Managing internal corporate: Venturing cycles

MIT Sloan Management Review

Volumn 46, Issue 4, 2005, Pages 26-34

  Burgelman, Robert A ^a   Välikangas, Liisa ^b,c  

^a STANFORD UNIVERSITY   (United States)

^b Woodside Institute   (United States)

^c HELSINKI SCHOOL OF ECONOMICS   (Finland)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 23444450252     PISSN: 7653697     EISSN: 1782155X     Source Type: Journal    
DOI: None     Document Type: Review

References (63)

1. Corporate Strategy Board, Executive Inquiry, "The New Venture Division, Attributes of an Effective New Business Incubation Structure" (January 2000): 14.
2. A. Hunt, vice president of innovation, Baxter International Inc., interview with L. Välikangas, fall 2004.
3. L. Välikangas, "Shell GameChanger: Mastering the Corporate Innovation Game," working paper, Woodside Institute, Woodside, California, 2004.
4. H. Chesbrough, "Graceful Exits and Missed Opportunities: Xerox Management of its Technology Spin-off Organizations," Business History Review 76, no. 4 (2002): 803-837.
5. The literature on ICV is broad if somewhat fragmented, reflecting sustained interest on the part of scholars and practitioners over many decades. It is true that the phenomenon of ICV cyclicality has been "in the air" for a long time. See, for example, N.D. Fast, "The Rise and Fall of Corporate New Venture Divisions" (Ann Arbor, Michigan: UMI Research Press, 1978);
6. A. Burgelman, "Corporate Entrepreneurship and Strategic Management: Insights From a Process Study," Management Science 29, issue 12 (December 1983): 1349-1365;
7. A. Burgelman, "Managing the New Venture Division: Research Findings and Implications for Strategic Management," Strategic Management Journal 6, no. 1 (March 1985): 39-55. However, it has seldom been the main focus of attention in the ICV literature, and there has been little systematic discussion of what generates the start, duration and ending of the ICV cycle. For a fairly recent textbook-style overview of the broad ICV literature
8. see M. Morris and D. Kuratko, "Corporate Entrepreneurship: Entrepreneurial Development Within Organizations" (Fort Worth: Harcourt College Publishers, 2002). For a recent anthology of various entrepreneurship-related perspectives
9. see M.A. Hitt, R.D. Ireland, S.M. Camp and D.L. Sexton, eds., "Strategic Entrepreneurship: Creating a New Mindset" (Oxford: Blackwell Publishers, 2002).
10. H. Chesbrough, "Designing Corporate Ventures in the Shadow of Private Venture Capital," California Management Review 42, no. 3 (2000): 31-49.
11. A. Campbell and R.A. Burgelman, "EBF Debate: Should Companies Be Cautious Entrepreneurs ... or Should They Embrace a Dynamic Force?" European Business Forum, no. 15 (fall 2003): 12-15;
12. and A. Campbell and R.A. Burgelman, "EBF Debate: 'Wait and Watch' versus 'Practice and Get Luckier,' European Business Forum, no. 16 (winter 2003-2004): 36-39. For an effort to integrate Campbell's and Burgelman's perspectives in the debate
13. see R.M. Kanter "Exploring the Innovation Pyramid," European Business Forum, no. 16 (winter 2003-2004): 40-42. For a complete statement of Campbell's position
14. see A. Campbell and R. Park, "The Growth Gamble" (London: Nicholas Brealey, 2005).
15. See also A. Campbell, J. Birkinshaw, A. Morrison, R. van Basten Batenburg, "The Future of Corporate Venturing," MIT Sloan Management Review 45, no. 1 (fall 2003): 30-37. For another view advocating a limited role for ICV
16. see C. Zook with J. Allen, "Profit From the Core: Growth Strategy in an Era of Turbulence" (Boston: Harvard Business School Press, 2001).
17. Such persistence may be attributed partly to internal entrepreneurship being a dynamic force that is an important motivator at work. Corporate venturing offers many employees a chance to follow their interests and passion, often in addition to their regular tasks. D. Duarte and N. Snyder, in "Strategic Innovation: Embedding Innovation as a Core Competency in Your Organization" (New York: Jossey-Bass, 2003), describe how Whirlpool Corp. was able to tap the ideas and passions of many of its employees by making innovation a corporatewide privilege and capability.
18. Burgelman, "Corporate Entrepreneurship and Strategic Management," 1349-1365.
19. Z. Block and I.C. MacMillan, "Corporate Venturing: Creating New Businesses Within the Firm" (Boston: Harvard Business School Press, 1993).
20. Fast, "The Rise and Fall of Corporate New Venture Divisions." For more recent commentary on the short life spans of new venture divisions
21. see D.A. Garvin, "A Note on Corporate Venturing and New Business Creation," research note, Harvard Business School Press (March 2001): 1-21.
22. R.A. Burgelman, "Managing Innovating Systems: A Study of the Process of Internal Corporate Venturing" (Ph.D. diss., Columbia University, 1980).
23. R.A. Burgelman, "A Process Model of Internal Corporate Venturing in the Diversified Major Firm," Administrative Science Quarterly 28, no. 2 (June 1983): 223-245.
24. See also R.A. Burgelman and L.R. Sayles, "Inside Corporate Innovation: Strategy, Structure and Managerial Skills" (New York: Free Press, 1986).
25. R. Biggadike, "The Risky Business of Corporate Diversification, " Harvard Business Review 56 (May-June 1979): 103-111.
26. See, for example, F.J. Aguilar, "Bard Medsystems Division: Intrapreneurial Showcase," Harvard Business School case no. 1-387-183 (Boston: Harvard Business School Publishing, 1987), which narrates the career hazards of an entrepreneurial division manager who stays more than eight years in a struggling new venture.
27. Burgelman, "Managing Innovating Systems."
28. J. Moldenhauer-Salazar and L. Väikangas, "Radical Innovation Through the Looking Glass" (presentation at Strategic Management Annual Conference, Baltimore, Nov. 9-12, 2003).
29. Burgelman, "A Process Model of Internal Corporate Venturing in the Diversified Major Firm." For similar behavior in the strategic capital-investment process
30. see J. Bower, "Managing the Resource Allocation Process" (Boston: Harvard Business School Press, 1970). For a more theoretical examination of opportunistic behavior
31. see, for instance, O.E. Williamson, "Markets and Hierarchies: Analysis and Antitrust Implications" (New York: Free Press, 1975).
32. P. Gompers and J. Lerner, "The Determinants of Corporate Venture Capital Success: Organizational Structure, Incentives and Complementarities, " chap. 1.1 in "Concentrated Corporate Ownership," ed. R. Morck (Chicago: University of Chicago Press, 2000).
33. H. Chesbrough, "Making Sense of Corporate Venture Capital," Harvard Business Review 80, no. 3 (March 2002): 90-99.
34. Chesbrough, "Graceful Exits and Missed Opportunities," 803-837.
35. A. Muller and L. Väikangas, "An ODD Reaction to Strategy Failure in America's Once Largest Telco," European Management Journal 21, no. 1 (2003): 109-118.
36. S. Postrel and R.P. Rumelt, "Incentives, Routines and Self-Command," Industrial and Corporate Change 1, no. 3 (1992): 397-425.
37. N. Machiavelli, "The Prince" (London: Penguin Books, reissued 2003).
38. See, for example, M. Hayward and D.C. Hambrick, "Explaining the Premium Paid for Large Acquisitions: Evidence of CEO Hubris," Administrative Science Quarterly 42, no. 1 (1997): 103-129;
39. and M.E. Porter, "From Competitive Advantage to Corporate Strategy," Harvard Business Review 65, no. 3 (May-June 1987): 43-59.
40. J. Mackey and L. Väikangas, "The Myth of Unbounded Growth," MIT Sloan Management Review 45, no. 2 (winter 2004): 89-92.
41. Burgelman has presented evidence that exploring and exploiting new-business opportunities outside the scope of the corporate strategy requires a different leadership discipline than the discipline necessary to exploit existing opportunities, but requires a discipline nevertheless. See R.A. Burgelman, "Strategy Is Destiny: How Strategy-Making Shapes a Company's Future" (New York: Free Press, 2002).
42. See also R.A. Burgelman, "Strategy as Vector and the Inertia of Coevolutionary Lock-in," Administrative Science Quarterly 47, no. 2 (2002): 325-357.
43. For a discussion of ICV initiatives as a natural dynamic force in organizations, see R.A. Burgelman, "Corporate Entrepreneurship and Strategic Management," and R.A. Burgelman, "EBF Debate: Must We All Be Entrepreneurs Now?" European Business Forum 15 (fall 2003): 13-15. Van de Ven and Garud, who found evidence that internal entrepreneurs tend to persist in their behavior under conditions of ambiguity and slack despite negative feedback, provide some evidence for the irrepressible entrepreneurial spirit.
44. See A. Van de Ven and R. Garud, "An Empirical Evaluation of the Internal Corporate Venturing Process," Strategic Management Journal 13, no. 8 (summer 2002): 93-110.
45. Alva Taylor found that initiators of new products outside the scope of the existing corporate strategy did so in part because they anticipated that if their initiative was not embraced by the company, they would be able to find a new job related to their initiative in another company in the industry. See A.H. Taylor, "A Process Study of the Influence of Competition Between New Product Initiatives on Innovation and Organizational Learning" (Ph.D. diss., Stanford University, 2000).
46. "Strategic context determination refers to the political process through which middle-level managers attempt to convince top management that the current concept of strategy needs to be changed so as to accommodate successful new ventures." See Burgelman, "A Process Model of Internal Corporate Venturing in the Diversified Major Firm," 237-238
47. and R.A. Burgelman, "Managing the Internal Corporate Venturing Process," Sloan Management Review 25, no. 2 (winter 1984): 33-48. Strategic context determination critically depends on "organizational championing" by executives. This is the most difficult and least understood part of the ICV process, and the part that is most likely to break down.
48. M.E. Porter and S.J. Roth, "Bendix Corporation," Harvard Business School case no. 9-387-257 (Boston: Harvard Business School Publishing, 1985).
49. C.M. Christensen, "The Innovator's Dilemma" (Cambridge: Harvard Business School Press, 1997).
50. See N. Nohria, "Internal Corporate Venturing at Eastman Kodak: A New Chapter in the Rise and Fall of the New Venture Division," working paper, Harvard Business School, Boston, 1992.
51. "Kodak Cuts Dividend by 72% to Finance Digital Transition," Wall Street Journal, Sept. 26, 2003.
52. "Kodak Aims to Become a Model of Reinvention," Financial Times, Sept. 27, 2003.
53. Burgelman and Sayles, "Inside Corporate Innovation." This insight suggests the need for caution in too quickly adopting the distinction made by Campbell and others between "new leg venturing" and "innovation venturing." If ICV is indeed a discovery process, it may be clear only after the fact whether some initiative was important for the core business or truly a diversifying activity.
54. N. Snyder and D. Duarte, "Strategic Innovation" (New York: Jossey-Bass, 2003).
55. Burgelman, "Corporate Entrepreneurship and Strategic Management"
56. and Burgelman, "Strategy Is Destiny." McGrath and MacMillan provide a practical tool for planning for a new venture that takes into account how the process differs from planning for mainstream businesses.
57. See R.G. McGrath and I.C. MacMillan, "Discovery-Driven Planning," Harvard Business Review 73, no. 4 (July-August 1995): 44-53.
58. G. Hamel and C.K. Prahalad, "Competing for the Future" (Boston: Harvard Business School Press, 1994).
59. R.A. Burgelman and P. Meza, "Intel Beyond 2003: Looking for Its Third Act," Stanford Business School case SM-106 (Stanford: Stanford Business School, 2003).
60. This is an area where the advice of Campbell and Harris to exert caution in supporting ICV is valuable. While we strongly argue for continued support of ICV efforts, we also argue for a more deliberate and controlled resource-allocation management to help dampen ICV cyclicality. See A. Campbell and R. Harris, "The Growth Gamble."
61. Pekka Ala-Pietilä president of Nokia Corp., communication with R.A. Burgelman, fall 2000.
62. In fact, new ventures pursued in the ICV mode often need to be augmented with relatively small to midsize acquisitions in order to scale up within a limited time horizon to a size that makes the venture relevant from the corporate point of view. But such "strategic building" activities will benefit from already having some business initiative going that offers insight into what might be the right acquisition in the first place. In that sense, ICV can potentially play an important role in a more broadly conceived idea of the "absorptive capacity" of the corporation. On strategic building, see Burgelman, "Managing the Internal Corporate Venturing Process," 33-49. On absorptive capacity
63. see W.M. Cohen and D.A. Levinthal, "Absorptive Capacity: A New Perspective on Learning and Innovation," Administrative Science Quarterly 35, no. 1 (March 1990): 128-134.