Managing the Internal Corporate Venturing Process

Many large established firms currently seem to be trying hard to improve their capacity for managing internal entrepreneurship and new ventures. Companies like Du Pont and General Electric have appointed CEOs with a deep understanding of the innovation process.1 IBM has generated much interest with its concept of "independent business units."2 To head its new ventures division, Allied Corporation has attracted the person who ran 3M's new ventures group for many years.3 These are only some of the better publicized cases.

Most managers in large established firms will probably agree that internal corporate venturing (ICV) is an important avenue for corporate growth and diversification. However, they will also probably observe that it is a hazardous one, and will be ready to give examples of new ventures (and managerial careers) gone for naught.

Systematic research suggests that such apprehension is not unfounded. In a large sample study of firms attempting to diversify through internal development, Ralph Big-gadike found that it takes on the average about eight years for a venture to reach profitability, and about ten to twelve years before its ROI equals that of mainstream business activities.4 He concludes his study with the caveat that new business development is "not an activity for the impatient or for the fainthearted." Norman Fast did a study of firms that had created a separate new venture division to facilitate internally developed ventures.5 He found that the position of such new venture divisions was precarious. Many of these were short-lived, and most others suffered rather dramatic changes as a result of often erratic changes in the corporate strategy and/or in their political position. An overview of earlier studies on new ventures is provided by Eric von Hippel, who observed a great diversity of new venture practices.6 He also identified some key factors associated with the success and failure of new ventures, but did not document how the ICV process takes shape.

The purpose of this article is to shed additional light on some of the more deep-rooted problems inherent in the ICV process and to suggest recommendations for making a firm's ICV strategy more effective. This article presents a new model capable of capturing the intricacies of managerial activities involved in the ICV process.

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References

1. See "DuPont: Seeking a Future in Biosciences," Business Week, 24 November 1980, pp. 86-98; "General Electric: The Financial Wizards Switch Back to Technology," Business Week, 16 March 1981, pp. 110-114.

2. See "Meet the New Lean, Mean IBM," Fortune, 13 June 1983, pp. 68-82.

3. "Allied after Bendix: R&D Is the Key," Business Week, 12 December 1983, pp. 76-86.

4. See R. Biggadike, "The Risky Business of Diversification," Harvard Business Review, May-June 1979, p. 111.

5. See N.D. Fast, "The Future of Industrial New Venture Departments," Industrial Marketing Management (1979): 264-273.

6. See E. von Hippel, "Successful and Failing Internal Corporate Ventures: An Empirical Analysis," Industrial Marketing Management (1977): 163-174. Some of the diversity found by von Hippel, however, may be due to a somewhat unclear distinction between new product development and new business development.

7. See J. R. Galbraith, "The Stages of Growth," Journal of Business Strategy 4 (1983) pp. 70-79.

8. See J. L. Bower, Managing the Resource Allocation Process (Boston: Graduate School of Business Administration, Harvard University, 1970).

9. See: R. A. Burgelman, "Managing Innovating Systems: A Study of the Process of Internal Corporate Venturing" (unpublished doctoral dissertation, Columbia University, 1980);

R. A. Burgelman, "A Process Model of Internal Corporate Venturing in the Diversified Major Firm," Administrative Science Quarterly, June 1983, pp. 223-244.

10. See: D. A. Schon, "Champions for Radical New Inventions," Harvard Business Review, March-April 1963, pp. 77-86;

E. B. Roberts, "Generating Effective Corporate Innovation," Technology Review, October-November 1977, pp. 27-33.

11. One of the key problems encountered by Exxon Enterprises was precisely the existence of these new product development problems in the entrepreneurial ventures (Qyx, Quip, and Vydec) it had acquired and was trying to integrate. See "What's Wrong at Exxon Enterprises," Business Week, 24 August 1981, p. 87.

12. The need for strategic forcing is consistent with findings suggesting that attaining large market share fast at the cost of early profitability is critical for venture survival. See Biggadike (May-June 1979).

13. See: Entrepreneurial activity used as insurance against environmental turbulence was first documented by R. A. Peterson and D. G. Berger, "Entrepreneurship in Organizations: Evidence from the Popular Music Industry," Administrative Science Quarterly 16 (1971): 97-106:

R. A. Burgelman, "Corporate Entrepreneurship and Strategic Management: Insights from a Process Study," Management Science 29(1983): 1649-1664.

14. The importance of the middle-level manager in ICV was already recognized by E. von Hippel (1977). The role of a "manager champion" or "executive champion" has also been discussed by: I. Kusiatin, "The Process and Capacity for Diversification through Internal Development" (unpublished doctoral dissertation, Harvard University, 1976);

M. A. Maidique, "Entrepreneurs, Champions, and Technological Innovation," Sloan Management Review, Winter 1980, pp. 59-76.

15. See Biggadike (May-June 1979).

16. See Fast (1979).

17. These frictions are discussed in more detail in R. A. Burgelman, "Managing the New Venture Division: Research Findings and Implications for Strategic Management," Strategic Management Journal, in press.

18. An overview of different forms of corporate venturing is provided in E. B. Roberts, "New Ventures for Corporate Growth," Harvard Business Review, July-August 1980, pp. 132-142.

A design framework is suggested in R. A. Burgelman, "Designs for Corporate Entrepreneurship in Established Firms," California Management Review, in press.

19. Some firms seem to have developed the position of corporate historian. See "Historians Discover the Pitfalls of Doing the Story of a Firm," Wall Street Journal, 27 December 1983.

Without underestimating the difficulties such a position is likely to hold, one can imagine the possibility of structuring it in such a way that the relevant data would be recorded. Another instance, possibly a board-appointed committee, could periodically interpret these data along the lines suggested.

20. Some companies have developed innovative types of arrangements to structure their relationships with internal entrepreneurs. Other companies have established procedures to help would-be entrepreneurs with their decision to stay with the company or to spin off. Control Data Corporation, for example, has established an "Employee Entrepreneurial Advisory Office."

Acknowledgments

The author gratefully acknowledges the support received from the Strategic Management Program of Stanford University's Graduate School of Business and the helpful comments made by Leonard R. Sayles, Steven C. Wheelwright, and an anonymous reviewer on an earlier version of this paper. Parts of the paper were presented at the Third Strategic Management Society Conference in Paris in October 1983.