BOARD MEMBERS SHOULD ASK ABOUT CORPORATE VENTURING.
1. What role does corporate venturing have in
insuring adaptability to the marketplace?
2. How effective are we at building and
sustaining mutually profitable alliances relative to
our competitors in the marketplace.
3. How effective do we need to be in
building and sustaining mutually profitable alliances?
For more information on this issue, check out the
enclosed article from the Massachusetts Institute of Technology:
Elephants to Dance
A set of
practices called "corporate venturing" can rejuvenate big
lumbering organizations into nimbler and more innovative beasts.
By Ken Morse, Dave Weber, and Carter Williams
January 9, 2004
A quick comparison of the lists of America’s top 100 companies in
1900, 1950, 1980, and today shows that every few decades, many of the
largest companies die and are replaced by newcomers. The pace of
change and the need for rapid innovation has never been greater.
Today the CEOs of the world’s top 1,000 companies
have few tools (and little time) to help them make their organizations
more innovative. They lie awake at night worrying that a faster, more
innovative, and lower-cost competitor could spring up any day, eager
to take big bites from their cash cows and star performers.
In the face of increasing global competition, more and more major
companies are coming to understand the value of corporate venturing.
Though there are a variety of approaches, corporate venturing
generally aims to give large mature organizations some of the agility
of their smaller competitors. Such venturing works both to improve a
corporation’s standing in its existing markets and to break into new
Corporate venturing comes in three main forms: alliances, internal
venturing programs, and corporate venture capital. These activities
can be a tremendous source of innovation, new business opportunities,
and entrepreneurial energy.
Alliances offer the advantage of combining the assets of the larger
organization (brand strength, market channels, investment capital,
and other scale-related advantages) with the more focused and nimbler
characteristics of the smaller, younger partner. But they raise an
important question: will the larger company’s culture overwhelm that
of the younger, entrepreneurial organization?
Internally focused venturing programs aim to leverage a company’s
existing assets (human, physical, and financial). Although it is
difficult to create an entrepreneurial environment within larger
organizations, the benefits of doing so can be immense. Traditional
corporate strengths, however, are not always advantageous for
venturing, which depends for success on attracting and motivating
people whose clock speed is likely to be one or two standard
deviations faster than the corporate norm. The inevitable clashes
with existing corporate cultures, metrics, and motivations must be
managed. Exit strategies typical of internally focused ventures
include the establishment of a new division, the acquisition of the
venture by an existing division, spinout, and cancellation of the
project. It is critical for the organization to integrate the
benefits of the venture without alienating or stifling employees in
either the new venture or the larger company.
Corporate venture capital - in which a large company funds startups -
requires patience, strong support from top executives, and the
freedom to experience losses as well as gains. The corporate venture
capital team depends on traditional venture capital firms as
coinvestors both for deal flow and management help. While the
corporate team certainly aims for short-term return on its
investments, it mainly seeks strategic growth. Intel Capital, for
example, invests in startup ventures it hopes will eventually create
demand for Intel’s current and future products.
An MIT Sloan School of Management investigation led by Professor
Edward Roberts studied corporate venturing activities at 54 U.S.
corporations, including 3M, Boeing, Dow, DuPont, Eastman,
Hewlett-Packard, Microsoft, Monsanto, and Motorola. Roberts
noted that even when corporate venturing appears successful, it
rarely works alone as a major source of corporate growth. Rather, the
approach adopted by the successful company works in concert with
other business-development activities.
Whether companies focus their venturing activities more on alliances,
internal ventures, or external venture-capital investments, success
requires leveraging the company’s culture and collaborating beyond
traditional company boundaries. The Corporate Venturing Consortium
(CVC) was founded at MIT two years ago to share and improve best
practices across companies and industries. Every January, a one-week
course is offered at MIT based on a curriculum that CVC members
helped design. Charles Darwin’s observation about the evolution of
species applies also to businesses. "It is not the strongest of
the species that survives, nor the most intelligent, but the one most
responsive to change." Corporate venturing helps companies adapt
their way to survival.
This article originally appeared in the MIT Technology Insider, a monthly
newsletter covering MIT research and commercial spinoff activity.
Ken Morse is managing director of the MIT Entrepreneurship Center and
secretary of the Corporate Venturing Consortium (CVC). Dave Weber is
director of the MIT Management of Technology Program. Carter
Williams, a partner in Boeing Ventures, is chairman of the CVC.