Empirical research on how diversified corporations develop and implement new strategic initiatives reflects two divergent perspectives – one that views the corporate parent or headquarters as the key driver of new strategic initiatives and another that views the business unit, or subsidiary as the key driver of new strategic initiatives. Prior studies examining the role of parent- subsidiary unit interactions in influencing corporate adaptation have focused on this role as a reflection of organizational architecture. Missing, however, are process theory studies that help us understand how co-evolutionary relationships between the corporate parent and subsidiaries work to spearhead successful transformation and adaptation to environmental challenges. To address this gap, we draw on a longitudinal case study of the Saab Group to examine how this process unfolds when a diversified corporation attempts to leverage the capabilities of an advanced subsidiary unit to spearhead organizational transformation and adaptation. Our analysis uncovers three key types of sequential corporate parent-subsidiary interaction episodes that lead to transformation and renewed corporate advantage. Our findings lead us to expand the concept of corporate spearhead development and to amplify the importance of a co-evolutionary perspective for understanding how diversified corporations develop and implement new strategic initiatives.