By Mª Julia Prats, Josemaria Siota, Celeste Saccomano Tommaso Canonici and Xavier Contijoch
Innovation in large corporations, particularly the practice of corporate venturing to innovate with start-ups, is emerging at great speed, increasing the penetration of some of these mechanisms in companies from 2% to 44% percent in just 6 years. Despite best intentions, chief innovation officers are still struggling and learning how to build, scale, and consolidate their corporate venturing units. In our recent study, we suggest best practices to improve the eleven corporate venturing mechanisms.
Why your corporate venturing efforts might be going in vain
In 70% of the cases, large firms are increasing investment in their innovation units, 60% of which were created in the last five years. In particular, the use of some innovation mechanisms of corporate venturing (innovation between established companies and start-ups) has increased from 2% to 44% in recent years.
Large companies such as Intel, Siemens, Xerox, GE, IBM, Lucent, and Merck have developed these models for years: corporate accelerators and incubators, scouting missions, corporate venture capital funds, hackathons, prize challenges, venture builders, and more.
From the large company’s viewpoint, dealing with small and inexperienced companies presents the following main difficulties: the management of intellectual property, brand protection, technological readiness, financial stability, and entrepreneurial culture.
Meanwhile, start-ups encounter other barriers such as finding the right entry point to a collaboration, understanding people’s roles in large companies (dealing with different teams along the way), struggling with the slow decision cycles that are common in large companies, dealing with what they see as “abusive” negotiations due to the greater power of the other stakeholder, and a lack of awareness by the large firm of how start-ups operate.
Based on interviews with 46 chief innovation officers (and related roles), in the study recently published by IESE Business School and Opinno “Open innovation: Building, scaling and consolidating your firms’ corporate venturing unit”, we spotted a new zoom of challenges, specified by the maturity of the corporate venturing unit, connected with the number of years using this practice (building, scaling and consolidating). These were the biggest challenges they reported.
Chief innovation officers’ best practices: what you need to know
Not everything is bad news. In the study, we asked to those large corporations (in different sectors and geographies) that are succeeding in the implementation of corporate venturing to understand their main takeaways. As we explain in recent articles at MIT Technology Review and Forbes, these were the most recommended best practices they shared by mechanism.
Scouting mission. Involve the business line from the start. Otherwise, there will be people working on innovation and the rest carrying out business separately. Consequently, the two would not be aligned and the innovation unit would be unable to deploy the solution in the market.
Hackathon. Prioritise open calls in the geographical areas analysed. In particular, in sectors where finding the right solution or talent is complicated (e.g., pharma), it is crucial to identify in advance which geographies are stronger in terms of the desired need or talent.
Sharing resources. Enable tech tools to interact with start-ups. Often, start-ups are looking for data, know-how or processing technology. Having the right technological infrastructure will help you increase the interaction and save you long-term costs for management.
Challenge prize. Transform prizes into pre-investment. Although rewarding the winner with a €30,000 prize may be tempting, investing in the winner is even more powerful and attractive. Finding synergies among mechanisms (e.g., corporate venture capital) will save you costs.
Corporate accelerator. Get the financial buy-in from the business line. Securing the initial commitment of the business team, in terms of the budget, will help ensure the project’s success because they have made an investment.
Corporate venture capital. Balance strategic and financial returns. Find a balanced mix of KPIs to decide from among several initiatives. This will include the weighting of long-term opportunities and the short-term financial return (20/80 vs. 80/20).
Excubator. Ensure there is the right external talent. This mechanism relies not only on external start-ups but also on an external venture builder. Therefore, analyse in depth with whom you would be joining forces (e.g., number of start-ups attracted, average length of production cycle and reviews).
Corporate incubator. Consider your own employees for the incubation application. Some corporations are creating incubation programmes internally for their own employees. This leverages internal talent and provides staff with unique learning motivation and visibility.
Strategic partnership. Share best practices through vertical integration. A community that shares best practices on corporate venturing will not only help keep you updated but will give you an additional competitive advantage over your suppliers, clients and strategic partners. Consider also looking for answers in other industries.
Venture client. Define processes for the start-up’s speed. Design internal procedures to interact with the start-up at the speed it requires, avoiding unnecessary bureaucracy and limiting what the start-up can do but does not do.
Acquisition. Improve your organisational agility. Large corporations are often immersed in rigid cultures, long decision-making cycles, a lot of bureaucracy, and complex organisational charts that make integration quite difficult. Find the right balance between instability and efficiency.
About the Authors
(left to right) From IESE Business School: Prof. Mª Julia Prats is the Head of the Entrepreneurship department, Josemaria Siota is the Research Director of the Entrepreneurship and Innovation Center, and Celeste Saccomano is a Researcher of Entrepreneurship. From Opinno,Tommaso Canonici is the Managing Director of Europe, and Xavi Contijoch is the director of Barcelona.
