QUESTIONS 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:

Teaching Elephants to Dance

A set of practices called "corporate venturing" can rejuvenate big companies-transforming

large, 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 markets.

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.

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