These notes summarise a discussion on identifying and communicating strategic and financial benefits that took place as part of the Corporate Venturing and Innovation Partnering Conference in Newport Beach, California, in February.
At this breakfast in Newport Beach, I outlined a framework I have developed termed the five Ps of innovation and venturing – purpose, process, people, partners and performance – to describe the key elements. It was published in Open Innovation in Action: How to be strategic in the search for new sources of value. Performance is one of the five Ps and was the key area of the discussion for this survey and workshop.
To illustrate that different organisations have different purposes and different processes, the spectrum of innovation and venturing was shown.
The session also revealed the results of a survey Corven Networks made prior to the conference.
In response to the question “which key measures of financial and strategic benefit do you use?” respondents were given multiple options. There seems to be a pretty balanced view between the need for qualitative feedback from the business units and senior management and also the need for quantitative measures such as internal rate of return (IRR) and financial reporting.
Profile of respondents’ purpose
Participants in the survey had mainly strategic roles with minority investment or venture building. The role they described was to accelerate strategic objectives through partnership which are catalysts for the wider firm while making financial return. These are filling gaps in current programmes and identifying disruptive areas for business.
An engineering business described how it was looking to expand the business areas for the business while achieving a financial return.
A pharmaceutical business described how it was focused on “IRR, cash-on-cash returns and a percentage of portfolio companies with collaborations, licenses or acquisition by the parent”.
A key challenge outlined by a few respondents was measuring the insights from adjacent areas.
One organisation highlighted optionality but how is it measured? Another organisation stated that net asset value is easier to measure and “strategic is tougher”.
True quantitative evaluation of the strategic benefits is a key challenge but maybe that is not the right approach. This may never be achieved, as the journey to success will need many supporters and could be thrown off course by issues not in one’s control.
Allocating quantitative values to the innovation partnering or venturing can therefore be difficult against other stakeholders in the business.
One organisation described “understanding of the role of venture investing, understanding that supporting innovation is about being part of an ecosystem as opposed to purely for [our organisation’s] benefit”.
We also asked what challenges are encountered when identifying and communicating benefits to the corporate parent.
There is a significant challenge in quantifying the strategic benefits, many of which will come in longer timescales and will also need additional support from others in the business and outside to achieve a large-scale benefit for a corporate.
There is also a wider ecosystem and innovation benefits which come from innovation and venturing. In a fast-moving consumer goods business in which Corven Networks has worked, venturing and investment activity has driven new entrepreneurial behaviour in the organisation, which has had impacts on the wider business that are larger than the mere financial return on the venture. These initiatives are being driven by the CEO, who sees his role as leading the business through change and not just managing the current business.
So a key challenge is how can you tell the story and gain consensus. If you do get engagement at the senior level in the strategic discussion there is still the challenge of middle management engagement.
An executive from a telecoms business mentioned the challenge of the time horizon when this period can be more than 10 years. How do groups square that circle?
The executive cited “overcoming criticism that many potential strategic benefits are still unproven. There is a two to five-year cycle to prepare an unproven technology [for inclusion in] a car”.
He also highlighted “gaining consensus internally that there will be future opportunities identified by being an investor and keeping thought process separate from merger and acquisition aspirations”.
However, a quote from a previous Corven Networks meet-ing on a similar topic was summarised as “you do not stay strategic for long unless you show a financial return”.
How do you manage the balance between the expected financial returns while your venturing and innovation is looking to achieve the longer-term objective and the nec-essary organisation change?
Our performance research and the insights from the survey indicated that measures that need to be deployed would be a mix of process and venture-specific steps and measures for hard and soft elements. Example categories include:
- Strategic vision – benchmark other leading corporates approach to innovation and venturing as done in the five P analysis.
- Stakeholder interviews – involve key stakeholders in setting up the venture process and then independent inter-views, perhaps annually.
- Identify and prioritise measures – best practice and external comparison, for example with VC returns for certain sectors and locations.
- Review – client expectation and acceptance of measures.
- Performance of key performance indicators (KPIs) – populated examples of KPIs and scorecards for ventures in a portfolio.
- Deliver key measures – a suite of measures and support material that is reported monthly or quarterly in a com-pany pack.
These principles have been implemented by a number of our members and clients as a solution to support performance reporting and process management. If you would like further details and full details from the survey, complete the survey at https://www.surveymonkey.com/s/Communicating_CVC_Benefits