CEOs talk about growth; markets demand it.1 But profitable organic growth is difficult. When core businesses begin to flag, research suggests that fewer than 5% of companies regain growth rates of at least 1% above gross domestic product.2 Creating new businesses, or corporate entrepreneurship, offers one increasingly potent solution. According to a recent survey, companies that put greater emphasis on creating new business models grew their operating margins faster than the competition.3

But how can established organizations build successful new businesses on an ongoing basis? Certainly, the road is littered with failures. The iPod should have been a Sony Corp. product. The Japanese corporation had the heritage, brand, technology, channels — everything. But it was Apple Inc.’s Steve Jobs who recognized that the potential of portable digital music could be unlocked only through the creation of a new business, not just a better MP3 player.

To investigate how organizations succeed at corporate entrepreneurship, we conducted a study at nearly 30 global companies (see “About the Research,” p. 76). Through that research, we were able to define four fundamental models of corporate entrepreneurship and identify factors guiding when each model should be applied. This framework of corporate entrepreneurship should help companies avoid costly trial-and-error mistakes in selecting and constructing the best program for their objectives.

What is Corporate Entrepreneurship?

First, though, what exactly is corporate entrepreneurship? We define the term as the process by which teams within an established company conceive, foster, launch and manage a new business that is distinct from the parent company but leverages the parent’s assets, market position, capabilities or other resources. It differs from corporate venture capital, which predominantly pursues financial investments in external companies. Although it often involves external partners and capabilities (including acquisitions), it engages significant resources of the established company, and internal teams typically manage projects. It’s also different from spinouts, which are generally constructed as stand-alone enterprises that do not require continuous leveraging of current business activities to realize their potential.

Corporate entrepreneurship is more than just new product development, and it can include innovations in services, channels, brands and so on.4 Traditionally, companies have added value through innovations that fit existing business functions and activities. After all, why would they develop opportunities that can’t easily be brought to market?5 Unfortunately, this approach also limits what a company is willing or even able