SDA Professor of Strategic and Entrepreneurial Management
Corporate entrepreneurship is a rising issue among executives. An increasing number of multinational companies are sponsoring “hackathon”-like events, screening potential investments in start ups or setting up corporate incubators to engage internal and external entrepreneurs. Moreover, the participation of corporations in venture capital funds – of their own or as limited partners – has recently experienced a sharp increase. For instance, the percentage of corporate venture capital on the total VC market in the U.S. has gone from 7% in 2008 to 13% in 2015. Yes, corporate entrepreneurship is a “hot” new thing.
Except for the fact that it is not really new. Since the 90s, companies have regularly engaged in various forms of interaction with start up communities and internal entrepreneurs, with varying degrees of success. One recurring fact in these past efforts, however, is how little they seem to last. For instance, the average life of a corporate venture capital unit is below two years. Similarly, corporate incubators and idea contests are announced with great fanfare only to be quietly downscaled or shut down relatively soon after, when the company’s cash becomes a bit more scarce or someone asks the question: “Why are we spending money on this?”. Often, it turns out they were doing it just for immediate media visibility, without any clear strategic objective. What is it that makes these efforts so unstable? Why can’t corporations be more consistent and patient in their approach to identifying and developing entrepreneurial ideas inside and outside their organizations?
In this article, I begin outlining the contours of a more comprehensive map of corporate entrepreneurship programs, their outcomes and the measures that might lead to a more effective method to evaluate and improve corporate entrepreneurship initiatives.
Understanding the outcomes: two main issues
In conversations with executives who are in charge of such initiatives, two answers emerge. First, companies still do not have a clear map of the all potential outcomes of corporate entrepreneurship. Yes, they do know that it is supposed to deliver new business opportunities but that, as we shall see below, is only one of the possible results. And confusion about the outcomes certainly leads to a misvaluation of those initiatives. Second, companies lack a clear methodology to measure the results of corporate innovation programs. After all, executives are used to assess businesses and projects by their return on investment. When that logic cannot be applied to start up programs or corporate incubators – which likely will not start delivering actual results until five or more years into the future –, those executives are left wondering why the company should continue supporting them. In fact, often the only tangible short term result that they can observe is the aforementioned boost in the company’s reputation as “innovative”, an outcome that, while positive, can never become the main reason for these initiatives.
Different strokes for different goals
Companies nowadays have a pretty wide range of options when it comes to promoting corporate entrepreneurship. They can organize idea contests and “hackathons”, set up internal incubators, start corporate venture capital units, or create business units specialized in developing new businesses, among other initiatives. The key is to realize that each one of those programs delivers a different mix of entrepreneurial outputs. What are the main elements in the mix? We can group them in four main types:
- New business creation. This is the most obvious outcome of a corporation’s innovation activities. Disruptive products and business models that can deliver millions (or even billions) of new revenue within five to ten years.
- Improvement of the company’s current businesses. These are ideas that open up new channels for existing businesses, improve their value proposition, take an existing product or service to new customer segments or geographies, etc. Similarly, integration of outside entrepreneurs through collaborations and/or outright acquisitions allows the company to access technologies, know-how and talent that can significantly reinforce the current business. Other times, those acquisitions might simply block/eliminate potential competitors, protecting the company’s core businesses.
- Motivation and skill training. Some entrepreneurial programs are powerful in simply creating excitement within the organization about the company’s willingness to innovate, which in turn might lead to increased employee retention and productivity. Moreover, some of those initiatives double as a practical training program in which employees acquire basic or advanced entrepreneurial skills like business modeling, pitching, team building, etc.
- Strategic learning. By engaging with outside start ups and venture capitalists, corporate executives can obtain valuable data and insights about “what is going on” in their industries in terms of potential disruptive products and business models. On a similar note, those executives can look at the ideas being developed by corporate incubators and accelerators as small-scale experiments that generate important learning for the company.
The Adobe Kickbox program is a good example of this. Adobe offers employees a two-day workshop that provides coaching on how to develop and test an idea and $1,000 in cash to perform initial research on it. At the end of the program, participants can pitch their proposals to business unit managers in order to gain further support. Although Adobe has been able to generate more than 800 new ideas through this program, only 22 of those have been adopted by the business units and none of them has turned into a clear new business opportunity. On the other hand, Adobe’s HR department claims that the Kickbox program is the best retention program they have ever had. Thus, Adobe’s program scores very highly in terms of motivational returns but very poorly in terms of new business creation. This is not surprising given the specific design of the initiative. Among other things, sixty hours is not nearly enough time to develop an idea into a business opportunity. This is also not necessarily bad, as long as Adobe executives’ goal is to increase employee motivation rather than to generate millions in future revenues.
The same goes for other innovation mechanisms such as venture capital units, incubators and specialized units. The following table shows a proposed map of initiatives and outcomes.
No innovation initiative is likely to deliver high value on all four dimensions. That is why companies need to combine a few of those programs to achieve the desired balance of entrepreneurial outputs. Knowing what to expect from each type of program is a key first step. In another article, I will address the second critical issue: how to measure the returns in each of those dimensions in order to evaluate the company’s overall corporate entrepreneurship effort.