A research study based on more than 120 interviews with chief innovation officers on three continents reveal some of the strategies that increase speed and reduce costs of corporate venturing projects.
Corporate venturing, a collaboration between an established firm and an innovative start-up, has been gaining ground as a strategic path to innovation. There is a wide range of mechanisms for corporate venturing, of which the following is a sample:
In choosing the right mechanism for their corporation, chief innovation officers in corporations must consider a number of key questions related to cost (in time and money) and speed, such as: How much will it cost to integrate opportunities’ value into the parent company using each corporate venturing mechanism? How can those costs be reduced? Do the costs differ according to mechanism? Are certain mechanisms quicker than others?
A research report produced by a team from IESE Business School and the consulting firm BeRepublic and based on a survey of 121 chief innovation officers in firms from the U.S., Europe and Asia, provides some answers.
One important consideration in the choice of mechanism is the development stage (discovery, start-up, and scale-up) of the desired opportunity. Scouting missions and sharing resources are mechanisms for corporations who are looking to engage in the early discovery stages of innovation development. Establishing a corporate accelerator or incubator might be the best mechanism for corporations looking to engage with established start-up opportunities. Corporate venture capital or even outright acquisition may be the best strategy choice for corporations looking for well-developed opportunities that are seeking help in scaling up.
To better understand the speed of different corporate venturing mechanisms, the study breaks a corporate venturing project into three stages: 1) identification, which involves the corporation’s internal challenges and potential research areas and scouting for a problem-solution fit; 2) collaboration, the stage in which the corporation approaches and signs a collaboration agreement with a start-up; and 3) integration, the challenging third stage of integrating the value of the opportunity (e.g., knowledge, products, business models, or revenue sources) into the corporation.
The integration stage typically takes the longest time. For example, the identification stage of a corporate incubator program takes an average of 3.5 months, the collaboration phase 7 months and the integration phase 16 months, for a total average time of more than 2 years (26.5 months). A corporate accelerator program is much more intense, lasting an average of less than a year, including 2.2 months for the identification stage, 2.3 months for the collaboration stage and 6.8 months for the integration stage.
Costs also vary widely among the mechanisms. The average cost per opportunity per year of $152,450 for sharing resources is half of the equivalent cost for corporate incubators ($294,500) and corporate accelerators ($310,333). Costs can also vary widely depending on the opportunity: acquisitions in the study ran from less than $200,000 to more than $700,000.
In addition to providing data for the various mechanisms, the study also provides some guidance in making the right corporate venturing decisions. For example, to improve your corporate venturing strategy, the study suggests using data not intuition in designing the strategy; plan carefully; and identify bottlenecks in the identification, collaboration or integration stages.
To increase speed, adopt agile principles (flatter structure, modular processes), especially in the integration stage; prevent foreseeable delays (for example, if you’re moving into a new regulatory space, hire the legal expertise that will speed up the process); increase your brand awareness, which will speed up identification (as start-ups come to you) and collaboration.
To reduce costs, the report suggests a “joint three pockets” approach, involving corporate headquarters and a business unit in the financing of the venture, thus adding two “pockets” to the innovation unit’s funding.
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