The NewCo concept involves creating a company within your company, whose sole mission is to put your current company out of business. More specifically, NewCo is a tool for rapid evaluation and transformation of an organizations’ current business model. The NewCo philosophy forces those within an organization to carefully assess the fundamental reason for the company’s existence as well as how it will succeed over the next several years.
The NewCo concept was used for Priszm Brandz, which operates KFC of Canada. In 12 months, the company’s stock price had declined from nearly $10 per share to less than $2 per share. The prior 13 campaigns had not generated the desired results; same-store sales growth had declined; the customer base had eroded; and the brand had not resonated with customers. With little to lose, the company implemented NewCo, creating an experiment within a single store that would reconsider every aspect of how the KFC restaurant operated. Business operations would be carefully examined, tweaked, and enhanced, with front-line employees driving the solutions. The NewCo concept was named the “Model Store” with the intent to scale and replicate the store across the organization nationally.
It started with the selection of a restaurant whose performance was in the bottom 40 percent of all restaurants. Model Store’s purpose was to serve as an innovation lab—a typical restaurant in function and purpose, but atypical in that it could capture, document, and leverage learning for use in future broader-scale rollouts. Specifically, the Model Store was intended to provide the optimal dining experience for a KFC customer, which would include the hottest, freshest food served daily; unparalleled hospitality and service; an expanded variety of menu items; and a superbly clean and comfortable dining experience. The Model Store also would help to promote financial performance such as same-store sales growth, increased average check, and improved profitability.
In the first week following the launch, Model Store had 33 percent growth in same-store sales, which was unheard of in a double-digit decline. By the time the project was completed, nine months later, over 300 operational improvements were implemented and sales growth increased by 14.9 percent (versus 4.6 percent for the control group of similar stores); store visits increased by 6.3 percent (versus 0.5 percent for the control group); and average check increased by 7.8 percent (versus 4.1 percent for control).
NewCo is not just for companies in dire straits such as Priszm, but rather, for any company looking to achieve breakthrough results in a short timeframe. Executives considering implementing NewCo in their organization should be mindful to:
Set an audacious goal – It is nearly impossible for an organization to generate passion around incremental improvement. The goal must therefore be far-reaching, taking people out of their comfort zone and creating palpable excitement. Once the goal has been established, it should be translated into a work plan that is clearly communicated to employees at all levels throughout the organization
Take off the shackles – The approach must be radical, allowing people to define new rules without fear of failing or making the wrong decision. Fear of failure is often woven into the very fabric that forms an organization’s culture, while stability is rewarded. NewCo involves thoughtfully pursuing intelligent failure on the path to transformational change.
Empower the team – Selecting high-performing people who are already well respected within the company sends a clear signal that management takes the program seriously. Moreover, a credible set of team members will be better able to drive change and implement recommendations. The work team needs to be empowered to make decisions confidently and quickly; NewCo doesn’t allow time for unnecessary meetings or endless debates.
The beauty of NewCo is that it quickly forces employees to disregard their long-standing paradigms that prevent them from achieving transformational results while leveraging their vast knowledge base to achieve what I call “the art of the possible.”
Brian Klapper is the president and founding partner of The Klapper Institute. He is the author of The Q-Loop: The Art & Science of Lasting Corporate Change (Bibliomotion; May 2013).