The Strategic Use of Corporate Venturing


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The Strategic Use of Corporate Venturing

  1. 1. <ul><li>The Strategic Use of Corporate Venturing: </li></ul><ul><li>Jeffrey G. Covin </li></ul><ul><li>& </li></ul><ul><li>Morgan P. Miles </li></ul>
  2. 2. What is Corporate Venturing? <ul><li>Corporate Venturing is widely defined but has at its core the notion of business creation within a corporate context through innovation of </li></ul><ul><ul><ul><li>Products </li></ul></ul></ul><ul><ul><ul><li>Processes </li></ul></ul></ul><ul><ul><ul><li>Strategy </li></ul></ul></ul><ul><ul><ul><li>Domain </li></ul></ul></ul>
  3. 3. Broad Research Questions <ul><li>What does the CV literature have to say about the nature of the relationship between CV & business strategy? </li></ul><ul><li>How does CV activity relate to business strategy in practice? What types of benefits and risks are being realized through the pursuit of corporate venturing? </li></ul><ul><li>What are some of the attributes & process characteristics of firms that exhibit effective CV-Business strategy linkages? </li></ul>
  4. 4. The Study <ul><li>Literature review </li></ul><ul><li>Empirically observed linkages between CV and business strategy are presented from field study </li></ul><ul><li>Propositions that describe strategic venturing are derived from field study </li></ul>
  5. 5. Summary Definitions of the Five Models of the CV / Strategy relationship <ul><li>Model Defining Characteristics </li></ul><ul><li>Weak or not linked The “entrepreneur ally challenged firms” (Brazeal & Herbert 1999). BT’s inability to strategically use much of the technology it develops internally. </li></ul><ul><li>Strategy drives CV CV as a tool of strategy. Chevron using CV to “learn about coal gasification technology” </li></ul><ul><li>CV drives strategy Strategy as a response to autonomous venturing. P&G’s recent attempt to liquate itself via ignoring its main businesses such as soap to focus on emerging technologies. </li></ul><ul><li>Reciprocal relationship CV & strategy are symbiotic, with strong interactions between CV and strategy. For example, The Generic’s Group use of CV to alter core </li></ul><ul><li>CV as Strategy CV shapes strategy and strategic intent. 3M’s use of white-space entrepreneurial initiatives to create transdermal drug delivery systems. </li></ul>
  6. 6. Propositions for Strategic Venturing <ul><li>P1: Firms that set formal CV objectives tend to create more shareholder wealth than those who do not. </li></ul><ul><ul><li>3M’s goal to generate 10% of sales from new products during that year </li></ul></ul><ul><li>P2: Firms that recognize the role of CV in the realization of strategic intent tend to create more shareholder wealth than those who do not </li></ul><ul><ul><li>Intel’s use of CV to create eco-systems and markets </li></ul></ul>
  7. 7. <ul><li>P3: Firms that measure CV success over the long term and across their portfolio of ventures tend to create more shareholder wealth than those that do not. </li></ul><ul><ul><li>Bower & Christensen’s (1995) competency-destroying innovations </li></ul></ul><ul><ul><li>Bergen Brunswig (a drug distributor) “How do we obsolete ourselves” </li></ul></ul><ul><ul><li>“ P&G wants products that change the consumer’s normal product usage patterns & behavior” Mike Clasper, President of Global Home Care, P&G </li></ul></ul>
  8. 8. FIGURE 1 The Virtuous Circle of Corporate Venturing Concept of strategy Intended corporate venturing Emergent corporate venturing Realized corporate venturing outcomes Potential strategic relevance? Yes No <ul><li>Options </li></ul><ul><li>Use corporate venturing to divest and capture value from activities no longer strategically relevant </li></ul><ul><li>Eliminate further investments in the entrepreneurial outcome </li></ul><ul><li>Leverage the entre- preneurial outcome for nonstrategic purposes </li></ul>Unclear <ul><li>Options </li></ul><ul><li>Explore possible redefinitions of corporate mission and altering CORE business activities </li></ul><ul><li>Treat in accordance with level of operational relatedness for short term value realization </li></ul><ul><li>Invest in the entre- preneurial outcome until its irrelevance is established </li></ul>Leverage for institutional learning & to Shape strategy
  9. 9. <ul><li>P4: Firms that place a greater weight on “strategic fit” or “strategic logic” than on financial analyses when evaluating CV initiatives tend to create more shareholder wealth than those who do not. </li></ul><ul><ul><li>At TTP “Ventures are not financially evaluated. The financials can be cooked to say what you want so strategic linkages are more important” </li></ul></ul>
  10. 10. <ul><li>P5: Firms that demonstrate a willingness to terminate investments in CV initiatives upon their failure to meet reasonable developmental “milestones” tend to create more shareholder wealth than those who do not. </li></ul><ul><ul><li>Often for CV, the venture must get business unit “buy-in” </li></ul></ul><ul><ul><li>Best CV processes tend to be more structured, with explicit deliverables and due dates. </li></ul></ul>
  11. 11. <ul><li>P6: Firms that use CV as a learning tool tend to create more shareholder wealth than those who do not. </li></ul><ul><ul><li>Formal forensic evaluations of un-successful CV </li></ul></ul><ul><ul><li>Chevron’s use of CV to “learn” about coal gasification </li></ul></ul>
  12. 12. <ul><li>P7: Firms that use CV as tools of business development to complement internal R&D tend to create more shareholder wealth than those who do not. </li></ul><ul><ul><li>Miles & Covin (2002: 13) corporations are increasingly considering CV as a less expensive alternative to R&D were really wrong! To fully leverage CV, the corporation must have the absorptive capacity created by internal R&D (see Zahra & George 2002) </li></ul></ul>
  13. 13. <ul><li>P8: Firms that engage in CV as means for creating new competencies tend to create more shareholder wealth than those that do not. </li></ul><ul><ul><li>GM’s Saturn – to build competencies in small car design, production, & marketing </li></ul></ul>
  14. 14. <ul><li>P9: Firms that recognize and exploit the potential of CV to create new competitive games or new market spaces tend to create more shareholder wealth than those who do not. </li></ul><ul><ul><li>P&G’s which has created a new product/market space for “mass-customized” cosmetics using the internet. </li></ul></ul>
  15. 15. The Future of Corporate Venturing <ul><li>Likely responses to the Entrepreneurial Imperative- How can large corporations develop sustainable growth </li></ul><ul><li>Future of Corporate Venturing in light of the problems that Enron, Lucent, and other high profile firms have had related to venturing </li></ul><ul><li>Corporate venturing in dynamic financial markets </li></ul><ul><li>Corporate reputation & CV </li></ul><ul><li>Co-branding & CV & its impact on BIG BRANDS </li></ul><ul><li>How should Corporate Venturing be linked to Strategy? </li></ul>