Most corporate venturing units are targeting innovation- and growth-oriented strategic objectives, such as business, technology and process, through their association with venture start-ups. Specific objectives will vary and, periodically, the company may not know at the beginning of a venture start-up engagement what particular benefits will be derived from the alliance. None the less, CVCs must develop and implement effective methods for planning and measuring the outcomes of their strategic efforts.
Business achievements, such as increased product sales and profits and improvement in profit margins, usually can be easily measured in a straight forward, quantitative way. These objectives can be articulated quite literally in terms of their numerical improvement from some historical benchmark (such as, 20% additional contribution to sales and profits over the past three year average), but more often the targeted objective will be stated in more nebulous terms (such as, seeking a window to opportunities for growth or generation of seeds for innovation). So, how do we come up with success metrics that communicate the intended outcomes before they’re implemented and after they’re accomplished? And how do we manage the organization toward bona fide results if the measurements are so subjective?
One of the most important principles in contributing to corporate innovation is to acknowledge that innovation is a process, not just an outcome. There are many ways to describe the process, but for simplicity I like to characterize it as the "4i’s of Innovation": Ideate, Investigate, Incubate and Implement.
Most companies fail on two levels when implementing their innovation strategies. First, they jump from the Ideation phase right to the Implementation phase. Second, still too many focus mainly on their internal capabilities, competencies and resources and not make use of partnerships to meet their growth and innovation goals. Corporate venture investment and partnering are still only carried out by less than half the largest global corporations. And among those that have CVC units, most struggle with defining and monitoring subjective strategic objectives.
Each of these four phases of the 4i innovation process is associated with definitive actions carried out by the corporation. Actions lead to results. To measure effectiveness of corporate venturing, the focus should not just be on the objectives or success factors, but more on the process and actions of the organization. A prerequisite for the venturing team’s success is successfully defining the essential actions that will enable it to deliver positive impact on each of the four phases in the innovation process.
At Panasonic Venture Group (PVG), our mission is to "Contribute to Corporate Technology Innovation to Deliver Customer Value and Accelerate Corporate Growth". Certainly in regard to our mission statement, you can envision a few quantitative, measurable goals pertaining to corporate growth. But how do you measure contribution to corporate technology innovation, let alone contributions to customer value? And how do you measure technology innovation on a relatively short term time horizon, such as quarterly or annually? And while I’m piling on such skepticism, how do you deal with shared contribution (for example joint efforts with multiple parties)? Often, the partnership with the venture company is based on a co-development initiative in which the engineers of the start-up work with the engineers of the large company to contribute elements of a solution (such as sub-systems or components), not even complete solutions. This creates complex challenges for measuring the results of the partnership.
It’s these complexities that cause some CVCs to surrender on their attempt to develop and install sound measurement methodologies. Well, don’t give up. Take a sequential approach, starting at a high (mission / objective) level and then work with your stakeholders to define a handful number of success factors they expect from the CVC group. From the success factors, map out a process of key phases required to meet the success factors. Then with the process, determine the actions that your group must perform to complete the process. Actions, for the most part, are measureable and focusing on them is the keystone for creating effective metrics.
Let’s go back to PVG’s mission. From our mission, we scaled down one level and defined a handful of high level success factors based on input from our stakeholders. If the venture team could deliver on these strategic outcomes, we will have achieved success for them and for the corporation. At this point, we don’t have clearly defined metrics yet, but we understand what our stakeholders want us to focus on. Here are the five objectives PVG seeks to deliver to our stakeholders: idea collaboration and information sourcing; technology enablement*; joint development for existing business area; operational synergies; and new business creation and growth.
Of course, it’s very important to define the meaning of each general success factor. In the case of Joint Development for Existing Business Area for example, it was necessary for us to define what joint development actually means. And Idea Collaboration & Information Sources requires clarifying the form of the information and what sort of information is desired, and so on.
In order to define the requisite actions, we created process flow charts since typically there are multiple, mutually dependent actions required to, for example, create a joint development alliance. Not all minor activities need to be specified in this exercise, just the high priority ones. The outcome of this effort should be a short list of priority process steps which are clearly linked to each objective, culminating into ten to fifteen actions. In PVG’s case, we have about a dozen primary actions that are tied to our five objectives.
To demonstrate the process, for the Ideation phase of innovating, the CVC team needs to identify and screen seeds of innovation (in the form of venture start-ups and related trends) that can contribute to the corporation’s awareness of actionable, emerging opportunities. The primary action required of the CVC in this phase is to build a network for sourcing ‘best of class’ startups as candidates for (a) discovering new or alternative ideas, (b) collecting information on market/technology trends, and (c) identifying solutions that address customer needs to complement those being considered by the corporation.
To build an expansive and productive sourcing network, the venture team will implement outreach activities and relationship development efforts targeting VCs, entrepreneurs, thought leaders and domain influencers. So one of the categories of success metrics will be based on relationship network development for information flow. This may include tracking contact development progress (using a contact database) and interaction monitoring for proactive pursuit of the most productive human network. Other measures might include the value of the human network, in which a qualitative scoring method might be used.
Proceeding with the same methodology through all the general success factors, with the objective of defining the respective actions, will allow you to fairly easily create relevant metrics that will lead you to effective management of your CVC unit.
Report cards, or other feedback systems from your stakeholders, are an excellent source of input on management effectiveness and communication. It’s best to meet with your stakeholders periodically (and often in the early stages of the program) to understand their expectations and concerns with your activities. Jointly create a methodology based on their high level priorities, clarifying quantitative and qualitative deliverables. With their input and as the program evolves, plan to make course corrections in both the actions and the metrics as needed.
There is no single success metric for strategic effectiveness. And as circumstances change, your goals (and maybe even your mission) will change, which will require adjustment to the best metrics for your group. So be flexible and a bit creative with both quantitative and qualitative measurement methodologies as you track your progress toward meeting your objectives.
* The titles of each the above objectives are self-explanatory, except maybe how Technology Enablement differs from Joint Development. Technology Enablement is when a technology innovation can be utilized through a partnership without a joint development project. An example might be know-how that is transferred under a preferential relationship.