The Strategic Use of Corporate Venturing: Jeffrey G. Covin & Morgan P. Miles

1. The Strategic Use of Corporate Venturing: Jeffrey G. Covin & Morgan P. Miles

2. What is Corporate Venturing? • Corporate Venturing is widely defined but has at its core the notion of business creation within a corporate context through innovation of • Products • Processes • Strategy • Domain

3. Broad Research Questions • What does the CV literature have to say about the nature of the relationship between CV & business strategy? • 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? • What are some of the attributes & process characteristics of firms that exhibit effective CV-Business strategy linkages?

4. The Study • Literature review • Empirically observed linkages between CV and business strategy are presented from field study • Propositions that describe strategic venturing are derived from field study

5. Summary Definitions of the Five Models of the CV / Strategy relationship ModelDefining Characteristics • 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. • Strategy drives CV CV as a tool of strategy. Chevron using CV to “learn about coal gasification technology” • 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. • 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 • CV as Strategy CV shapes strategy and strategic intent. 3M’s use of white-space entrepreneurial initiatives to create transdermal drug delivery systems.

6. Propositions for Strategic Venturing • P1: Firms that set formal CV objectives tend to create more shareholder wealth than those who do not. • 3M’s goal to generate 10% of sales from new products during that year • 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 • Intel’s use of CV to create eco-systems and markets

7. 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. • Bower & Christensen’s (1995) competency-destroying innovations • Bergen Brunswig (a drug distributor) “How do we obsolete ourselves” • “P&G wants products that change the consumer’s normal product usage patterns & behavior” Mike Clasper, President of Global Home Care, P&G

8. FIGURE 1The Virtuous Circle of Corporate Venturing Leverage for institutional learning & to Shape strategy Yes Emergent corporate venturing • Options • Explore possible redefinitions of corporate mission and altering CORE business activities • Treat in accordance with level of operational relatedness for short term value realization • Invest in the entre- preneurial outcome until its irrelevance is established Realized corporate venturing outcomes Concept of strategy Potential strategic relevance? Unclear Intended corporate venturing No • Options • Use corporate venturing to divest and capture value from activities no longer strategically relevant • Eliminate further investments in the entrepreneurial outcome • Leverage the entre- preneurial outcome for nonstrategic purposes

9. 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. • At TTP “Ventures are not financially evaluated. The financials can be cooked to say what you want so strategic linkages are more important”

10. 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. • Often for CV, the venture must get business unit “buy-in” • Best CV processes tend to be more structured, with explicit deliverables and due dates.

11. P6: Firms that use CV as a learning tool tend to create more shareholder wealth than those who do not. • Formal forensic evaluations of un-successful CV • Chevron’s use of CV to “learn” about coal gasification

12. 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. • 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)

13. P8: Firms that engage in CV as means for creating new competencies tend to create more shareholder wealth than those that do not. • GM’s Saturn – to build competencies in small car design, production, & marketing

14. 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. • P&G’s Reflect.com which has created a new product/market space for “mass-customized” cosmetics using the internet.

15. The Future of Corporate Venturing • Likely responses to the Entrepreneurial Imperative- How can large corporations develop sustainable growth • Future of Corporate Venturing in light of the problems that Enron, Lucent, and other high profile firms have had related to venturing • Corporate venturing in dynamic financial markets • Corporate reputation & CV • Co-branding & CV & its impact on BIG BRANDS • How should Corporate Venturing be linked to Strategy?