Making More of Corporate Ventures

The success of small startups housed within larger firms depend on how well those startups are supported by their parent organizations.

Making More of Corporate Ventures

MORE CORPORATIONS SUCH as Walmart, Eli Lilly, Samsung, and The Walt Disney Company are engaging in a practice called corporate venturing, in which they open in-house incubators to support startup projects. The objective is for these small startups to generate big profits for their parent companies.

But how successful can these small companies be while tethered to a larger corporate entity? A new study conducted by the University of Navarra’s IESE Business School in Barcelona, Spain, and the consultancy firm BeRepublic looks at how much autonomy large companies should give in-house startups if they want to maximize innovation.

The researchers interviewed more than 120 chief innovation officers at companies in the United States, Europe, and Asia. They found that if corporate venture units are to maximize their innovation, their parent companies must strike just the right balance between giving the units autonomy and integrating their activities with parent companies’ strategic visions. That balance, the researchers note, relies on how well companies attend to four key areas: the extent to which company executives participate in the unit’s decisions, the distance between the unit and company headquarters (both physically and legally), the level of the unit’s dependence on headquarters for funding, and the ways that the unit’s director is evaluated and compensated.

With those areas in mind, the researchers recommend that companies take several actions to get the most from their corporate ventures. For example, they should keep the unit’s funding independent of other activities, as well as give the unit ample time between reporting cycles. Companies also should ensure that a unit’s location and legal designation, in relation to headquarters, reflect its capability for generating value and the level of autonomy it can handle. Finally, companies should reward units for the value they generate for the company—the authors stress that “innovation for innovation’s sake is not enough.”

Read “Open Innovation: Balancing the Autonomy and the Impact of  Your Corporate Venturing Unit.”