Internal venturing
Shaker A. Zahra and JiFeng Yu
Corporate venturing (CV) refers to the process by which an organization enters a new domestic or foreign market. This process enables established organizations to create and use products or process innovations to target new markets (Venkataraman, MacMillan, and McGrath, 1992). These activities could be external (e.g., alliances, corporate venture capital and acquisitions) or internal. Internal venturing activities stimulate and promote entrepreneurial activities within a company’s ongoing operations. Some refer to internal venturing as ‘‘internal entrepreneurship,’’ ‘‘intra corporate entrepreneurship,’’ or ‘‘internal corporate entrepreneur ship’’ (for a review, see Schollhammer, 1982). The theoretical domain and importance of these activities have evolved over the past two decades, reflecting the changes that have occurred in the business environment and managerial practice.
Evolution of the Internal Venturing Concept
Earlier writings on internal venturing have high lighted formally sanctioned organizational activities intended to stimulate innovation in a firm’s operations (Schollhammer, 1982). Some of these activities are opportunistic in nature, exploiting transient opportunities in the firm’s existing markets or operations. Internal venturing activities may be incubative, focusing on creating a setting in which new ideas or initiatives are internal venturing 157 explored, supported, evaluated, and institutionalized. Someincubative activities require the creation of autonomous business units that develop new business concepts and practices (Zahra, 1991, 1996).
Burgelman’s (1983a, 1983b, 1984) research was a milestone in the study of internal venturing. It separated formally induced (i.e., formally sanctioned) from autonomous (informal) efforts aimed at creating strategic options for the firm through entrepreneurship. Pinchott (1985) later observed that employees and middle managers often initiate informal projects that increase in novation, allowing their companies to enter market arenas. Employees initiate these autonomous activities even when formal systems do not exist to create the momentum for change. Bootlegging and skunkworks are popular informal approaches to internal venturing. While formal and autonomous venturing activities may collide, they often complement one another. The role of senior management centers on creating the mechanisms that induce and strategically exploit complementarity among various formal and informal initiatives. Therefore, by the mid 1990s, several corporations had initiated multiple programs to encourage internal venturing by facilitating the coexistence of formal and in formal activities.
Approaches to Internal Venturing
Companies vary considerably in their approaches to internal venturing. Some companies simply assign this task to a senior manager of an existing unit, such as R&D. Other companies create a task force or a cross functional team that champions these activities and reports on their progress to the firm’s top management. Other companies have created autonomous units whose sole responsibility is to create the context, process, and systems that foster and sustain internal venturing. For example, in 1996, Nortel Networks created a ‘‘business ventures group’’ with a mandate to ‘‘identify, cultivate and incubate possible stand alone internal ventures’’ (O’Connor and Maslyn, 2002: 2). The group has an advisory board that seeks input from everyone in the company. The ventures’ group provides a hospitable place where new business concepts are identified and screened against preset criteria. Once successfully screened, a business proposal is developed and refined. Promising proposals are then presented to the business venture group’s advisory board. Ideas that meet organizational and strategic criteria are approved for investment and given the time to develop. Upon evaluation of their progress, final recommendations about the fate of these projects are made. Projects could be spun in (for internal development), spun out externally, licensed, or terminated. Throughout these various activities, the business venture group is expected to work with the company’s various business units and keep senior managers informed.
Successful Recipes for Internal Venturing
Success in internal venturing requires strategic clarity about the firm’s direction, competencies, and objectives. It is necessary also to recognize the limitations of formal innovation systems that might exist within the organization and accept the possibility that employees, at all levels, can contribute to the firm’s ability to innovate and take risks. Internal venturing programs also re quire successful and sometimes forceful champions to sell innovative business ideas to senior managers. Champions connect the outcomes of the internal venturing process to the firm’s various existing units, creating a basis for synergy in sharing the firm’s assets. These programs re quire a longer time horizon to succeed, which requires sustained organizational support. Strategic control systems that appreciate the exploratory nature of the firm’s internal venturing activities are also needed to safeguard against a short term orientation in managing these activities. The success of these programs also requires resolving conflicts and communication issues that arise between venture groups and existing units. Champions devote considerable energy to linking various organizational units and ensuring that new initiatives are connected to the strategic vision of the organization.
Importance of Internal Venturing
Internal venturing activities foster innovations of different types (Baden Fuller, 1995) by creating a setting in which new ideas receive political and organizational support. Internal venturing units also provide a safe environment in which 158 internal venturing new ideas are tested and refined before presenting them to operating units or senior managers. These activities can promote organizational learning and the acquisition of valuable new knowledge (Zahra, Nielsen, and Bogner, 1999). This learning can be organizational (how to structure things), strategic (how and where to compete), or technological. Internal venturing also makes use of different knowledge bases that exist within the firm, generating the requisite combinative knowledge that becomes the foundation of competitive advantage. By linking diverse bodies of knowledge, internal venturing units also create a setting in which various organizational members from different divisions interact, share their experiences, and learn. This sharing becomes a foundation for joint innovative activities crossing divisional boundaries. Organizational learning also serves to create new competencies, allowing the firm to redefine its strategic arena differently and compete in ways that give supremacy over its rivals. Understandably, some research reveals that in ternal venturing is conducive to higher profit ability and growth (Zahra, 1991). Another benefit of internal venturing is providing a forum that fosters employee innovativeness, which can improve productivity. When employees feel safe to innovate, they are likely to experiment with new combinations of resources, providing a basis for differentiation that creates competitive advantage.
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