Framework
Branch Independence Test
TL;DR
Annual diagnostic to evaluate whether branches are truly independent or over-reliant on trunk.
Annual diagnostic to evaluate whether branches are truly independent or over-reliant on trunk. Tests four dimensions: P&L, Customer, Decision-Making, and Economic independence.
When to Use Branch Independence Test
Run annually for each branch to assess health and autonomy. Identifies branches that need more autonomy, integration back to trunk, or pruning.
How to Apply
1
P&L Independence Test
Can you calculate branch profitability separately?
Questions to Ask
- Does branch have own P&L (Revenue, COGS, SG&A, Profit)?
- Can you calculate branch ROIC?
- Are shared costs allocated clearly?
Outputs
- Pass/Fail - If can't calculate branch profitability, it's a department not a branch
2
Customer Independence Test
Would customers buy from this branch as separate company?
Questions to Ask
- Would customers buy if branch were separate company?
- Is loyalty to branch (product/team) or trunk (brand/relationship)?
- Could branch retain >70% customers if spun out?
Outputs
- Pass/Fail - If customers buy only because of trunk, branch isn't viable independently
3
Decision-Making Independence Test
Can branch leader make tactical decisions independently?
Questions to Ask
- Can branch leader hire/fire their own team?
- Can branch set pricing without HQ approval?
- Can branch define product roadmap independently?
Outputs
- Pass/Fail - If HQ approval needed for tactical decisions, you've over-centralized
4
Economic Independence Test
Could branch survive without trunk subsidy?
Questions to Ask
- Does branch cover fully-loaded costs (including allocated HQ overhead)?
- Could branch raise external capital if needed?
- If spun out today, would it be profitable within 12 months?
Outputs
- Pass/Fail - If requires permanent subsidy, it's strategic investment not independent branch