particularly the confidence to invest in growth knowing that there is a reliable source of funding. While this can be a significant benefit, especially in an environment where bank funding can be uncertain, it seems surprising that there are not more areas of synergy.

Plusnet obviously uses capacity on BT’s networks, but this is also available to third parties so should not be treated as a special synergy. No doubt Plusnet also benefits from BT’s technology. But, unless this connection is well managed, it can be a two edged sword. It is easy for the technology engineers in the mother company to react too slowly to developments in Plusnet or to over engineer solutions. Finding the right mix of local engineers sensitive to Plusnet’s business needs and support from the parent company in areas of special skill is difficult.

Despite the challenges, Plusnet is a success. Clearly BT and Plusnet have designed the right degree of separation and integration so far. But, the challenge is never over.

When Unilever bought Elizabeth Arden, the new parent recognised that this luxury brand should be kept separate. To provide sufficient insulation, Unilever set up a gatekeeper through which anyone in Unilever, who wanted to contact Elizabeth Arden, had to pass. The bottleneck did its job, and Elizabeth Arden gained from some synergies without being smothered. However, after a few years, the bottleneck was removed. A few years later Unilever sold an underperforming Elizabeth Arden to a private equity buyer who doubled profits within 18 months.

If BT and Plusnet are to maintain their successful relationship, managers need to retain the factors that have given Plusnet sufficient insulation, while at the same time carefully exploiting specific opportunities for synergy. Andrew Campbell, is from Ashridge Business School and is author of “Strategy for the Corporate Level“, Jossey Bass, 2014

This was posted in Bdaily's Members' News section by Andrew Campbell .