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CORPORATE VENTURING

Srivardhini K Jha, Entrepreneurship, IIM Bangalore

 Corporate Entrepreneurship
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 What is corporate entrepreneurship?

 Entrepreneurial activity within a mature firm i.e.,
attempts to create products, enter markets, or introduce
process innovations that are new to the firm.

 Why should large corporations be entrepreneurial?

 To counter the gale of creative destruction
 To find new growth opportunities
 Corporate Entrepreneurship Strategies
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Origin Internal Origin External Origin

Structure

Integrated Intrapreneurship Merger and

structure acquisition

Autonomous Internal Entrepreneurial

structure Corporate Partnerships
Ventures
(C) K.Kumar
Corp Ent Internal Origin - Process

RS1 RS2 RS3 RS4 RS5 RS6

Combine technologies and markets

(Idea Generation) Internal Venturing Process (Selection)

New New New New New

Venture Venture Venture Venture Venture

Venture Management Process

Terminate Spinoff Incubate

(New) RS7 (New) RS8
*RS-Revenue Stream
(C) K. Kumar. 2015
 What are the challenges?
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 Strategic challenges
 Focus on near-term margins, size of business
 Cyclicality

 New businesses, Old lenses

 Potential Resolution
 Three horizon framework
 Outside hires, inorganic growth
 3 Horizon Framework
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Profits

Horizon 3- Create Viable

Options

Horizon 2 – Build Emerging Businesses

Horizon 1- Defend the core

businesses
Time

Source: Bagai et al. 1998. The Alchemy of Growth

 What are the challenges?
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 Incentives and Organizational challenges

 Risk and failure avoidance
 Organization design dilemma
 Emphasis on organizational harmony
 “Cost-center” purgatory

 Potential Resolution
 Leeway for ‘well-intentioned failure’
 Balancing act between coordination and competition

 Bottom-up entrepreneurship; Disciplined empowerment

 Insulation of entrepreneurial efforts

 What are the challenges?
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 Decision making challenges

 Rigid application of financial metrics and performance
measures
 Reliance on traditional market research

 Linear stage-gate processes

 Potential Resolution
 Metrics to align with the horizon of the project, type of
innovation, market maturity
 ‘Make little, sell little’
 Bootstrap
 Limited, staged investments
 In summary
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 Entrepreneurship is critical for mature companies but

poses many challenges.
 A fine balancing act is needed to manage core
businesses while exploring new growth drivers.
 Conscious planning and design of Organizational
structures and processes can overcome the strategic,
organizational and decision making challenges of
Corporate entrepreneurship.
 Titan case
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 Titan Case: Key Learnings
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 CE is not something strange and foreign or a tech company phenomenon -

all companies have to do it to meet growth targets, and maintain an
entrepreneurial (rather than employee) mindset.
 CE doesn’t protect companies from failure and the need to pivot based on
customer responses and changing market conditions.
 CE processes (generation) – Future Shock (top performers+cross-functional
teams + senior manager) -> Ignitor (everyone suggests ideas+mentors
once importance of CE is established)
 CE processes (evaluation) – Future Shock (MDs of Tata group
companies+faculty) -> (Ignitor) VC type jury including Titan division heads
-> (Hexagon) Structured criteria (high growth, high margin, high ROI,
competencies not cost, underserved markets)
 CE processes (incubation) –within existing businesses -><-. separate (based
on distance from core, 3-horizon, capability-match)
 Need for balancing act between maintaining and rejuvenating the core
and exploring new opportunities far from the core – 3-horizon frame
 CE processes (Exit) – low growth, low margin businesses to be spunoff or
terminated; high growth, high margin businesses with fit to be internalized
or kept in incubation
 Key Learnings
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 Place many bets

 Continuous experimentation and pivoting
 Continuous experimentation in CE processes for
generation, selection, incubation and exit
 Some more definitions/concepts
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 Disruptive Vs. Sustaining Innovation
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 Sustaining Innovation
 Maintainsa steady rate of product improvement along
performance attributes valued by current customers.
 Disruptive Innovation
 Often sacrifices performance along dimensions that are
important to current customers and offers a different
package of attributes that are not (yet) valued by
those customers.
 Disruptive Vs. Sustaining Innovation
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Bower and Christensen 2000

 DI characteristics
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 Sustaining innovation – maintains a steady rate of

product improvement
 DI - Often sacrifices performance along dimensions
that are important to current customers, but offers a
package of attributes that are not (yet) valued by
those customers. Can open up entirely new markets
– Sony’s early transistor radios sacrificed sound
fidelity, but they created a new market for small,
portable radios.
 Examples of DI
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 Wikipedia (distributed knowledge) versus

encyclopedias (Brittanica; including digital
encyclopedias – MS Encarta)
 Mini computers versus mainframes
 Xerox let Canon create the small-copier market
 Digital photography versus chemical photography
(Kodak declared bankruptcy in 2012 despite
inventing one of the first digital cameras in 1975)
 Desktop publishing versus traditional publishing
 Excavator market (cable operated Bucyrus-Erie vs.
hydraulic Caterpillar/Deere)
 Why does this happen?
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 Focus on current customers - Customers wield enormous power over Organizations’

resource allocation process.
 Seems irrational to divert resources from known customer needs and established
markets to insignificant customers/markets.
 New technologies often don’t meet the needs to existing customers.
 New technologies do not meet the performance and sophistication of established
markets initially.
 Culturally, successful companies want the best, brightest, fastest, shiniest, NOT the
smallest, cheapest, most basic.
 Strategically, successful companies (by def) aim for higher margins, large growth;
the uncertainty of new tech and the new customers they target often cannot address
these goals.
 Large companies have processes and routines in place to execute reliably. These
processes are not in line with the iterative, trial and error approach required for a
new venture. Decision making hierarchies delay the ability to quickly pivot when
needed.
Nature of Opportunities -ENV
 Low investment
 High uncertainty
 Low likely profit

(C) K. Kumar
Nature of Opportunities-CV
 High investments
 Low uncertainty
 High likely profit

(C) K. Kumar
 Market Uncertainty Vs Innovation
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Product fit to New customers.

High
market needs Long gestation
uncertain. period. Lower
revenue targets.

Market
Uncertainty
Business as
New customers.
usual. Focus
Lower revenue
on present
Low targets.
customers.

Sustaining Disruptive
Technology