Corporate Venturing Spreads Across the Business World as Its Toolkit Expands
Marketwired
MUNICH, GERMANY--(Marketwired - Apr 25, 2016) - Corporate venture investing, once used by a handful of companies seeking financial returns, has evolved into a crucial tool for gaining access to innovations, discovering disruptive technologies, and addressing new markets, according to new research from The Boston Consulting Group (BCG). That research reveals that 40% of the 30 largest companies by market capitalization in each of seven innovation-intensive industries -- and 57% of the top 10 -- are engaged in corporate venture capital (CVC) investing. The research is the backbone of a new BCG report, Corporate Venturing Shifts Gears: How the Largest Companies Apply a Broad Set of Tools to Speed Innovation. The report is being released today.
At the same time that CVC has spread across the corporate landscape, the venturing toolkit has expanded. In addition to minority equity investments, companies' repertoires now include accelerators and incubators, innovation labs, and a broad array of activities and events, such as "hackathons," start-up competitions, and scouting missions to university research facilities. Accelerators and incubators are the most popular new tool, in use at 44% of the top 30 companies. And one out of five of the top 30 companies operate an innovation lab. The new report examines in depth how companies use these tools and offers critical success factors for any company looking to enter -- and win -- in corporate venturing.
Extensive research on the innovation strategies and venturing tools of the top 30 companies as well as their search fields shows that a clear innovation strategy is the foundation of an effective corporate venturing operation. "The most successful corporate venturers can state clearly why they are engaging in an external search for innovation, the specific search fields they are considering, and how they intend to create value," said Michael Brigl, a BCG partner and a coauthor of the report. "Without such a strategy in place, companies cannot effectively determine which innovation tools to use and who in the organization will be in charge of the venturing effort."
Close study of the top 30 companies in seven innovation-intensive industries -- automotive, chemical, consumer goods, financial services, media and publishing, technology, and telecommunications -- reveals how the tools and search fields favored by companies vary depending upon their industry. Chemical, media, and technology companies, for example, search for innovation in their core businesses mainly using CVC. Telecommunications companies focus on core-business innovation and adjacencies using a combination of CVC and accelerators or incubators. Financial services, automotive, and consumer goods companies use mostly accelerators and incubators to search for innovations in adjacent industries.
BCG's research has enabled it to identify three factors that are critical to an effective innovation strategy. These factors apply regardless of industry or region.
Choosing an appropriate CVC model
Forming accelerator and incubator partnerships
Designing customer-centric innovation labs that speed time to market
Choosing an Appropriate CVC Model
CVC in its nascent years was mainly invested to produce financial returns. After 2000, the focus shifted to predominantly accomplishing strategic objectives. In the past few years, CVC investing has further evolved into four distinct models:
The strategically oriented corporate-led model
The strategically oriented business-unit-led model
The financially oriented corporate-led model
The financially oriented independent model
The first two models have primarily strategic objectives, but they differ fundamentally in three important respects: the unit responsible for defining the search fields, the objectives for the CVC, and the preferred approach to value creation. In contrast to the strategically oriented CVC models, the other two models focus on financially oriented objectives.
"In the past three years, both strategically and financially oriented CVC units have focused much of their investment capital on the software industry," said Max Hong, a BCG partner and a coauthor of the report. "That trend reflects the increasing value of data as well as the megatrends toward digitization and virtualization -- that is, the transformation of hardware to software." The value of CVC investments in software by the top 30 companies now surpasses the value of their investments in all other target industries combined. The value of investments in software start-ups has risen 24 percentage points, from 28% between 2010 and 2012 to 52% between 2013 and 2015.
Forming Accelerator and Incubator Partnerships
The current environment is marked by a sharp increase in the use of partnership-led accelerators and incubators. In 2010, only two of the existing accelerators and incubators in the top 30 companies were partnerships, compared with one-third in 2015. Companies see these tools as the preferred means of engaging with a greater number and wider array of start-ups.
Successful accelerators and incubators typically do not venture alone; they form partnerships with venturing operations from other corporations or team up with an independent accelerator or incubator. Such partnerships enable companies to rapidly reach critical mass in their venturing activities and gain access to a greater number of high-quality start-ups than they could on their own. Accelerator and incubator partnerships also enable corporate venturers to participate in programs that are tightly focused on specific promising fields.
Designing Customer-Centric Innovation Labs That Speed Time to Market
Corporations increasingly use innovation labs to accelerate the time to market of internal innovations. These labs are in-house units designed to complement -- not supplant -- conventional R&D and often interact closely with the outside entrepreneurial world. They take a customer-centric approach to innovation. In effect, such labs present an attempt to operate as in-house start-ups with all the speed and agility that characterize the breed.
Corporate venturing is vital for players in any innovation-driven industry -- which is to say, nearly every industry. This new report, Corporate Venturing Shifts Gears: How the Largest Companies Apply a Broad Set of Tools to Speed Innovation, is an important addition to the literature on the topic.
To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.
About The Boston Consulting Group The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 85 offices in 48 countries. For more information, please visit bcg.com.
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