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

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slide1
The Strategic Use of Corporate Venturing:

Jeffrey G. Covin

&

Morgan P. Miles

what is corporate venturing
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
broad research questions
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?
the study
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
summary definitions of the five models of the cv strategy relationship
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.
propositions for strategic venturing
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
slide7
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
figure 1 the virtuous circle of corporate venturing
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
slide9
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”
slide10
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.
slide11
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
slide12
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)
slide13
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
slide14
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.
the future of corporate venturing
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?