new study draws from the experiences of companies such as BMW, Orange, Samsung and Disney to shed light on getting that balance right. The goal is not only to maximise the innovation produced but also the value for the parent company. The study – based on more than 120 interviews with chief innovation officers and those in related roles in the US, Europe and Asia – is part of work on corporate venturing by the authors.
Chief innovation officers know that corporate venturing – the collaboration between established firms and innovative startups – can yield strong results. Its implementation, however, especially finding the right balance between autonomy and control, can prove challenging. This report serves as a reminder that collaborations with startups go beyond corporate venture capital, that autonomy is not merely a matter of location, and that financial figures are not the only way to measure progress.
Autonomy is not always out of headquarters
Often with corporate venturing units, the idea of the unit’s autonomy from the larger firm is simplified to mean they are located outside the main building. Yet the interviews revealed a more nuanced understanding along four main pillars:
- Leadership: To what degree does the executive committee participate in the unit’s decision-making, and how much time elapses between reporting cycles?
- Distance: How far is the unit from headquarters? This considers both physical and legal distance.
- Budget: How dependent is the cost centre on headquarters? How much is required for them to break even?
- Incentives: How is the unit director evaluated and compensated?
Indeed, when all these factors are taken into account, it may be neither necessary nor desirable for the corporate venturing unit to be located away from the main office. Many of the mechanisms necessary to ensure the unit’s autonomy can be employed within headquarters.
In the real world, both internal and external systems can be successful. For example, French telecom Orange has an internal unit, while Korea’s Samsung has its located outside headquarters. Both systems have potential pros and cons, illustrating again the fine balance that needs to be struck. On the one hand, granting real freedom to operate and, on the other hand, maintaining corporate involvement and a degree of control.
What is essential, the authors insist, is the established company’s cultural readiness to host a corporate venturing unit. This means ensuring the unit’s internal autonomy, as well as being realistic about the parent company’s ability to integrate innovation. Is your company set up to integrate innovation effectively? The cost-effectiveness of ensuring either autonomy or integration, or of housing the unit inside or outside HQ, will also impact each company’s decision.
It is not about more freedom per se
A well-designed corporate venturing strategy needs to be adapted to each individual case, but all should be concerned with maximising both innovation and its integration into the company to generate real value. The extensive interviews behind the report revealed some good practices to help parent companies incorporate more value:
- Design metrics and incentives oriented to value integration: This will help you focus on the value generated, not just innovating for the sake of innovation.
- Don’t use only financial metrics to measure value: New knowledge, products and services, an innovative mindset, processes, and business models – the list of potential non-financial returns goes on. Don’t be simplistic. It is not just about the money.
- Ensure there is an independent cost centre: To avoid the need for bureaucratic approvals at every step, make sure you have a budget to approve internal innovation processes speedily.
- Involve a sponsor from the parent company’s executive committee in decision-making: This person will help integrate value into the parent company and speed up the venturing process. Find someone who understands how the corporate venturing process works.
- Consider increasing the timespan of the reporting cycles: This can provide greater autonomy. Reporting to a member of parent company’s executive committee should be a process not of auditing but of catalysing.
In short, freedom is not the same as a free-for-all. It is about providing an adequate structure to allow innovative partnerships to flourish.