!"#$%&'()*+ -##./.

)&'()*+
0."'$)1"2+ &"3 4().
!"# %&'()*+ ,"-.'*)&/ 0&'123 4"1 53&)1 6&78 9)+ 53)*+
!"# %&'(&) *&)'+,(-). /0&+1 2%*/3 -' 4 .,&54,
mahagemeht cohsultIhg frm ahd the world's
leadIhg advIsor oh busIhess strategy. We parther
wIth clIehts from the prIvate, publIc, ahd hot-for-
proft sectors Ih all regIohs to IdehtIfy theIr
hIghest-value opportuhItIes, address theIr most
crItIcal challehges, ahd trahsform theIr ehterprIses.
Our customIzed approach combIhes deep Ih sIght
Ihto the dyhamIcs of compahIes ahd markets wIth
close collaboratIoh at all levels of the clIeht
orgahIzatIoh. ThIs ehsures that our clIehts achIeve
sustaIhable compet ItIve advahtage, buIld more
capable orgahIzatIohs, ahd secure lastIhg results.
Fouhded Ih 1963, BCG Is a prIvate compahy wIth
81 omces Ih 45 couhtrIes. For more IhformatIoh,
please vIsIt bcg.com.
une 2O1
MichaeI BrigI, AIexander Roos, FIorian 5chmieg, and Drake Watten
!"#$%&'()*+ -##./.)&'()*+
0."'$)1"2+ &"3 4().
!"# %&'()*+ ,"-.'*)&/ 0&'123 4"1 53&)1 6&78 9)+ 53)*+
!"#$ &' $() *+,,+,- .+$( /#&.$( 0)#+)0 :;2+<1"#83
2 lCu8/1ORs, /CCLLLR/1ORs, \L1uRiG, /D MORL
/T / CL/NCL
Growth through IhhovatIoh Is hIgh oh CLOs! agehdas for ohe sImple reasoh: It Is
ohe of the surest, straIghtest routes to superIor performahce. Ih search of game-
chahgIhg hew Ideas, mahy compahIes are broadehIhg theIr quest for growth-drIvIhg
IhhovatIoh beyohd theIr Ihterhal R&D eforts ahd tradItIohal M&A actIvItIes.
AN !NvN1oRY ot 1H !NNovA1oR's TooL KI1
We have IdehtIfed a suIte of tools that cah help compahIes dIscover ahd explore
hew pathways to growth, IhcludIhg busIhess Ihcubators ahd accelerators, corporate
vehture IhvestIhg, ahd strategIc parthershIps. DrawIhg oh our study of 180 compa-
hIes Ih sIx IhhovatIoh-drIveh IhdustrIes, we descrIbe how to use these tools Ih
cohcert for maxImum strategIc advahtage ahd growth.
FIN-TuNING 1H PRtoRMANc ot !NNovA1IoN TooLs
Wheh correctly applIed, the IhhovatIoh dIscovery tools we IdehtIfed ehable compa-
hIes to ehgage wIth other orgahIzatIohs at varIous stages of developmeht, from
start-ups to mature ehterprIses, across a rahge of tIme horIzohs ahd wIth varyIhg
levels of fhahcIal Ihvestmeht. Ahy compahy seekIhg growth should cohsIder addIhg
these tools to Its arsehal.
TiL BOs1O COsuL1iG CROuR
Ccrpcrate leacers are
urgently ccncernec
"1&2$ +,,&3"$+&, '&#
cne snple reascn.
-#&.$( $(#&2-(
+,,&3"$+&, +0 $()
surest, straghtest
rcute tc supercr
percrnance.
M
OsT cORiORATL-LxLcuTiVL suiTLs ARL packcd with all manncr ol statc-ol-
thc-art tcchnology. But onc low-tcch instrumcnt is in dcmand in ncarly all ol
thcm: a pcriscopc. Not a litcral onc, pcrhaps, but CEOs would no doubt wclcomc
thc ability to scc around corncrs and spot thc approaching lorccs that could disrupt
thcir busincsscs or givc thcm an innovation advantagc ovcr thcir pccrs. In this
rcport, Thc Boston Consulting Group takcs a closc look at tools alrcady in usc at
somc ol thc corporatc world`s innovation lcadcrs to idcntily and cxplorc ncw
pathways to growth, including busincss incubators and accclcrators, corporatc
vcnturc invcsting, and stratcgic partncrships. Drawing on our cxtcnsivc cxpcricncc
in thc cld, wc ocr insights into thcir most ccctivc applications and dcscribc how
thcy can bcst bc uscd in conccrt lor maximum stratcgic advantagc.
Innovation is high on most CEOs` agcndassomc 77 pcrccnt ol thosc wc survcycd in
2013 said it was thcir top stratcgic priority or onc ol thcir top thrcc prioritics. (Scc thc
sidcbar Looking Back at !"##$%# '($) !"*+"(#, -." /$#0 1%%$2*032" 4$)5*%3"# 6789:;<
Corporatc lcadcrs arc urgcntly conccrncd about innovation lor onc simplc rcason:
growth through innovation is thc surcst, straightcst routc to supcrior pcrlormancc. In
thc Amcricas, lor cxamplc, innovativc companics gcncratc thrcc-ycar total sharcholdcr
rcturn prcmiums ol 6.7 pcrccnt ovcr thcir industry pccrs; thc tcn-ycar prcmium is 2.9
pcrccnt. Thc sprcad is cvcn widcr in Asia, whcrc innovators cn|oy a 14 pcrccnt thrcc-
ycar prcmium and a 6.9 pcrccnt tcn-ycar prcmium ovcr thcir pccrs. (Scc Exhibit 1.)
Thosc prcmiums rcllcct thc ccntrality ol innovation in today`s cnvironmcnt. In
scarch ol gamc-changing ncw idcas, many companics arc broadcning thcir qucst
lor growth-driving innovation bcyond thcir intcrnal B&D cllorts and M&A activi-
tics. Thcsc additional activitics and tools can yicld sizablc stratcgic and linancial
bcnclits and cxposc companics to a widcr rangc ol ncw idcas than thcy could gcn-
cratc intcrnally.
-" !"5."'()6 (7 '8. !""(5&'()9* :((/ ;1'
Uscd in conccrt, thc innovation discovcry tools that wc idcntilicd cnablc companics
to takc a holistic vicw ol growth that cncompasscs corc, ad|accnt, and noncorc
activitics; that accommodatcs divcrsc mcthods ol collaboration and start-up sup-
port; and that allows lor dillcrcnt ratcs ol dcvclopmcnt in dillcrcnt sphcrcs. (Scc
Exhibit 2.) Somc lorward-looking companics arc alrcady using all or somc ol this
suitc ol tools to gain an cdgc in today`s hypcrcompctitivc cnvironmcnt. Encrgy
companics arc cxpcrimcnting with ncw busincss modcls in thc ncw rcncwablc-
cncrgy licld. Automotivc companics arc cxpanding thcir product portlolios and
/ lCu8/1ORs, /CCLLLR/1ORs, \L1uRiG, /D MORL
The an c BCC`s repcrt %&//"*/ 41"-
%&'(&1/= 53& >"/8 ?**"@'8)@& ,"-.'*)&/
ABCD was straghtcrwarc. tc centy
anc analyze what gves successul
nncvatcrs ther ecge n percrnance,
grcwth, anc sharehclcer returns. /ner
extensve analyss anc ntervews wth
the leacers c nncvatve ccnpanes,
we centnec nve key success actcrs
that cnerentate the ncst nncvatve
crganzatcns rcn the rest c the
pack.
- 53& ,"--)8-&*8 "4 0&*)"1 >'*'+&E
-&*8F The repcrt ctes exanples c
CLOs anc cther ccrpcrate leacers
whc spearheacec ther ccnpa4
nes` nncvatcn encrts, nsttutng
"uncanental changes n ccrpc4
rate culture, systens, anc practc4
es` n crcer tc prcncte nncvatcn
thrcughcut the crganzatcn.
- 53& G;)H)8I 8" %&@&1'+& ?*8&HH&28J'H
K1".&18I L?KMF The ncst nncvatve
ccnpanes cc ncre than ceenc
ther ncst valuahle ceas. They
use ther lP tc estahlsh ccnpet4
tve acvantage, regularly cullng
ther patent pcrtclcs, structurng
ther crganzatcns n crcer tc
nccrpcrate lP ccnsceratcns at
every step c the prccuct cevelcp4
nent prccess, anc generatng
ncrenental revenues hy sellng
anc lcensng lP.
- 081"*+ >'*'+&-&*8 "4 83& ?K
K"184"H)"F The ncst ccnsstent
nncvatcrs actvely nanage ther
nx c ncrenental anc "new tc
the wcrlc` nncvatcns anc have
n place rgcrcus prccesses cr
centyng anc prcnctng hgh-
pctental prcjectsanc cr haltng
then anc when ther prcnse
aces.
- G ,J/8"-&1 N"2J/F The ncst hghly
regarcec nncvatcrs reccgnze that
nncvatcn cces nct cccur n a
vacuun. They ccnstantly nteract
wth ther custcners. Ths helps
ensure cenanc cr ther prccucts
at the tne c narket entry,
ceepens ther relatcnshp wth
ther custcners, anc prevents
then rcn cverspecyng cr
cverengneerng prccucts heycnc
what custcners neec cr are
wllng tc pay.
- w-|||-|n-! 1n! w-||O.o-n-!
K1"2&//&/F The ncst ccnsstently
successul nncvatcrs have strcng
prccesses cr revewng prcjects n
cevelcpnent anc ensurng ther
tnely ccnpletcn. They use
transparent crtera as the hass
cr cecscns, craw clear cstnc4
tcns ancng gcvernance, pcrtclc
nanagenent, anc prcject nan4
agenent, anc reccgnze the
npcrtance c heng enectve
alcng all three cnenscns.
Nct every ccnpany that enhcces
the nve attrhutes just cescrhec wll
enjcy a lcng run as a leacng nncva4
tcr. But such crganzatcns are the
cnes that are ncst lkely tc ngran
nncvatcn as part c ther ccrpcrate
nakeup. There s nc surer crnula cr
lastng acvantage, sustanec grcwth,
anc ccrpcrate lcngevty.
LOOKlNC B/CK /T %O00P60 NQP> %OGROQ0= 5!O
>P05 ?66PSG5?SO ,P>KG6?O0 ABCD
TiL BOs1O COsuL1iG CROuR
Three- and ten-year annualized total-shareholder-return (TSR) premiums of
innovative companies compared with their industry peers, by region
Annualized TSR premium (%)
5
0
Asia-Pacic
6.9
14.0
Europe
3.1
2.3
Americas
2.9
6.7
Global
4.0
7.5
15
10
Ten-year premium Three-year premium
5ource: BCG ahalysIs.
ExHIBI1 1 | !nnovative Companies TypicaIIy Cenerate Premium 5harehoIder Returns
Business incubation
Support of and cooperation
with start-up companies in
early stages
Venturing
Equity investments to assess
and access new growth
opportunities
Strategic partnerships
Partnerships/joint ventures that
drive incremental revenues for
business unit
M&A
Acquisition of developed
companies with existing
business
Internal R&D
Internal product development
Innovation-support vehicle Descriptions
Time to impact for business unit
13 years 47 years 710 years
Business incubation
M&A
Internal R&D
Venturing
New
Proximity
to core
business
Core
Strategic
partnerships
Adjacent
5ource: BCG ahalysIs.
ExHIBI1 2 | By EmpIoying MuItipIe TooIs, Companies Cain a HoIistic View of Crowth Outside
the Core
6 lCu8/1ORs, /CCLLLR/1ORs, \L1uRiG, /D MORL
broadcning thcir ccosystcms through invcstmcnts in mobility systcms and ncw li-
nancing modcls. Pharmaccutical companics arc branching into ncw busincss arcas
such as nutrition products. In cach casc, companics arc lcvcraging thcir busincss-in-
cubation, vcnturing, and partncrship activitics to widcn thcir scarch liclds and lind
innovations in corncrs ol thc busincss world that thcy had not prcviously cxplorcd.
Whcn corrcctly applicd, thcsc tools cnablc companics to cngagc with othcr organiza-
tions in various stagcs ol dcvclopmcnt, lrom start-ups still in product dcvclopmcnt to
companics in thcir carly growth stagcs to maturc cntcrpriscs. Thcy also cnablc compa-
nics to commit to a rangc ol timc horizons with varying lcvcls ol linancial invcstmcnt.
Bclow, wc analyzc cach innovation tool and dcscribc how innovation lcadcrs in six
industricsautomotivc, chcmical, consumcr goods, mcdia and publishing, tcchnol-
ogy, and tclccommunicationsapply thcm to maximizc thcir innovation capabili-
tics. (Scc Exhibit 3.)
<&'#8 =&)/6>?'&2. !""(5&'1(" @1'8 !"#$%&'()* &"3 -##./.)&'()*
In thc qucst lor innovation, many companics havc rcccntly raiscd thcir gamc by
mcans ol incubators and accclcrators. Thcsc tools allow thcm to cngagc with
5ource: BCG ahalysIs.
Business !ncubation
Corporate
!ncubator
Corporate
AcceIerator
Corporate
Venture CapitaI
Corporate 5trategic
Partnerships
Objective
5upport start-ups wIth ah
array of busIhess support
resources ahd servIces,
orchestrated by Ihcubator
5upport start-ups wIth a
structured program alohg
fxed currIcula
5upport exIstIhg
compahIes wIth capItal
Ih exchahge for equIty
'"40#'
Parther wIth exIstIhg
compahIes to drIve joIht
value creatIoh
Benets
to start-up
partner
- Omce space, hardware
- BusIhess skIlls traIhIhg
- ProfessIohal hetworks
- Mahagemeht support
- PotehtIal fuhdIhg
'+11&0(
- Omce space, hardware
- 5kIlled mehtorshIp ahd
6&46"-).
- 5tart-up hetwork
- !#6")-64, '+11&0(
- PotehtIal fuhdIhg
'+11&0(
- 7-)4)6-4, '+11&0(
- Ih mahy cases, close
cooperatIoh wIth
corporate uhIt as equal
140()#0
- MehtorshIp (Ih some
64'#'3
- Lxtehd market potehtIal
- Close mIssIhg IP gap
- LImIt Ihvestmehts Ih
)&)6&0# 6&01&04(#
64145-,-(-#'
- Create competItIve
advahtage
Benets to
company
- Outsourced R&D
fuhctIoh
- WIder corporate growth
optIohs ahd Ihvestmeht
&11&0(+)-(-#'
- Lhhahced employee
recruItmeht ahd
0#(#)(-&)
- WIder search feld for
corporate developmeht
ahd growth optIohs
- "FIrst pIck" potehtIal Ih
case of promIsIhg start-
+1 5+'-)#''
- LquIty share Ih compahy
wIth strohg growth ahd
proft potehtIal
- PortfolIo extehsIoh,
especIally Ih advahced
techhologIes ahd
products
- Lxtehd market potehtIal
- Close mIssIhg IP gap
- 5ave Ihvestmehts Ih
)&)6&0# 6&01&04(#
64145-,-(-#'
- Create competItIve
advahtage
!nvestment
Up to 25 perceht of equIty Partly wIthout equIty;
Ih some cases up to 5
1#06#)(
20 perceht or less PossIble equIty exchahge,
depehdIhg oh parthershIp
format
5tart-up
stage
Larly-stage, wIthout
exIstIhg busIhess
5tart-ups techhIcally
ready to "spread wIhgs"
5mall exIstIhg compahIes
wIth hIgh growth potehtIal
IhhovatIve compahIes
but hot hecessarIly hew
players
Time frame
1236 mohths TypIcally 3 mohths 57 years Depehds oh product cycle
ExHIBI1 3 | Each TooI Has Distinct Advantages, Depending on Context
TiL BOs1O COsuL1iG CROuR ,
carly-stagc start-ups cithcr ovcr a rclativcly lcngthy pcriod ol intcnsivc busincss dc-
vclopmcnt or through a shortcr-tcrm structurcd curriculum. In this rcspcct, thcy dil-
lcr lrom vcnturc invcsting, which locuscs on morc maturc start-ups, and lrom stra-
tcgic partncrships, which lacilitatc thc rapid introduction ol ncw products or scr-
viccs lcvcraging maturc tcchnology.
Incubators cnablc companics to support and collaboratc with a handlul ol promising
start-ups lor as long as thrcc ycars. Sponsoring companics makc cquity invcstmcnts
ol as much as 25 pcrccnt and allord thc start-ups acccss to corporatc rcsourccs and
lacilitics. Thc start-ups sclcctcd lor incubation havc signilicant intcractions with thcir
corporatc sponsor, at both thc corporatc and busincss-unit lcvcls.
Accclcrators, in contrast, cnablc rapid scrccning ol a largc numbcr ol start-ups
locuscd on a particular tcchnology or rcgion. Support takcs thc lorm ol a structurcd
busincss-dcvclopmcnt curriculum lor a lixcd tcrm (typically, thrcc months). Thc
start-ups invitcd to participatc in thc accclcrator arc usually on thc vcrgc ol
launching rcvcnuc-gcncrating activitics, and thc corporatc sponsor promotcs thcir
dcvclopmcnt by granting thcm acccss to ollicc spacc, tcchnical support, high-quality
mcntoring, nctworks ol othcr start-ups, and lunding sourccs. In rcturn, thc company
gains carly acccss to promising idcas and companics. Thc corporatc sponsor
typically makcs no cquity invcstmcnt in thc start-ups, and intcraction at thc
corporatc and busincss-unit lcvcl is limitcd. Somc companics, though, will takc small
cquity stakcs (5 pcrccnt or lcss) to lock in acccss to an cspccially promising vcnturc.
How CoMPANIEs ARE UsING INCUBA1oRs ANo ACCELERA1oRs
BCG analyzcd thc top 30 companics (as mcasurcd by markct valuc) in cach ol thc
six innovation-intcnsivc industrics singlcd out lor closc study. (Scc Exhibit 4.) Wc
47%
23%
20%
17% 17%
7% 3%
7%
33%
37%
33%
53%
73%
60%
10%
17% 17%
20%
30%
0%
47%
Business incubation in 2008 Business incubation in 2013 Corporate venture capital penetration in 2012
Penetration rate (% of companies with dedicated activity)
Technology Telecommunications Media and
publishing
Consumer
goods
Automotive Chemical
0% 0% 0%
5ource: BCG ahalysIs.
Note: 5ample Ihcludes the top 30 compahIes by market value Ih each of sIx IhdustrIes (automotIve, chemIcal, cohsumer goods, medIa ahd
publIshIhg, techhology, ahd telecommuhIcatIohs); h - 180.
ExHIBI1 4 | A Crowing Percentage of Companies Have Adopted Business !ncubation in the Past
Five Years
8 lCu8/1ORs, /CCLLLR/1ORs, \L1uRiG, /D MORL
lound thcm to bc among thc carly adoptcrs ol both tools, with 19 ol thc 1S0 com-
panics cstablishing incubators or accclcrators in 2013 alonc. In all six industrics, 43
pcrccnt ol thc top 10 companics havc cstablishcd incubators or accclcrators, com-
parcd with 23 pcrccnt ol thc top 30.
Many ol thcsc companics havc optcd to locatc thcir incubators and accclcrators in
onc ol lour widcly rccognizcd innovation hot spots: Silicon Vallcy, Bcrlin, London,
and Tcl Aviv.
Othcrs, though, conccntratc thcir incubation and accclcration activitics ncar thcir
corporatc B&D units or ncar or within ccrtain targct markcts. This stratcgy is cspc-
cially common among tclccommunications, publishing, and tcchnology companics,
although somc playcrs in thosc industrics prclcr thc big-lour innovation hot spots.
Companics locus thcir scarch lor innovation on dillcrcnt industrics and targcts, in
alignmcnt with thcir ovcrall busincss stratcgics. Although tclccommunications,
tcchnology, and mcdia and publishing companics targct and invcst in a widc rangc
ol start-up companics, lor cxamplc, automotivc companics gcncrally rcstrict thcir
scarchcs and invcstmcnts to mobilc solutions and innovativc transportation sup-
port. (Scc Exhibit 5.) E-commcrcc and mcdia and publishing start-ups draw invcst-
mcnt lunding lrom tclccommunications, tcchnology, mcdia and publishing, and
consumcr goods companics, whcrcas tclccommunications playcrs dominatc thc
licld ol homc automation and sccurity.
Automotive
Chemical
Consumer
goods
Media and
publishing
Technology
Telecom-
munications
Search eld
Automotive
Chemical
Consumer
goods
Media and
publishing
Technology
Telecom-
munications
Incubator Accelerator
Transportation
Industrial and chemicals
Home automation and security
Clean tech and sustainability
E-health
Education
Media and publishing
Telecommunications
Mobile solutions
Big data and cloud
E-commerce
IT and computer technology
5ource: BCG ahalysIs.
Note: 5ample Ihcludes the top 30 compahIes by market value Ih each of sIx IhdustrIes (automotIve, chemIcal, cohsumer goods, medIa ahd
publIshIhg, techhology, ahd telecommuhIcatIohs); h - 180. Bubble sIze IhdIcates research IhtehsIty by Ihdustry ahd tool used, based oh the share of
compahIes lIstIhg the search fIeld as a topIc of Ihterest wIthIh the tool.
ExHIBI1 5 | Media and PubIishing, TechnoIogy, and TeIecommunications Companies !nvest
Across Wide 5earch FieIds
TiL BOs1O COsuL1iG CROuR
Chcmical companics arc a casc apart. In gcncral, thcy lavor incubators ovcr accclcr-
ators, bccausc thc timc horizons associatcd with incubation align morc naturally
with thc industry`s long and costly product-dcvclopmcnt cyclcs. Most chcmical
companics locatc thcir incubators ncar thcir own B&D inlrastructurc to lacilitatc
acccss to corporatc labs and tcsting lacilitics. Whcn a start-up in thc incubator dc-
vclops a markctablc product or scrvicc, thc corporatc sponsor usually stcps in to
providc thc rcsourccs nccdcd to scalc up.
WuICu TooL! I1 DEPENos oN 1uE NEEo
Analysis ol companics activc in accclcrators and incubators shows that thcy gcncr-
ally cmploy onc ol two modcls, rclcrrcd to hcrc as thc tight-locus and widc-anglc
modcls. (Scc Exhibit 6.)
Thc tight-locus modcl is dcsigncd to strcngthcn thc corc busincss ol thc company
sponsoring thc incubator or accclcrator. Oltcn targcting innovations in busincss ad-
|accncics as wcll as thc corc itscll, thc incubator or accclcrator is locatcd in physical
proximity to corporatc B&D lacilitics to promotc coopcration bctwccn thc B&D
and incubation units.
Most companics that lollow thc tight-locus modcl opt lor incubators rathcr than
accclcrators bccausc thc comparativcly largc cquity invcstmcnts involvcd in
incubation promotc cspccially closc coopcration bctwccn thc sponsoring company
and thc sclcctcd start-ups. Thc tight-locus modcl is cmploycd by automotivc,
Tight-focus model Wide-angle model
From external tool to
close ally of business units
From Silicon Valley
to emerging markets
Criteria
Driver
Location
Vehicle
Industry
Whats next?
Industries searching adjacent elds... Industries facing disruption...
Strengthen core
product
Leverage external
R&D potential
Develop new
business model
Strengthen core
product
Leverage external
R&D potential
Develop new
business model
...to strengthen core product in a competitive market... ...to look for new business models...
Accelerator Incubator Accelerator Incubator
...leveraging outside ideas with corporate skills... ...by screening a high number of entrepreneurial ideas...
Corporate
R&D
Target
market
Start-up
hot spots
Corporate
R&D
Target
market
Start-up
hot spots
...by ensuring frequent interaction with corporate sponsor ...to attract the most innovative start-up ideas
Strongly applied Partly applied Not applied
Chem-
ical
Auto-
motive
Con-
sumer
goods
Media
and pub-
lishing
Tech-
nology
Telecom-
munica-
tions
Chem-
ical
Auto-
motive
Con-
sumer
goods
Media
and pub-
lishing
Tech-
nology
Telecom-
munica-
tions
5ource: BCG ahalysIs.
ExHIBI1 6 | Two ModeIs Drive !ncubators and AcceIerators
1J lCu8/1ORs, /CCLLLR/1ORs, \L1uRiG, /D MORL
chcmical, and somc consumcr goods companics bccausc thcir compctitivc
cnvironmcnts dcmand that thcy continually comc up with bcttcr vcrsions ol thcir
corc products.
Accclcrators, in contrast, cmphasizc thc translcr ol cxpcrtisc and bcst practiccs,
rathcr than cash, to promotc busincss dcvclopmcnt. Companics that arc sccking in-
novation ol any kind, rcgardlcss ol its proximity to thc corc busincss, gcncrally opt
lor this tool and lollow thc widc-anglc modcl, which is dcsigncd to capturc ncw
thinking across a broad sprcad ol domains, cspccially mobilc solutions, IT, and In-
tcrnct-bascd solutions. To givc thcmsclvcs acccss to a varicty ol innovations in a
short amount ol timc, companics gcncrally locatc thcir incubators in onc ol thc
lour start-up hot spots. Tcchnology, mcdia and publishing, tclccommunications, and
somc consumcr goods companics oltcn cmploy thc widc-anglc modcl bccausc thcir
industrics arc last-changing, and disruption can comc lrom virtually any dircction.
Thcy thcrclorc cast as widc a nct as possiblc.
Companics nccd to kccp scvcral succcss lactors lirmly in mind whcn sctting up a
busincss incubator or accclcrator. As with any largc-scalc corporatc initiativc, such
programs nccd scnior lcadcrship`s visiblc, activc backing and continuing cngagc-
mcnt. Thc ob|cctivcs ol incubation and accclcration programs should bc lully and
clcarly dclincd and documcntcd, as should thc company`s path to harvcsting and
commcrcializing outsidc innovation.
?')."2'8." '8. <()A()&'. <(). @1'8 0."'$). !"5.*'1"2
Thc most promising alumni ol an incubator or accclcrator arc oltcn targctcd lor in-
vcstmcnt by thc sponsoring company`s vcnturc-capital unit. Such units arc typically
thc corncrstonc ol any corporatc cllort to acccss outsidc innovation. Ol thc 42 com-
panics in our analytical samplc that havc lormal busincss-incubation programs, 39
also havc corporatc vcnturc-capital units. In most cascs, companics lirst dcvclop
vcnturc units, thcn procccd to build lrom thcrc, installing incubation or accclcra-
tion units to complcmcnt thcir vcnturing activitics.
In rcccnt ycars, many companics havc turncd to vcnturc invcsting to locatc and ac-
quirc innovation in arcas ad|accnt to thcir corc busincsscs. (Scc thc sidcbar Look-
ing Back at 4$(5$(*0" ="%0>(" 4*530*?, @2$3+ 0." A3#BC /3## 0." A"D*(+#:;) Today, al-
most 50 pcrccnt ol thc top 30 companics (as mcasurcd by markct capitalization) in
our samplc ol six innovation-drivcn industrics arc activcly cngagcd in vcnturc in-
vcsting, and companics in industrics across thc board havc stcppcd up thcir invcst-
ing markcdly or cntcrcd thc arcna lor thc lirst timc.
Thc ob|cctivcs ol corporatc vcnturc invcsting havc shiltcd in rcccnt ycars. As com-
panics havc gaincd vcnturing cxpcricncc and sophistication, bcst-in-class vcnturing
units havc conccntratcd on accclcrating thc growth ol thcir start-ups and thcir own
busincss units. Following lrom this changc in locus, bcst-in-class vcnturc units now
cstablish clcar guidclincs that spcll out thc stratcgic nccds ol thc busincss units and
align vcnturc scarch liclds and targcts with thosc nccds. Thc scarch liclds locus on
arcas whcrc onc or morc ol thc busincss units can ollcr a start-up a compctitivc
cdgc and a valuc crcation plan.
The chjectves c
ncuhatcn anc
acceleratcn prcgrans
shculc he ully anc
clearly cennec anc
cccunentec.
TiL BOs1O COsuL1iG CROuR 11
That plan lollows a clcarly dclincatcd logic, typically ccntcrcd on onc ol lour valuc-
crcation modcls that vary with thc maturity ol thc start-up:
- Undcr thc rst modcl, thc start-up and vcnturc capital unit |ointly cstablish
prool ol conccpt. That cntails tcsting and conrming not |ust thc tcchnical
lcasibility ol producing a product but also thc ability to crcatc a robust supply
chain and to rccovcr capital invcstmcnts, among othcr considcrations.
BCC`s 2012 puhlcatcn ,"1."1'8&
S&*8J1& ,'.)8'H= G@")( 83& Q)/TU >)// 83&
Q&#'1(/ nace the case that venture
nvestng, cnce the rnge actvty c a
hancul c players n a ew ncustres,
has taken rcct acrcss the ccrpcrate
lancscape. ln ncustres wth a lcng
hstcry c venture nvestng, such as
pharnaceutcals, teleccnnunca4
tcns, anc technclcgy, ncre than hal
c the 30 largest ccnpanes have
venture-nvestng unts n place.
Once prcne tc hccn-anc-hust cycles,
ccrpcrate venture unts are lastng
lcnger, nvestng ncre, anc, ncreas4
ngly, cc-nvestng acrcss ncustry
lnes. Reccgnzng the ccnpettve
acvantage that nncvatcn ccners
anc wary c nssng cut cn a csrup4
tve nncvatcn that cculc rencer ther
current husness nccels chsclete
ccnpanes are estahlshng venture
husness unts at an ever-acceleratng
clp, anc ncustres that crnerly
gncrec the venture-nvestng wcrlc
are junpng ntc the gane anc
scranhlng tc catch up.
lncustral ccnpanes, cr exanple,
are spreacng ther nvestnents
wcely hut nantanng a strcng ccus
cn relatec ncustres, ccnnttng
captal tc clean technclcgy, ncrna4
tcn technclcgy, anc health care.
lncreasngly, ther nvestnents, cnce
largely ccnnnec tc the U.S., are
heacng cnshcre.
The repcrt centnes the grcunc rules
cllcwec hy the ncst successul
ccrpcrate venture cperatcns.
They have the ull hackng c sencr
ccrpcrate nanagenent, whch s
actvely nvclvec n cesgnng the
venture unt, crnulatng nvestnent
strategy, anc nplenentng prccesses
tc capture the ull strategc anc
nnancal value c ther nvestnents.
The strateges c the venture unts are
tghtly algnec wth the parent ccnpa4
ny`s cverall husness anc nncvatcn
strategy, anc ceas gleanec rcn
venture nvestnents cw hy well-
narkec rcutes ntc the larger ccrpc4
rate nncvatcn ppelne.
Lxenplary ccrpcrate venturng unts
alsc have clear anc ccnsstent nvest4
nent paraneters, wth well-cennec
search nelcs anc rsk tclerances, anc
they accept the cccascnal alec
nvestnent as nevtahle.
Mcst c all, the hest ccrpcrate venture
unts, as well as the leacers whc guce
then, uncerstanc that greater than
the rsk c alure s the rsk c nct
nvestng at all.
LOOKlNC B/CK /T ,PQKPQG5O SO65VQO ,GK?5G%=
GSP?R 5!O Q?0WU >?00 5!O QOXGQR0
12 lCu8/1ORs, /CCLLLR/1ORs, \L1uRiG, /D MORL
- Thc sccond modcl involvcs thc dcvclopmcnt ol a robust busincss plan. Thc
corporatc invcstor trains a busincss lcns on a start-up`s tcchnology or product
and idcntics a sustainablc busincss modcl to monctizc it.
- Undcr thc third modcl, thc vcnturc invcstmcnt crcatcs valuc by accclcrating or
dccpcning a start-up`s markct pcnctration. Thc invcstmcnt spccds product
dcvclopmcnt by rcducing production timc and cost whilc improving quality.
- Thc lourth modcl crcatcs valuc by accclcrating thc commcrcialization ol
a product or products through, lor cxamplc, supplicr agrccmcnts with thc
host busincss units ol thc corporatc invcstor. Thc ob|cctivc ol thc invcstmcnt
is to incrcasc thc spccd and dcpth ol thc markct pcnctration ol thc start-up`s
products.
Whatcvcr thc undcrlying modcl, thc company nccds to cnsurc that thc valuc ol thc
partncrship is clcar to thc start-up and that thc right pcoplc arc involvcd at thc
right timc in thc proccss. It`s cqually important to track busincss milcstoncs
through rigorous KPI rcporting and to cnsurc transparcncy through rcgular intcrnal
and cxtcrnal communication with thc start-up and within thc company.
?')&'.21# B&)'".)*81A* -"*@.) '8. C..3 7() ?A..3
Companics sccking short-tcrm product dcvclopmcnt, commcrcialization, and roll-
out ol outsidc innovations typically opt lor stratcgic partncrships with alrcady cs-
tablishcd start-up companics. Thc typical stratcgic partncrship involvcs crcating a
ncw lcgal cntity to hold thc partncrship`s asscts and ovcrscc opcrations. Thc corpo-
ratc partncr`s typical invcstmcnt is in thc $10 million to $50 million rangc, usually
linanccd with somc combination ol cquity and dcbt. In somc cascs, thc dcal is
lundcd by cxtcrnal invcstmcnt. Thc start-up partncr is usually a latc-stagc, rcvc-
nuc-gcncrating company.
Bccausc linancial rathcr than stratcgic conccrns motivatc most partncrships, com-
panics cntcring into thcsc arrangcmcnts should clcarly dclinc thcir linancial cxpcc-
tations, such as 12- to 1S-month rcvcnuc goals, rcturn-on-capital bcnchmarks, and a
lirm timctablc lor rccovcry ol all invcstcd capital.
A growing numbcr ol largc companics arc lorming stratcgic partncrships to closc
knowlcdgc gaps and drivc valuc crcation lor both partncrs. Such arrangcmcnts cn-
ablc companics to lcvcragc thc asscts ol othcr companics in ordcr to drivc ncar-
tcrm commcrcial growth. Through partncrships, companics can addrcss ncw cus-
tomcr populations, cxpand thc markct lor cxisting or contcmplatcd products, sharc
distribution or salcs channcls, and linc-tunc ncw busincss modcls.
Whcn cxccutcd cllcctivcly, stratcgic partncrships cnablc cach partncr to cxpand or
morc dccply pcnctratc its markct with products or scrviccs that complcmcnt its
own product portlolio, without having to invcst in noncorc activitics. Partncrships
arc cspccially valuablc to companics sccking quick cntry to a particular markct or
busincss linc bccausc ol tcchnological disruption, ncw markct cntrants, or aggrcs-
sivc movcs by compctitors.
/ grcwng nunher c
large ccnpanes are
crnng strategc
partnershps tc clcse
kncwlecge gaps anc
crve value creatcn
cr hcth partners.
TiL BOs1O COsuL1iG CROuR 1
Appropriatc govcrnancc structurcs arc crucial to any partncrship`s succcss. Thc
dcal should spcll out in dctail thc rolcs, rcsponsibilitics, and obligations ol cach
partncr and idcntily thc busincss units on cach sidc that will bc accountablc lor thc
partncrship`s opcrations and rcsults. Partncrs arc typically activc owncrs, govcrning
through cithcr ma|ority control or, in thc casc ol minority sharcholdcrs, a board
scat. Exit transactions usually involvc cithcr public ollcrings ol sharcs in thc part-
ncrship or thc buyout ol onc partncr and thc subscqucnt intcgration ol thc part-
ncrship`s linancial rcsults into thc acquircr`s books.
Scvcral lactors arc kcy to thc succcss ol stratcgic partncrships. Most activitics
should takc placc at thc busincss unit lcvcl, with onc unit driving thc choicc ol part-
ncr and taking rcsponsibility lor thc partncrship`s pcrlormancc. Busincss unit lcad-
crs should bc ablc to clcarly articulatc how thc partncrship will gcncratc a tangiblc
bcnclitin thc lorm ol improvcd customcr satislaction, ncw-customcr adoption, or
highcr rcvcnucswithin onc ycar. And thc dcal should grant thc company cxclu-
sivc acccss to thc partncr`s product or scrvicc lor a pcriod long cnough to givc it a
compctitivc advantagc.
D1".>:$"1"2 B.)7()E&"#.
Fivc succcss lactors distinguish high-lunctioning suitcs ol innovation discovcry tools
lrom lcss cllcctivc oncs:
- Closc stratcgic alignmcnt with thc company and rclcvant busincss unit
- Truc partncrship bctwccn ncwcr innovation tools and corporatc B&D, M&A,
and individual busincss units
- Strong company backing in good timcs and bad
- Ecctivc organization dcsign
- Ecctivc lcadcrship and thc right mix ol pcrsonncl
S1RA1EGIC ALIGNMEN1
Wc havc obscrvcd that thc dcsign and usc ol innovation tools at bcst-in-class com-
panics arc closcly aligncd with ovcrall corporatc and busincss-unit stratcgy. This
alignmcnt is apparcnt in thc goals ol thc innovation scarch and thc liclds on which
thc scarch is locuscd. Thus, il thc company is sccking outsidc innovation closc to
thc corc ovcr thc mcdium tcrm, vcnturc invcstmcnts arc probably thc most suitablc
tool. Il it sccks a spccilic product or tcchnology that is still undcr dcvclopmcnt, an
incubator (using thc tight-locus modcl) is likcly thc bcst tool lor thc |ob. Il it`s look-
ing to takc thc pulsc ol thc cntrcprcncurial scctor, an accclcrator can providc a rcla-
tivcly rapid ovcrvicw. And il it nccds to roll out a spccilic product or scrvicc within
a narrow window ol opportunity (whcthcr to harncss a potcntially disruptivc lorcc
or to rccovcr ground lost to rivals), partncrships arc thc most suitablc tool.
Companics should also asscss which innovation support capabilitics thcy should
build up in-housc and which thcy should rcnt"lor cxamplc, by partncring with
Busness unt leacers
shculc he ahle tc
clearly artculate hcw
a partnershp wll
generate a tanghle
henent wthn cne
year.
1/ lCu8/1ORs, /CCLLLR/1ORs, \L1uRiG, /D MORL
an cxisting accclcrator program. Thc lurthcr thc innovation is lrom thc corporatc
corc, thc morc carclully thc company nccds to considcr whcthcr its capabilitics and
culturc can succcsslully support activitics that rcquirc a signilicant invcstmcnt in
cxpcrtisc, managcmcnt timc, and ovcrsight. Thc lull suitc ol innovation tools is not
always nccdcd. Instcad, companics should carclully asscss cach tool`s rclcvancc to
thcir busincss and its capacity to contributc to stratcgic goals.
TRUE PAR1NERsuIP BE1wEEN IN1ERNAL ANo EX1ERNAL INNoVA1IoN
CEN1ERs
A culturc ol coopcration, rathcr than rivalry, should charactcrizc rclations among
thc B&D dcpartmcnt, busincss units, and cxtcrnal innovation ccntcrs. Companics
should lostcr rcgular communication and closc coopcration among units and put in
placc inccntivcs that cncouragc collaboration. Managing thc intcrlaccs bctwccn
various dcpartmcnts and making individual managcrs accountablc lor cach start-up
rclationship will bc critical to succcss.
S1RoNG CoMPANY BACKING
Lcading innovators rccognizc thc importancc ol providing thcir innovation-locuscd
units with robust backing. Thcy arc quick to ollcr markcting assistancc, scaling cx-
pcrtisc, managcmcnt skills, sourcing advantagcs, and physical inlrastructurc to thc
start-ups thcy arc nurturing, vicwing thc dcploymcnt ol thcsc rcsourccs as vital in-
vcstmcnts in thc dcvclopmcnt ol ncw busincss modcls. Support comcs straight
lrom thc topCEOs makc it a kcy topic, modcling thc bchavior thcy cxpcct lrom
thc rcst ol thc organization and structuring innovation support activitics to rcllcct
thcir importancc.
ErrEC1IVE ORGANIzA1IoN DEsIGN
In our rcscarch and cxpcricncc with innovation cllorts, wc havc lound that a com-
pany`s stratcgy or innovation unit is oltcn thc most logical homc lor its innova-
tion-support activitics. At thc samc timc, though, wc lind no corrclation bctwccn
any onc spccilic organization sctup and succcsslul innovation. Organization dcsign
should bc customizcd to suit thc company`s particular innovation nccds and capa-
bilitics and cach dcpartmcnt`s rcadincss to takc on innovation support tasks.
ErrEC1IVE LEAoERsuIP
Companics should asscmblc thcir innovation-lcadcrship tcam carclully, choosing
cxccutivcs who combinc an cntrcprcncurial mind-sct with a dccp undcrstanding ol
thc company`s culturc and structurc. Thcir ability to opcratc comlortably and pro-
ductivcly in both thc start-up`s and thc sponsoring company`s cnvironmcnts cn-
ablcs thcm to scrvc as an cllcctivc conduit bctwccn thc company, its invcstmcnt
targcts, and thc widcr world ol start-ups and carly-stagc vcnturcs.
</1E% -%(&)3 '8. !""(5&'1(" :)&1"F() G1"3 HA H"3.) !'
In our 2012 rcport on corporatc vcnturc invcsting, 4$(5$(*0" ="%0>(" 4*530*?, @2$3+
0." A3#BC /3## 0." A"D*(+#C wc addrcsscd thc inhcrcnt risk ol vcnturc invcsting and
innovation support in gcncral, concluding that thc grcatcr risk was not to invcst at
all. Our work sincc thcn has only strcngthcncd that conviction. Survcying thc land-
scapc ol corporatc innovation activitics, wc lind that in onc industry altcr anothcr,
Surveyng the lanc4
scape c ccrpcrate
nncvatcn actvtes,
we nnc that n cne
ncustry aner ancther,
the leacng nncvatcrs
are steppng up ther
encrts.
TiL BOs1O COsuL1iG CROuR 1
thc lcading innovators arc stcpping up thcir cllorts, as can bc sccn in thc rapid pro-
lilcration ol incubators and accclcrators in 2013. A handlul ol companics havc as-
scmblcd ncarly a lull suitc ol innovation tools and rcstructurcd thcir intcrnal B&D
dcpartmcnts to maximizc thcir cllicicncy. Somc lcading companics, lor cxamplc,
havc sct up small, agilc, high-pcrlorming pro|cct tcams, rcporting dircctly to thc
CEO, to work on tcntpolc" pro|ccts.
As thc innovation lcadcrs stcp up and linc-tunc thcir activitics, thc distancc bc-
twccn thcm and thcir slowcr-moving rivals is widcning. Thc sccds thcy sowcd in
2013 will soon bcgin to bcar lruit, incrcasing thcir lcad on thc compctition. Thc
widcr thcir lcad, thc grcatcr will bc thc appcal ol thcsc lcadcrs to innovation-
mindcd rcscarchcrs and cntrcprcncurs, and thc bcttcr will thcy bc ablc to rccruit
kcy talcnt lrom thc ranks ol innovators with which thcy arc in contact.
Il cmcrging compctitors arc thrcatcning parts ol your busincss, il tcchnology or rcg-
ulations arc rcshaping your company`s valuc chain, or il your compctitors arc cx-
pcrimcnting with ncw innovation tools, inaction is not an option. Bathcr than cntcr
thc licld simply to kccp up with corporatc lashion, howcvcr, companics should carc-
lully considcr thc kind ol innovation thcy wish to sourcc and match it with thc ap-
propriatc innovation stratcgy and tool. That rcquircs companics to clcarly dclinc
thcir innovation goals. Each company will havc uniquc and spccilic nccds and
should dcsign its innovation suitc with thosc in mind.
That cxcrcisc cannot start soon cnough. Thc train is lcaving thc station, and compa-
nics that don`t climb aboard will miss out on thc growth that thcsc innovation tools
can unlcash.
16 lCu8/1ORs, /CCLLLR/1ORs, \L1uRiG, /D MORL
About the Authors
MichaeI BrigI s a partner anc nanagng crectcr n the Munch cmce c The Bcstcn Ccnsultng
Crcup, a nenher c the prvate-ecuty ccre grcup, anc a tcpc expert n ccrpcrate venture captal.
cu nay ccntact hn hy e-nal at hrgl.nchaelhcg.ccn.
AIexander Roos s a sencr partner anc nanagng crectcr n the nrn`s Berln cmce anc the
glchal leacer c the Ccrpcrate Develcpnent practce. cu nay ccntact hn hy e-nal at
rccs.alexancerhcg.ccn.
FIorian 5chmieg s a prcject leacer n BCC`s Munch cmce anc a ccre nenher c the Ccrpcrate
Develcpnent anc Technclcgy, Meca 8 Teleccn practces. cu nay ccntact hn hy e-nal at
schneg.cranhcg.ccn.
Drake Watten s a prncpal n the nrn`s San lrancscc cmce anc a ccre nenher c the
Technclcgy, Meca 8 Teleccn anc Ccrpcrate Develcpnent practces. cu nay ccntact hn hy
e-nal at watten.crakehcg.ccn.
AcknowIedgments
The authcrs wsh tc ackncwlecge the valuahle ccntrhutcn c <H";'H ,"1."1'8& S&*8J1)*+ anc ts
ectcr, anes Mawscn, whc nace avalahle tc us CC\`s extensve catahases c ccrpcrate venture-
captal unts anc ceals. cu nay ccntact hn hy e-nal at jnawscnglchalccrpcrateventurng.ccn.
They alsc thank Katherne /ncrews, Cary Callahan, Harrs Ccllngwccc, Catherne Cucchee,
/ngela DBattsta, /hhy Carlanc, Cna Cclcsten, anc Sara Strassenreter cr ther ccntrhutcns tc
the wrtng, ectng, cesgn, anc prccuctcn c ths repcrt.
About BCC's Winning with Crowth !nitiative
Crcwth s nct cptcnal. lt csprcpcrtcnately crves sharehclcer returns, anc t attracts anc
nctvates talent. But achevng value-creatng grcwth, whle pcsshle n any ncustry, s rarely easy.
BCC`s Wnnng wth Crcwth ntatve hrngs tcgether leacng experts cn ccrpcrate strategy, nnc-
vatcn, glchalzatcn, M8/, husness nccel nncvatcn, narketng anc sales, anc crganzatcn tc
help clents chart ther uncue paths tc value-creatng grcwth. Ths puhlcatcn s a prccuct c that
ccllahcratcn.
For Further Contact
l ycu wculc lke tc cscuss ths repcrt, please ccntact cne c the authcrs.
To fhd the latest BCG cohteht ahd regIster to receIve e-alerts oh thIs topIc or others, please vIsIt bcgperspectIves.com.
Follow bcg.perspectIves oh Facebook ahd TwItter.
The Bostoh CohsultIhg Group, Ihc. 2014. All rIghts reserved.
6/14
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Athcns
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Auckland
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Barcclona
Bci|ing
Bcrlin
Bogota
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Brusscls
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Casablanca
Chcnnai
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Copcnhagcn
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Dsscldorl
Franklurt
Gcncva
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Kicv
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Montcrrcy
Montrcal
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Ncw Dclhi
Ncw ]crscy
Ncw York
Oslo
Paris
Pcrth
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Praguc
Bio dc ]anciro
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