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Related Topics
- Business Incubation
- Corporate Entrepreneurship
- Direct Investing
Description
Corporate Venturing provides an alternative to traditional methods of growing a company. A company invests in new products or technologies by funding businesses that have a reasonably autonomous management team and separate human resource policies. The goals can be to develop products to expand the core business, to enter new industries or markets, or to develop ?breakthrough technologies? that could substantially change the industry. Corporate Venturing can be done in one of four ways: by taking a passive, minority position in outside businesses (corporate venture capital), by taking an active interest in an outside company, by building a new business as a stand-alone unit, or by building a new business inside the existing firm with a structure allowing for management independence.
Methodology
Corporate ventures require managers to:
- Establish strategic objectives. Venturing requires companies to create and screen new ideas identified in-house. It is best used for long-term projects that develop knowledge key to the core business. Managers should evaluate ventures based on strategic needs and ensure that they fit with overall strategy.
- Develop the correct approach. Managers must then decide which method to use to pursue the new idea. Corporate venture capital, which provides access (through investments) to breakthrough technologies being investigated by startups, can be an effective prelude to a decision to acquire or build a stand-alone business. In some instances, however, firms will want to build the new business themselves to either lock in the value created or leverage close linkages with an existing part of the business;
- Establish a team. Once the approach is selected, a team can be created with the capabilities, resources, and sufficient independence to manage the program;
- Create processes to monitor progress and incorporate knowledge. Develop strict metrics and timetables to monitor the development process. In some instances, employ staged funding to ensure progress is on schedule. In all cases, look for means to transfer knowledge from the venture into the broader organization.
Common Uses
Corporate Venturing may be initiated to:
- Diversify;
- Foster relationships with companies key to a firm?s growth;
- Access new technology, experts, and research;
- Build businesses adjacent to the core.
Business building may be initiated to:
- Strengthen the core business;
- Provide new avenues for growth, or build adjacent businesses;
- Enter new and emerging markets;
- Shorten development cycles;
- Motivate employees to take calculated risks.
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Selected References
Block, Zenas, and Ian C. MacMillan. Corporate Venturing: Creating New Businesses within the Firm. Harvard Business School Press, 1993.
Chesbrough, Henry. "Designing Corporate Ventures in the Shadow of Private Venture Capital." California Management Review, Spring 2000, pp. 31-49.
Garvin, David A. "A Note on Corporate Venturing and New Business Creation." Harvard Business Review, March, 2002.
Keil, Thomas. External Corporate Venturing: Strategic Renewal in Rapidly Changing Industries. Quorum Books, 2002.
Laurie, Donald L., Venture Catalyst: The Five Strategies for Explosive Corporate Growth. Perseus Publishing, 2001.
Mason, Heidi, and Tim Rohner. The Venture Imperative. Harvard Business School Press, 2002.
Sharma, Anurag. "Central Dilemmas of Managing Innovation in Large Firms." California Management Review, Spring, 1999.
Stringer, Robert. "How to Manage Radical Innovation." California Management Review, Summer 2000.
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