The Paradox of Entrepreneurship versus Alignment in Corporate Venturing
Corporate venturing has been on the agenda of large companies on and off for the last 50 years. Up until the beginning of the millennium, it was often a strategic activity that followed a company’s economic cycles: in downturn years, venturing activities would often be closed down since the budgets reserved for them were more needed for day-to-day business. As soon as sales went up again, corporates would be convinced that they should use the available financial resources to invest in potential future developments, thereby creating windows on new opportunities. More recently, however, even though we’re nearing the end of a worldwide economic downturn (hopefully), many companies have continued to invest in corporate venturing or even decided to initiate it. No longer do they see corporate venturing as a money-burning activity, but as a real alternative to other means of strategic alignment, in line with other internal and external modes of organization, such as M&As, licenses, or strategic alliances.
Over the past two years, we researched how eight large corporations organized their venture activities. Our findings are being published in a new book called Corporate Venturing: Organizing for Innovation, which describes the actual venturing experience of these firms through case illustrations. It yields interesting insight into the pitfalls and successes of corporate venturing, captured in ten best practices. In our blogs, we will share these best practices with you.
When large corporations decide to engage in venturing, management often realizes that this kind of entrepreneurial activity requires a different kind of organization and a different kind of people than the corporation’s day-to-day business. Whereas the parent company is forced to play by the existing rules of the game and must focus on keeping the current business going or aligned with the existing market and customers, ventures can aim for the moon and the stars. Corporate ventures have the freedom to act on, and often invest in, out-of-the-box opportunities to secure a company’s future in today’s turbulent and ever-changing business landscape.
The venture units can be organizationally positioned outside the parent company to create a healthy balance between these exploitation (regular business) and exploration (venturing) activities and often have a separate budget, team, and office, while still enjoying the support of the parent company for facilities such as HR, ICT, and Legal. Such a structure enables the venture to flourish without being restrained by resistance or inertia from the parent company.
Venturing thus requires people with an entrepreneurial mindset, and they are often acquired from outside the parent company. One of the nicest examples from our research is the NRC case. The NRC newspaper was aiming to reach a different target group in developing a new newspaper format, which became nrc.next (for young high professionals), so the venture team decided to search in composing its staff for mavericks, young people who did not necessarily reflect the existing staff but were naturally aligned with these young professionals through their writing style and interests. For example, they interviewed a young woman who was interested in Russia and had made a website in Russian as her hobby. But they also spoke to a guy who wrote a book on house music in his spare time, while working at a government ministry office.
Nevertheless, parent companies create ventures for a specific strategic purpose: to find and develop innovations that are necessary for staying in business. Large organizations generally lack the flexibility and entrepreneurial spirit required for remaining innovative, which is why they turn to venturing. The ventures, in turn, need freedom to experience, learn, and develop, while always knowing at the back of their mind that the end result (the venture) must serve the parent company’s strategy.
In many of our cases, the most successful ventures were seperated from the parent both organizationally as well as physically. This helped them in their interaction with external partners, showing that they were an independent, entrepreneurial business, rather than part of the corporate – often not so entrepreneurial – parent. Separating the exploitation and exploration activities helps the venture focus on its goal, but it also presents a new challenge, which is to remain aligned with the parent, given that the venture’s assignment is to develop strategically important innovations. Maintaining a balance in this ambidextrous situation is a definite challenge for venture managers.
Jessica van den Bosch and Geert Duysters
Tilburg, September 1st, 2014
Jessica van den Bosch is managing director of the Tilburg Center of Entrepreneurship at Tilburg University. Geert Duysters is Professor of Entrepreneurship & Innovation at Tilburg University and academic director of the Tilburg Center of Entrepreneurship. Both are fellows at the Corporate Entrepreneurship Research Center of Tilburg University and together they wrote Corporate Venturing: Organizing for Innovation, to be published in September 2014 by Edward Elgar.