Corporate Strategy Board
Executive Inquiry • January 2000
The New Venture Division
Attributes of an Effective New Business
Incubation Structure
Role Clarity
Senior Governance
Comprehensive Idea Capture and Triage
Venture Capital-Style Financing
Independent Ventures
Entrepreneurial Talent Pool
© 2000 Corporate Executive Board
ii
Research Team
Corporate Strategy Board
2000 Pennsylvania Avenue, N.W.
Washington, DC 20006
Telephone: 202-777-5000
Facsimile: 202-777-5100
166 Piccadilly
London, W1V 9DE
United Kingdom
Telephone: +44-(0)20-7499-8700
Facsimile: +44-(0)20-7499-9700
Steve Brockelman
Jennifer Macauley
Martha Piper
Karen Teoh
Seth Verry
Elizabeth Wharton
Creative Services
E.I. Publications Specialists
Jill Campbell
Jessie Dalrymple
Lisa Goffredi
Director
Robert G. Headrick
www.csb.executiveboard.com
Note to Members
This project was researched and written to fulfill the research request of several members of the Corporate Executive Board and as a
result may not satisfy the information needs of all member companies. The Corporate Executive Board encourages members who have
additional questions about this topic to contact their research manager for further discussion. The views expressed herein by
third-party sources do not necessarily reflect the policies of the organizations they represent.
Professional Services Note
The Corporate Strategy Board has worked to ensure the accuracy of the information it provides to its members. This project relies upon
data obtained from many sources, however, and the Corporate Strategy Board cannot guarantee the accuracy of the information or its
analysis in all cases. Further, the Corporate Strategy Board is not engaged in rendering legal, accounting or other professional services.
Its projects should not be construed as professional advice on any particular set of facts or circumstances. Members requiring such
services are advised to consult an appropriate professional. Neither the Corporate Executive Board nor its programs are responsible for
any claims or losses that may arise from any errors or omissions in their reports, whether caused by the Corporate Executive Board or
its sources.
© 2000 Corporate Executive Board
Catalog No.: 071-216-805
iii
Table of Contents
Advisors to Our Work • v
The Argument in Brief • vi
Report from the Front • 1
A Closer Look • 9
Overview of the Study: Lucent’s New Ventures Group Embodies Six Key Attributes • 14
Attribute I: Role Clarity • 17
Attribute II: Senior Governance • 21
Attribute III: Comprehensive Idea Capture and Triage • 25
Attribute IV: Venture Capital-Style Financing • 29
Attribute V: Independent Ventures • 33
Attribute VI: Entrepreneurial Talent Pool • 37
Appendix • 41
Bibliography • 44
iv
v
Advisors to Our Work
The Corporate Strategy Board expresses its appreciation to all of the individuals and
organizations who have so generously contributed their time and expertise to our work. Their
contributions have been invaluable, and we extend our sincere thanks to all of these advisors:
Tuomo Alamäki
Nokia Corporation
Markus Lindqvist
Nokia Corporation
David Brenner
Amway Corporation
Norman Lockington
Dofasco Inc.
Travis Brooks
NEC USA, Inc.
Jim Mackey
Hewlett-Packard Company
Ranjan Chaudhuri
SmithKline Beecham
Paul Marx
Corning, Incorporated
Professor Hank Chesbrough
Harvard Business School
Mark McKlusky
Newry Associates
Tom Edwards
Amway Corporation
Harry Santamäki
Nokia Corporation
Vince Forlenza
Becton Dickinson and Company
Vince Shiely
Briggs & Stratton Corporation
John Gaither
Baxter International Inc.
Dean Smith
Lion Nathan Ltd.
Joanne Hyland
Nortel Networks Corporation
Steve Socolof
Lucent Technologies Inc.
Harumi Kato
NEC USA, Inc.
Brian Stern
Xerox Corporation
Mark Knickrehm
Paging Network, Inc.
Brenda Valois
Nortel Networks Corporation
David LaHote
Eaton Corporation
Warren Watson
Medtronic, Inc.
vi
The Argument in Brief
Observation #1
For several decades, companies have experimented with different mandates for
the new venture division (NVD)—a separate operating unit under the corporate
umbrella tasked with incubating new business opportunities; today, companies
are positioning the NVD to focus exclusively on the pursuit of discontinuous
(white space and disruptive) new business opportunities.
Observation #2
According to a recent study, discontinuous new businesses constitute only 14
percent of new business launches, yet generate a disproportionate 61 percent of
profits; in addition to this striking financial benefit, companies’ successful
development and commercialization of discontinuous innovations can provide
significant first-mover strategic advantage.
Observation #3
Unfortunately, large companies often struggle to realize these rewards due to
corporate resource allocation processes that favor improvement of existing
businesses over discontinuous leaps; the NVD, however, can circumvent the
parent company’s internal bureaucracy to provide a separate home for
incubating and commercializing discontinuous new ventures.
Observation #4
To identify the key attributes of this new business incubation model, the
Corporate Strategy Board has studied several contemporary NVDs and finds six
attributes most clearly associated with NVD success; Lucent Technologies’ New
Venture Group most thoroughly incorporates these attributes and serves as the
central case example in this study.
Observation #5
Attribute I: Role Clarity—Historically, defining an appropriate role for the NVD
has represented an ongoing challenge because companies unrealistically have
expected the division to revitalize innovation across the organization; to ensure a
clear strategic scope, the NVD must determine appropriate performance
measures to support its role and coordinate business development efforts with
other corporate innovation centers.
Observation #6
Attribute II: Senior Governance—The NVD often struggles to secure essential
strategic guidance and financial support due to the potential threat of
cannibalization and resource drain that new ventures pose to existing corporate
businesses; establishing senior governance reinforces the NVD’s organizational
status and operational autonomy as well as facilitates venture access to needed
corporate resources.
vii
Observation #7
Attribute III: Comprehensive Idea Capture and Triage—Large companies often
lack methods for cultivating and evaluating new business ideas and therefore
may struggle to achieve a consistent flow of viable ventures to the NVD; a
successful NVD draws on multiple sources for new business concepts and
establishes a clear screening process to achieve comprehensive idea capture and
triage.
Observation #8
Attribute IV: Venture Capital-Style Financing—Large companies often are
poorly positioned to meet new ventures’ financing needs due to reliance on
calendar-based planning and dependence on inflexible investment approval
processes; the NVD must support promising ventures with staged funding linked
to predetermined performance objectives and readily abandon (or redirect)
ventures that fail to meet development criteria.
Observation #9
Attribute V: Independent Ventures—Although the NVD stands to benefit from
the parent company’s extensive resources, large companies inexperienced in
launching new businesses often fail to wean ventures from support services as
they mature; to benefit from company resources without compromising long-term
venture independence, the NVD must adopt an incubation management
structure that deliberately phases out support services to advance new venture
independence over time.
Observation #10
Attribute VI: Entrepreneurial Talent Pool—The NVD faces significant challenges
in attracting venture management due to the appeal—i.e., the potential financial
and leadership opportunities—of the venture capital community; a successful
NVD capitalizes on its distinct value proposition by developing venture
management talent within the division, thus screening for individuals who
possess an entrepreneurial drive and required skills, but often lack proven
experience in the venture capital world.
viii
Report from the Front
Report from the Front
1
2
The New Venture Division
Report from the Front
New business development has risen to the top of the strategist’s agenda as a result of the
growth imperative of the 1990s.
Strategists Rank New Business Development
at the Top of the Corporate Agenda
Strategists’ Interest in Research Topics, 1999
Grade Point Average of Selected Topics
3.20
New Business Development
Managing Corporate
Transformation
2.72
Profiles of Best-in-Class
Strategy Departments
2.65
Planning Innovations
Around the World
2.62
The Service Migration
2.53
Leveraging the Information Quotient
2.51
Business Network Creation
2.42
External Monitoring
2.43
66 percent of
surveyed
strategists grade
New Business
Development an
“A,” placing it at
the top of 12
strategic issues
2.32
Responding to Disruptive Entrants
Corporate Venturing
2.21
Product Innovation Management
2.18
1.80
Knowledge Worker Productivity
0
2.0
4.0
Source: Corporate Strategy Board member survey, 1999.
3
4
The New Venture Division
Within the terrain of new business development, and specifically new business incubation,
discontinuous opportunities—innovations that move beyond existing business models to
create new products and enter new markets—generate disproportionate wealth.
Discontinuous opportunities occupy a distinct and challenging
corner of the new business development terrain…
The New Business Development Terrain
New
Markets
Existing
Markets
Adjacent
Opportunities
Exploit Current Assets,
Capabilities
Discontinuous
Opportunities
Create New Markets,
New Products
Status Quo
Grow Market Share,
Profits
Adjacent
Opportunities
Increase Primary
Market Demand
(considered business
expansion, not new
business development)
Existing Products/
Operating Platform
Discontinuous new business
opportunities prove uniquely
challenging because they
typically entail both creating
new products and entering
new markets
New Products/
Operating Platform
Discontinuous Opportunities Assume Two Forms
1) White space opportunities involve entering new industries, developing new
technologies and marketing new products. Because they are not modifications of existing
product lines, pursuit of white space opportunities often requires knowledge and
capabilities that the corporation does not currently possess.
2) Disruptive opportunities are new technologies or business models that constitute a
threat to established business lines. Because these opportunities are frequently related to the
organization’s core business, senior management often considers existing business units the
logical home for their stewardship. However, this tendency risks neglect of disruptive
opportunities or even “drowning” by established businesses fearing cannibalization.
Source: Joni, Saj-Nicole A., et al., “Innovations From the Inside,” Management
Review (September 1997): 50; Corporate Strategy Board research.
Report from the Front
…and create disproportionate wealth relative to adjacent opportunities
Comparison of New Business Launches
Wealth Creation of 100 New Business Launches of U.S. and European Corporations
100
14%
38%
Discontinuous
Opportunities
Number of
New Business 50
Launches
61%
Adjacent
Opportunities
86%
62%
39%
0
Type of New
Business Launch
Revenues
Profits
Source: Kim, W. Chan, and Renee Mauborgne, “Value Innovation: The Strategic Logic of High Growth,”
Harvard Business Review (January–February 1997):104; Working Council for Chief Financial
Officers, The Agile Enterprise: Frontier CFO Practice for Long-Term Value Creation, 1999: 23.
5
6
The New Venture Division
Large companies, however, are often unable to realize the rewards of discontinuous
opportunities; standard corporate resource allocation structures and management systems
typically favor incremental improvement of existing businesses over discontinuous leaps.
The standard approach to resource allocation favors
low-risk, incremental investments…
Standard Investment Decision Screen*
The Gauntlet
Business
Plan
➤
Does a
sufficiently
large market
exist?
➤
FUNDING DENIED
no
➤
FUNDING DENIED
no
➤
FUNDING DENIED
no
➤
FUNDING DENIED
yes
Does it have a
logical home?
➤
➤
yes
Does it pay
back quickly?
➤
no
yes
Is it low risk?
Funding of Low Risk,
Incremental Opportunities
* Conceptual.
Source: Working Council for Chief Financial Officers, The Agile Enterprise:
Frontier CFO Practice for Long-Term Value Creation, 1999: 22.
Report from the Front
…as evidenced by Xerox’s efforts to commercialize
innovations developed in the 1970s
A Comparison of Two Commercialization Processes, 1972–1979
Investment Screen
Criteria
Successful Commercialization:
The Laser Printer
Unsuccessful Commercialization:
The Personal Computer (PC)
Does a sufficiently large
market exist?
• Established market for printers exists
• Laser printer can be sold to existing
customer base
• No known consumer market for
single-user computers exists
• Existing computer market based on
shared usage due to technology size
and expense
Does it pay back quickly?
• Ease of technology implementation
and existing sales channels allow
quick returns
• Extensive R&D investment required
to obtain PC functionality
• High-cost market experimentation
required to identify customers,
determine product configurations
Does it have a logical home?
• As an improvement on existing
printer technology, the laser
printer has a clear home in
Xerox’s printer division
• PC has no home within existing
manufacturing or sales structure
• PC poses threat to established
typewriter product line
Is it low risk?
• As an extension of current
capabilities into existing markets,
the laser printer represents
low-risk opportunity
• Decision makers deem the PC
speculative and untested, a view that
characterizes corporate perception of
the PC throughout the 1970s
Outcome
Laser printer technology advanced Xerox’s
existing printer product line and therefore
could be marketed through established
distribution channels. By the late 1970s,
the laser printer emerged as one of the
best-selling products in Xerox’s history.
As a discontinuous innovation, Xerox’s PC
required different manufacturing and sales
processes targeted at a new customer
base, while threatening the company’s
existing typewriter sales. Xerox’s failure to
commercialize the PC effectively ceded the
PC’s future wealth creation to IBM and Apple.
Source: Michael Hiltzik, Dealers of Lightning: Xerox PARC and the
Dawn of the Computer Age, New York: HarperCollins, 1999.
7
8
The New Venture Division
A Closer Look
A Closer Look
9
10
The New Venture Division
To capitalize on discontinuous innovations that might otherwise be undermined by
existing businesses, many companies are establishing autonomous new venture divisions;
NVDs are separate organizational units under the corporate umbrella tasked with
incubating discontinuous opportunities from idea conceptualization through
commercialization and final venture placement.
NVDs provide a separate home for
discontinuous new business opportunities…
Organizational Characteristics of the NVD
Company
Operating
Unit
Operating
Unit
NVD
Operating
Unit
Operating
Unit
• A separate organization bypasses the internal
bureaucracy of the parent company
• Division focuses on internal new business
potential not currently addressed by
parent company
• Division ownership and management control
remains with parent company
The Need for Separation
“The search for innovation needs to be organizationally separate and outside of the ongoing
managerial business. Innovative organizations realize that one cannot simultaneously create the
new and take care of what one already has….Innovative organizations, therefore, put the new into
separate organizational components concerned with creation of the new.”
Peter Drucker
Management: Tasks, Responsibilities, Practices
…and oversee the entire new venture incubation
and commercialization process
New Venture Stages Managed by the NVD
I. Opportunity
Identification
II. Market
Qualification
III. New Business
Commercialization
IV. Value
Realization (Exit)
NVD gathers potential
business ideas from
numerous sources, including:
• Non-core R&D projects
• New acquisitions
• Unique leads from
employees
• New technology
opportunities
NVD designs new business
model and articulates value
proposition for target
market; key concerns include:
• Strategic alignment with
corporation
• Financial analysis
• Preliminary staffing
• Market entry
NVD manages market
penetration and transition to
self-sufficiency; key concerns
include:
• New product
development
• Operational efficiency
• Independence from
shared services
Senior-level corporate
leaders determine most
logical home for new
business; options include:
• Corporate
reintegration
• IPO or spin-off
• Sale to external bidder
Source: Chesbrough, Hank, “Corporate Venturing in the Shadow of Private Venture Capital: A Review of the
Academic Literature,” Working Paper, Harvard Business School, May 1999; Drucker, Peter, Management:
Tasks, Responsibilities, Practices, Harper & Row: New York, 1974; Corporate Strategy Board research.
A Closer Look
With variations among companies, NVDs combine aspects of traditional corporate new
business development with elements of the venture capital world; NVDs provide ventures
with a customized level of corporate sponsorship and support along with the flexibility and
autonomy of an entrepreneurial environment.
The NVD Model Blends Corporate Business
Development and Venture Capital
Characteristics of the NVD Compared with New Business Development and Venture Capital
Traditional Corporate New
Business Development
New Venture
Division
Venture Capital
Objectives
Emphasis on planning,
stable growth,
adjacent and incremental
opportunities
Emphasis on market
capitalization, new business
commercialization
Scale
Large-scale investments
Focused teams, limited
investments (<$20 million
to achieve success)
Governance
Corporate, rule-oriented,
traditional business
hierarchy
VC partnership, venture
boards, customized
to venture needs
Funding
Corporate funding
Syndicate funding
Compensation
Traditional corporate
compensation
structures
Equity risk/reward
structures
Success
Measures
Revenues and profits
Return on investment
realized through exit/sale
Source: Burgelman, Robert A., and Leonard R. Sayles, Inside Corporate Innovation: Strategy, Structure
and Managerial Skills, 1986; Lucent Technologies; Corporate Strategy Board research.
11
12
The New Venture Division
Companies across industries and geographies are incubating discontinuous businesses
within NVDs; by providing an alternative to traditional corporate resource allocation
processes, these companies are already experiencing internal venturing success.
Profiles of Selected
Xerox Technology Enterprises (XTE)
Background
Experience with the PC (see page seven), and other discontinuous innovations that were similarly ill fated,
heightened awareness of the need for mechanisms to commercialize discontinuous innovations. By the late 1980s,
Xerox was exploring organizational models to support the development of discontinuous new business
opportunities. In 1998, all such efforts were consolidated in XTE, a separate organizational unit within Xerox.
Objectives
• Maximize the commercial options of Xerox technologies that fall beyond the scope of the corporation’s
primary businesses
• Maximize Xerox’s return on intellectual property through entrepreneurial ventures
Structure
XTE reports directly to the vice chairman of the board and chief financial officer, and comprises approximately
five core group members and 300 venture staff. Out of a pool of approximately 50 ideas considered annually,
the division initiates four to five ventures.
Early Success
Inxight Software, Inc.: Based in Palo Alto, CA, Inxight develops software components for analysis
of information obtained via the Internet. The venture’s main products are VizControls and LinguistX, which are
marketed to software companies. Sample customers include Microsoft Corporation, Lotus Development Corporation
and Hewlett-Packard Company.
Source: Xerox Corporation, “Online Factbook: Xerox Technology Enterprises,” http://www.xerox.com/go/xrx/about_xerox/AX.jsp?trk=/
About_Xerox/ (8 December 1999); “SmartPatents Licenses Inxight Software’s Hyperbolic Tree Technology,” Business Wire (24 March
1998); Xerox Corporation; Corporate Strategy Board research.
Nokia Ventures Organization (NVO)
Background
Nokia established NVO in 1998 to respond to two strategic needs: first, as the company’s established businesses
grew, its ability to sustain high growth rates began to plateau, leading company management to seek new sources
of growth; second, senior executives became cognizant of an increasing number of ideas within the organization
that lacked a conduit for development within existing businesses.
Objectives
• Develop new solutions in the telecommunications and datacommunications arenas
• Provide an outlet for ideas throughout the company that have no other logical home
Structure
NVO reports directly to Nokia’s chairman and CEO. A core group of approximately 50 individuals staffs venture
incubation process stages. NVO screens approximately 200 venture ideas annually.
Early Success
Nokia Internet Communications: Nokia Internet Communications is the result of the successful development
of three ventures within NVO, now combined as a single business unit under NVO. The new business unit comprises
Nokia Wireless Business Communications, Nokia Wireless Software Solutions and Nokia IP Application and
Connectivity Platforms.
Source: Nokia Corporation, “Nokia Ventures Organization,” http://www.nokia.com/inbrief/units/nvo.html (9 December 1999); “Nokia
to Form Nokia Internet Communications Unit on Serving Corporate Customers and ISPs,” M2 Presswire (25 August 1999); Nokia
Corporation; Corporate Strategy Board research.
A Closer Look
New Venture Divisions*
Amway Business Ventures (ABV)
Background
Amway began to experiment with internal structures for exploring new business ideas in the early 1980s. These
previous structures, however, enjoyed limited autonomy to pursue ideas farther afield. The current division,
established in 1998, operates independently of Amway’s current business lines and is thus shielded from established
corporate processes.
Objectives
• Identify new audiences for the company through the development of innovative businesses
• Incubate new sources of breakthrough growth over the long term
Structure
ABV reports directly to Amway’s owners. The division of approximately 15 employees is located two miles
“off campus” from corporate headquarters. Thousands of ideas are submitted to the group annually. The division
starts approximately four new ventures each year.
Early Success
Ocean Essentials (OceanEssentials.com): As an Internet-based company that began selling products on-line in
September 1999, the venture researches and develops ocean-based supplements. Sample products include Cartilage
Health, Balanced Health, Heart Health and Mother’s Health supplements.
Source: Ocean Essentials, “Ocean Essentials—Our Story,” http://www.oceanessentials.com (9 December 1999); “OceanEssentials.com Lets Consumers
Take Charge of Personal Health Management,” PR Newswire (1 September 1999); Amway Corporation; Corporate Strategy Board research.
Nortel Business Ventures (NBV)
Background
Although Nortel possesses extensive experience incubating and spinning off start-up companies, until recently it pursued
such activities on an ad hoc basis. The company established NBV in 1996 to provide a home for these efforts, allowing
the company to capitalize on past learnings through the adoption of a centrally managed program.
Objectives
• Develop intellectual property residing in the company that does not fit with core operations
• Incubate new businesses based on this intellectual property, evolving them from early-stage investment ideas to
independent businesses
Structure
NBV reports directly to the senior vice president of business development and venturing in a Nortel line of business.
The division employs a core group of approximately 20 staff. Of 150 ideas screened annually, the division initiates
approximately four ventures.
Early Success
ChannelWare: ChannelWare develops software activation products that enable consumers to pay for software on a
per-use basis. In April 1999, the venture launched a pilot program with Blockbuster to allow rental of PC games. In July
1999, Nortel spun off the venture as a private company, retaining 45 percent ownership.
Source: “Nortel (Northern Telecom) ChannelWare Taps Microforum’s Internet Frontier As Electronic Commerce Partner,” Canada NewsWire
(11 February 1999); Nortel Networks Corporation; Corporate Strategy Board research.
* See Appendix, pages 41–43 for information on all NVDs studied for this research.
13
14
The New Venture Division
Through the study of several contemporary NVDs, including company interviews and an
extensive review of the literature, the Corporate Strategy Board has identified six attributes
most strongly associated with NVD success; of the divisions studied, Lucent Technologies’
New Ventures Group (Lucent NVG) most thoroughly incorporates these attributes.
Overview of the Study: Lucent NVG
Study Format
The study is organized around the six attributes most commonly associated with NVD
success. Each attribute section includes the following:
• An overview that articulates the challenges that the attribute addresses
and lists recommended practices
• Descriptions of Lucent NVG’s practices that support the attributes
• Supplementary information regarding approaches employed by other
corporate NVDs studied
Attributes
I. Role Clarity (p. 17)
Recommended Practices
#1: Establish Appropriate Division and Venture Performance Measures (p. 18)
#2: Coordinate with Corporate Innovation Efforts (p. 19)
II. Senior Governance (p. 21)
#3: Establish a Direct Reporting Relationship to Senior Corporate Executives (p. 22)
#4: Designate a Functionally Diverse Executive Leadership Team (p. 23)
III. Comprehensive Idea
Capture and Triage (p. 25)
#5: Identify and Cultivate Multiple Idea Sources (p. 26)
IV. Venture Capital-Style
Financing (p. 29)
#7: Adopt Staged Funding Based on Predetermined Venture Objectives (p. 31)
V. Independent Ventures
(p. 33)
#8: Establish Venture Boards (p. 34)
VI. Entrepreneurial Talent
Pool (p. 37)
#10: Develop a Standing Pool of Potential Managers for Venture Placement (p. 38)
#6: Implement a Clear Idea Screening Process (p. 27)
#9: Facilitate Venture Transition to Independence (p. 35)
Overview of the Study
Embodies Six Key Attributes
Case in Brief: Lucent NVG
• In mid-1996, Lucent Technologies (telecommunications and network equipment company,
$30+ billion in revenues) studied new business creation in an effort to improve innovation
capabilities and increase its ability to move discontinuous technologies into the
marketplace.
• The principal output of this effort was the creation of a new operating division at Lucent—
the New Ventures Group (NVG); the group’s mission is to leverage Bell Labs’ technology to
incubate new ventures that bring innovations to market more quickly and to create an
entrepreneurial environment that nurtures speed, teamwork and prudent risk-taking.
• The structure and mechanics of Lucent NVG are based on lessons learned from AT&T,
companies with successful venturing divisions and the venture capital community.
Lucent NVG Successes, 1996–1999
Stars Among the First Ten Ventures
NVG
Electroplating
Chemicals and
Services
Inferno
Siros
Technologies
elemedia
• Software company that develops
and licenses platforms to Voice
over Internet Protocol application
developers and service providers
• In 1999, NVG sold elemedia to
another Lucent business unit
Lucent Digital
Radio
Visual Insights
Veridicom
Global Cast
Lucent Digital Video (LDV)
• Video communications company,
focused on manufacture, licensing and
integration of products for broadcasting,
networking and conferencing
• In 1999, NVG sold LDV to Lucent’s
Optical Networking Group
Lucent Public Safety Systems
• Company provides integrated
solutions for emergency response
and data management
• Revenues in 1999 exceeded
$60 million
Source: elemedia, “About Us,” http://www.elemedia.com/Main/about.htm; Lucent Digital Video, “About Us,” http://www.lucent.com/ldv/abtus.html
(10 December 1999); Lucent Public Safety Systems, “Palladium News & Press Releases: Current Press Releases,” http://www.palladium911.com/
Press%20Releases/palladium_press_releases_teltronics.html (10 December 1999); Lucent Technologies; Corporate Strategy Board research.
15
16
The New Venture Division
17
Attribute I
Role Clarity
Challenges
Defining an appropriate role—i.e., determining the types of new business
opportunities to pursue and delineating the division’s relationship to the
corporation—presents an ongoing challenge for NVDs. Companies frequently turn to
the NVD in an effort to revitalize innovation across the organization, abandoning the
structure when it fails to deliver on this unrealistic promise.
Moreover, companies that do not clearly articulate the division’s relationship
to corporate strategy and other corporate innovation efforts can engender
1) a reputation for the division as pursuing inessential projects, 2) an unfocused
venture selection process and 3) conflicts with other divisions regarding new business
development territory.
Proposition
Today, companies have determined a more focused role for the NVD as a center for the
incubation of discontinuous opportunities—i.e., new businesses that do not fit within
the company’s strategic intent (white space businesses) or that threaten existing lines of
business (disruptive businesses).
Recommended
Practices
#1 Establish Appropriate Division and Venture Performance Measures
#2 Coordinate with Corporate Innovation Efforts
18
The New Venture Division
Practice #1
Establish Appropriate Division and Venture Performance Measures
Traditional corporate performance metrics are inappropriate for evaluating
venturing success due to the unique resource requirements and time horizons
affecting returns on new business ventures; companies should adopt performance
metrics borrowed from the venture capital world, adapting them to fit particular
corporate and division objectives and adjusting them as needed when the
NVD matures.
Lucent NVG’s Performance Measures Establish Realistic
Expectations for Division Performance
Lucent NVG’s Performance Measures
Performance Measures at Start-Up
Performance Measures After 2+ Years
Division Financial Measures:
• Meeting annual P&L commitment to Lucent
• Achieving ROI goals for portfolio of 20+ percent
Division Financial Measures:
• Meeting annual P&L commitment to Lucent
• Achieving ROI goals for portfolio of 20+ percent
New Investments:
• 3 to 5 new ventures annually
• 10 seed investments annually
New Investments:
• 5 to 7 new ventures annually
• 15 seed investments annually
Venture Performance:
• Financial measures (revenue)
• New product introductions
• New customer acquisitions
Realizing Value:
• Gains realized through exits and/or syndications
of ventures
Critical Success Factors:
Include characteristics of group necessary for long-term
success, such as:
• Developing the team
• Creating a network of internal and external partners
• Ensuring quality of communication and public relations
• Building effective venture governance structures
Strategic Benefits to Lucent:
Success measures focus on the value the group creates
for Lucent, such as:
• Is the group developing good leads for other
business groups?
• Is the group exploring interesting new market space
for Lucent?
• Is the group helping to retain key people?
Lucent redesigns NVG’s success measures when group matures. Key changes include:
• Lucent replaces Venture Performance metrics, focused on milestones relevant to early
venture stages, with Realizing Value metrics, measuring gains made through venture exits
(e.g., sale of ventures)
• Lucent replaces Critical Success Factors, initially encompassing measurements focused
on building quality of NVG work, with Strategic Benefits to Lucent, focusing on NVG
contribution to Lucent’s strategic goals
Source: Lucent Technologies; Corporate Strategy Board research.
Role Clarity
Practice #2
Coordinate with Corporate Innovation Efforts
Failure to coordinate the NVD’s activities with other corporate and business-unit
innovation efforts can result in jurisdictional conflicts and redundancies;
delineation of relationships among all innovation centers permits exploitation of
complementary activities across the company.
Lucent NVG Coordinates with All Corporate Innovation
Efforts to Leverage Resources and Prevent Redundancies
Lucent NVG’s Coordination Arrangements with Other Innovation Centers
New Ventures Group
Primary Role: To incubate organic
new business opportunities that do
not fit in existing lines of business or
are promising new areas for Lucent
Coordination Activities: Maintains
ongoing communication with all
company innovation structures to
ensure cooperation and proactive
identification of new business
opportunities via:
• Technology review meetings
(quarterly)
• Monthly portfolio update meeting
and newsletter
• Ongoing, informal networking
and communication
Bell Labs (R&D)
Primary Role: To research and develop new products for
Lucent’s main lines of business
Coordination Activities:
• NVG president meets periodically with Bell Labs’ director
and attends monthly staff meetings
• Business-oriented Bell Labs employees attend NVG monthly
portfolio review meetings
• Bell Labs and NVG staff working in same technological/
market arenas network informally on an ongoing basis
Lucent Venture Partners (CVC)
Primary Role: To identify and invest in new ventures/start-ups
external to Lucent
Coordination Activities: Extensive in-person visits, telephone and
E-mail contacts keep parties apprised of each other’s activities
Corporate and Business-Level New Business
Development (NBD)
Primary Role: To identify and develop new opportunities that fit
within the company’s strategic business model
Coordination Activities: Ongoing, informal networking
Source: Lucent Technologies; Corporate Strategy Board research.
Nokia’s Approach
Established in 1997, Nokia Ventures Organization (NVO) has emerged as a central
coordinating resource for organic new business development throughout the corporation,
in addition to its primary role as an incubator of discontinuous businesses. Thus, NVO has
carved out a role as a valued corporate resource, rather than a potential competitor with
other innovation functions. Specific NVO activities in this context include:
1) Serving as new business consultants to Nokia business units—The NVO brings new
business expertise to initiatives that will remain within existing business lines. The NVO
assists in identifying key issues and directing the new business in its initial stages.
2) Sponsoring the New Venture Forum—The NVO coordinates monthly forums for the
discussion of issues related to new business development throughout the corporation. The
goal of the forum is to preempt potential conflicts and identify coordination opportunities.
Source: Nokia Corporation; Corporate Strategy Board research.
19
20
The New Venture Division
21
Attribute II
Senior Governance
Challenges
Existing corporate entities and processes pose a significant potential threat to NVD
survival. Due to corporate perception that a successful NVD may drain resources from
or cannibalize existing business lines, companies often impede NVD operations in two
ways. First, a company may subject the NVD to excessive operational interference
resulting in insufficient division autonomy. Second, the company may subject the
NVD to extreme neglect, resulting in a lack of essential financial and strategic support.
Proposition
Establishment of appropriate division governance addresses constraints on
entrepreneurial activity that traditional bureaucracies pose to internal venturing
initiatives. Specifically, an effective governance structure secures the following on
behalf of the NVD:
1) Organizational status necessary to sustain support of the division by facilitating
access to idea flow and resources
2) Operational autonomy to enable the division to implement distinct
entrepreneurial practices and culture without interference from other business
units or corporate functions
3) Financial support and strategic guidance to ensure division longevity
Recommended
Practices
#3 Establish a Direct Reporting Relationship to Senior Corporate Executives
#4 Designate a Functionally Diverse Executive Leadership Team
22
The New Venture Division
Practice #3
Establish a Direct Reporting Relationship to Senior Corporate Executives
To ensure organizational status, operational autonomy and financial support,
companies should establish direct reporting to senior executives, preferably no
more than one level removed from the CEO or chairman.
Lucent NVG’s High Profile Reporting Structure
Is Central to the Group’s Success
Lucent NVG: Reporting Structure
NVG president reports to the Office of
the Chairman along with Lucent’s 10
other operating divisions, ensuring the
group’s organizational visibility,
operational autonomy and access to
corporate resources
Operating
Division
Operating
Division
Office of the Chairman
COOs (2),
CSO, CFO
New Ventures Group
President
Operating
Division
Operating
Division
NVG Leadership Team
NVG Central Team
Venture Board
Venture Board
Venture Board
Venture Board
Source: Lucent Technologies; Corporate Strategy Board research.
Senior Governance
Practice #4
Designate a Functionally Diverse Executive Leadership Team
By securing cross-functional, executive-level participation in NVD leadership,
companies provide the division and its ventures with vital strategic guidance, while
further building support for the division’s work within this key constituency.
A Diverse Executive Leadership Team Secures
Lucent NVG Access to Strategic Support and Guidance
Lucent NVG Leadership Team
Office of the Chairman
Team Composition:
• Partners of Lucent NVG (3), chief
financial officer, human resources
director, general counsel, public
relations director
Portfolio Oversight:
• Senior partners directly oversee the
venture portfolio through venture
board participation
Managerial Assistance:
• Functional members of the leadership
team assist with seed ventures until
formation of individual venture
management teams
New Ventures Group
President
NVG Leadership Team
NVG Central Team
Venture
Board
Venture
Board
Venture
Board
Venture
Board
Source: Lucent Technologies; Corporate Strategy Board research.
Identifying the NVD Leader
“The head of the [NVD] is critical. This full-time leader must be a proven and respected senior
manager who thoroughly understands the corporate culture and can operate effectively within the
rules and conventions of ongoing corporate systems. But equally important, he or she must
understand and appreciate the entrepreneurial philosophy of the [NVD] and be dedicated to the
concepts involved.”
Robert E. Gee
University of Minnesota
Source: Gee, Robert E., “Finding and Commercializing New Businesses,”
Research & Technology Management (January–February 1994): 52.
23
24
The New Venture Division
25
Attribute III
Comprehensive Idea Capture and Triage
Challenges
Many large companies struggle to achieve a consistent flow of viable new venture ideas
to the NVD and fail to systematically evaluate and direct those ideas to appropriate
areas for development. An NVD that fails to draw on idea sources throughout the
company risks missing new business opportunities, while those without a screening
mechanism risk being viewed as a catch-all for new business opportunities without
regard to merit.
Proposition
To ensure comprehensive idea capture and triage, NVDs are turning to the venture
capital world as a model of successful idea cultivation and evaluation. Much of the
venture capital industry’s success is due to the sheer volume of venture ideas to which
venture capitalists maintain access and to the stringent triage process by which they
evaluate and identify viable new business opportunities. Although most NVDs will not
be able to replicate the volume of venture capitalist idea intake, NVDs can ensure a
comprehensive idea capture and triage to support division and company objectives.
Recommended
Practices
#5 Identify and Cultivate Multiple Idea Sources
#6 Implement a Clear Idea Screening Process
26
The New Venture Division
Identify and Cultivate Multiple Idea Sources
Successful NVDs maintain multiple idea sources, best designated on a
company-by-company basis, in the interest of establishing a free market to
ensure consistent idea flow; regardless of the range of sources, the NVD should
encourage dialogue regarding potential ventures by establishing low barriers for
initial consideration and providing assistance in early-stage cultivation.
Practice #5
While Bell Labs Serves as the Primary Source of Opportunities,
Lucent NVG Nevertheless Casts a Wide Net for New Venture Ideas
Lucent NVG Idea Sources
Other
30%
70%
Bell Labs
Additional Idea Sources:
• Business units
• NVG core team and
venture staff
• Individuals throughout
company
• External sources
(occasionally)
Bell Labs (R&D) provides majority
of idea flow to NVG
NVG Idea Intake
The NVG accepts idea submissions
from any Lucent employee. While
employees can submit concepts via
the NVG’s Web site, they most often
initially communicate concepts via
telephone or E-mail.
The NVG frequently engages
submitters of early-stage ideas in
dialogue to further develop the
concepts and address areas of
uncertainty.
A Sampling of Idea Sources from Other Companies
• Proactive NVD Initiatives—Ideas developed through a top-down process to leverage
key corporate competencies or to enter a predetermined market
• Business Units—New business ideas with potential that are languishing within
businesses due to low core business priority ascribed to them
• Research and Development—Innovations that do not fit within current businesses
or markets and would otherwise remain undeveloped
• External Partnerships—Ideas accessed through relationships with institutions such
as university research centers, venture capital firms and informal business networks
Source: Lucent Technologies; Corporate Strategy Board research.
Comprehensive Idea Capture and Triage
Implement a Clear Idea Screening Process
The idea screening mechanism should comprise two key elements: 1) triage process
directing venture ideas that cannot be profitably pursued elsewhere in the
company to the NVD; 2) evaluation criteria that provide a solid basis on which to
determine the benefits of pursuing a venture.
Practice #6
Lucent NVG’s Screening Process Thoroughly Triages and
Directs Ideas to the Appropriate Innovation Center
Lucent’s Commercialization Alternatives
1
New Idea/
Technology
➤
Does it fit Lucent’s strategic
space and business model?
Y
Idea Evaluation: Identification of
Discontinuous New Business
Opportunities
• What is the market opportunity?
(How big is the market? How fast
is it growing?)
• What differentiates the product
idea and what makes it sustainable?
• Who will the customer be and
how will the product be sold?
• Does a committed team exist to
sponsor the idea?
• Why does the idea not fit in an
existing business group?
N
2
Business Group
(Traditional NBD)
Does the idea/technology
amount to a new business
opportunity?
N
Y
New Ventures
Group
3
Is there a licensing
opportunity?
N
Y
Intellectual
Property Division
Reject/Shelve
Source: Lucent Technologies; Corporate
Strategy Board research.
Nortel’s Approach
Nortel’s Business Ventures Group (BVG) accepts ideas from throughout the corporation and
also employs a “scouting” approach to track down ideas that may be languishing elsewhere in
the firm but represent good investment opportunities.
During the initial period of operation, the group’s leaders found that although they were
receiving good ideas, submitting employees were frequently unfamiliar with how to
communicate business concepts. To fill this knowledge gap and to increase companywide
understanding of idea evaluation criteria, Nortel BVG developed a series of tools to assist
employees in submitting their ideas. These tools include:
• Intranet site providing comprehensive information on venturing
• On-line template for developing business concepts
• Algorithms to assess investment opportunities
• Workbooks to connect business concepts with market requirements
Source: Nortel Networks Corporation; Corporate Strategy Board research.
27
28
The New Venture Division
29
Attribute IV
Venture Capital-Style Financing
Challenges
Large companies typically are poorly positioned to meet the financing needs of new
business ventures. Investment in underperforming ventures often is continued in
the absence of rigorous merit evaluation because of large companies’ reliance on
calendar-based planning. In addition, dependence on cumbersome approval
processes hinders the flexible decision making necessary for successful venture
management. Corporations typically commit one or both of the following errors when
managing venture financing:
1) Bestowing too many resources on a new venture, thus undermining
the financial discipline the venture needs to grow
2) Failing to cut losses decisively based on signs of unsatisfactory venture
performance, thus perpetuating the costly burden of the venture for
the NVD and company
Proposition
In contrast to large companies’ traditional approach to financing decisions, the
venture capital industry supports promising ventures with incremental funding
linked to key outputs, while readily abandoning (or redirecting) ventures that fail
to meet development criteria. Large companies establishing an NVD can address key
pitfalls in managing venture financing by adopting staged funding based on venture
satisfaction of investment objectives.
Recommended
Practice
#7 Adopt Staged Funding Based on Predetermined Venture Objectives
30
The New Venture Division
Venture Capital-Style Financing
Practice #7
Adopt Staged Funding Based on Predetermined Venture Objectives
Given the importance of a disciplined venture financing process, some NVDs have
adopted a venture capitalist framework for staged funding; staged funding, based
on the satisfaction of key venture objectives, allows the NVD to provide promising
ventures with needed financing discipline, while retaining the ability to discontinue
underperforming ventures.
Lucent NVG’s Four Venture Development Stages Tie
Funding to Achievement of Key Objectives
An Overview of the Four Development Stages
Development
Stage
Typical
Investment
I
Opportunity
Identification
$10,000
(staff time)
II
Market Qualification
(Seed)
III
New Business
Commercialization
(Venture)
IV
Value Realization
(Exit)
$300,000
Average
Timeframe
Representative
Objectives
“Go/No-Go”
Decision Makers
4–6 weeks
•
•
•
•
Technical R&D
Market investigation
Business concept generation
Sponsorship determination
• NVG president
• Another executive
6–9 months
•
•
•
•
Product development
Customer testing/trials
Business plan formation
Business team formation
•
•
•
•
NVG president
COO
CSO
CFO as needed
• Business structure
establishment (internal/
external)
• Product commercialization
• Market penetration and
growth
•
•
•
•
NVG president
COO
CSO
CFO as needed
•
•
•
•
• “Buyers”
$3–4 Million
(first year)
NA
Staged (incremental) funding, tied to
explicit objectives, submits ventures
to investment discipline and reduces
NVD risk exposure
3–5 years
NA
Internal “acquisition”
Public sale (IPO)
Private sale
Close or liquidation
Designated decision makers are empowered
to provide next-stage funding as soon as
justified, as well as to redirect or abrogate
ventures when necessary
Source: Lucent Technologies; Corporate Strategy Board research.
31
32
The New Venture Division
33
Attribute V
Independent Ventures
Challenges
Large companies inexperienced in launching new businesses often fail to wean new
ventures from support as they mature. NVDs often struggle to balance initial venture
dependence on the corporation for resources and support services with the ultimate
objective of venture independence.
Proposition
NVDs possess significant advantages over private venture capitalists with respect to
access to resources because of their location within large, established companies.
Ventures incubated within a corporate NVD maintain access to a pool of business
knowledge and strategic guidance, as well as required support services. To reinforce
this large company advantage, successful NVDs adopt an incubation management
structure that deliberately phases out support services to advance venture independence
over time.
Recommended
Practices
#8 Establish Venture Boards
#9 Facilitate Venture Transition to Independence
34
The New Venture Division
Practice #8
Establish Venture Boards
Many NVDs have turned to the use of venture boards as a model for securing
strategic expertise for new business ventures; effective venture boards—typically
including experienced business leaders from the industry, members of the
corporate executive team and additional sources of expertise as needed—provide
oversight and improved access to resources and coaching.
Lucent NVG Venture Boards Provide Advocacy,
Ensuring Access to Required Resources
Lucent NVG’s Venture Boards
Boards typically
include five members
and meet monthly
Venture Board Responsibilities
• Provide oversight and guidance to the
venture
• Help build the management team
• Approve the business plan and hold the
team accountable for objectives
• Build strategic relationships
• Represent Lucent interests with respect
to both potential leverage and conflict
• Assist with support requirements for
additional funding and exit or sales of
businesses
Team Composition
• Experienced industry leaders
• Members of Lucent’s senior
executive team
• Technology experts
• Implement compensation policy for the
venture
Source: Lucent Technologies; Corporate Strategy Board research.
Venture Board as Venture Protector
“A significant measure of protection from organizational politics and bureaucratic attack can be
achieved by creating a board comprised of important internal and even external advisers whose task
is not only to provide the venture with technical and managerial advice but also to protect it.
Particularly if one or more of the board’s members are very senior executives of the parent firm, they
will be in a position to overrule policies and procedures that may be obstructing the venture or
discourage political moves against the venture management.”
Zenas Block and Ian C. MacMillan
Corporate Venturing: Creating New Businesses Within the Firm
Source: Block, Zenas, and Ian C. MacMillan, Corporate Venturing: Creating
New Businesses Within the Firm, Harvard Business School Press, 1993.
Independent Ventures
Practice #9
35
Facilitate Venture Transition to Independence
Early-stage ventures typically do not maintain proprietary support services and
must rely on assistance from corporate functions; to ensure effective venture
incubation, companies must implement a structure to achieve smooth transition
of ventures from dependence to independence.
“Tiered Transitioning” Fosters Venture Independence
at Each Incubation Stage
Lucent NVG Venture Incubation: Tiered Transitioning to Independence
Complete Dependence
➤ Tiered Transition
Managed
Independently
➤ Complete Independence
Modular systems support full independence from
NVD at exit stage; end-to-end financial and
business management solutions for each venture
integrated with NVG using SAP software
Support team within Lucent NVG provides shared/
group services, including:
• Public Relations
• Legal
• Human Resources
• Finance/Accounting
• Corporate Finance
• Operations Management
Stage IV
Ventures
Level of
Independence
Stage III
Ventures
Stage I
Ventures
Stage II
Ventures
I.
Opportunity
Identification
II.
Market
Qualification
Stage III
Ventures
Stage III
Ventures
Support services are phased
out over Stage III as ventures
develop proprietary functions
Managed
by NVD
III.
New Business
Commercialization
IV.
Value
Realization
Development Stage
Source: Lucent Technologies; Corporate Strategy Board research.
The Outsourcing Option: An Alternative Approach
A number of the NVDs studied for this research are pursuing outsourcing as an alternative to
arranging NVD access to corporate support services. Outsourcing of key services ensures quicker
venture independence from corporate structures and processes, and avoids the risk of defaulting to
entrenched approaches to service provision that may be ill suited to venture requirements.
“Our work on some ventures was probably made more difficult by our attempts to maintain a
linkage with the corporation rather than just book the needed services externally. NVDs should
make sure that if they are going to use the corporate bureaucracy, it’s because the internal resources
perform better or more efficiently than alternative external sources.”
David Brenner
Senior Vice President
Amway Business Ventures
Source: Amway Corporation; Corporate Strategy Board research.
36
The New Venture Division
Entrepreneurial Talent Pool
Attribute VI
Entrepreneurial Talent Pool
Challenges
Companies pursuing internal venturing cite the entrepreneurial ability of the venture
management team as the most significant determinant of venture success. However,
large companies that have not traditionally recruited from an entrepreneurial talent
base often encounter considerable obstacles in attracting and developing experienced
management to the NVD. Specifically, NVDs seeking to identify venture management
talent from within the corporation often find that individuals successful in a traditional
corporate environment lack the skills required in a venturing environment.
Furthermore, corporations sometimes find that they must compete for talent with
venture capitalists and start-ups, which offer both financial and nonfinancial
advantages over NVDs.
Proposition
Despite the apparent intractability of the problem, Corporate Strategy Board research
suggests that the NVD provides a distinct value proposition that does not necessarily
compete directly with venture capitalists and start-ups. The division can develop talent
internally before determining venture management assignment, thus screening for
individuals who possess an entrepreneurial drive and the required skills, but may lack
proven experience in the venture capital world.
Recommended
Practice
#10 Develop a Standing Pool of Potential Managers for Venture Placement
37
38
The New Venture Division
Practice #10
Develop a Standing Pool of Potential Managers for Venture Placement
Rather than directly competing with venture capitalists for entrepreneurial talent,
the NVD can attract individuals by leveraging the unique nature of the offer; by
initially incubating talent within the group, the NVD ensures a standing pool of
venture managers and can screen management candidates extensively.
Lucent targets candidates possessing a business development spirit…
Profile of Lucent NVG Target Candidates
• One-third from Silicon Valley, consulting firms and internal talent
• Typically possess an MBA or advanced engineering degree, five to seven
years of experience in business development, technology or consulting
• Possess unproven entrepreneurial potential that may not meet high
experience bar required by venture capitalists
Source: Lucent Technologies; Corporate Strategy Board research.
…enticing them with Lucent NVG’s compelling offer
NVG Appeal: “Best of Both Worlds”
Dimension
Traditional Large Company
New Venture Division
Bootstrap Start-Up
Financial Risk
Minimal to no risk
Employees need not risk personal
savings to develop new ideas;
company provides needed resources
for initial development
No guarantee of venture
survival; employees relinquish
rights to benefits, retirement
plans
Financial Gain
With exception of stock
ownership plans, employee
compensation unlikely to be
tied to corporate performance;
minimal upside
Inclusion of equity- and/or
milestone-based compensation means
that venture managers and employees
have chance of significant financial gain
Employees may capture
extraordinary financial windfall
if new venture succeeds; in the
interim, may have to forgo
salaries for months/years
Leadership
Opportunity
Obtaining key leadership
opportunities generally requires
significant time and career
investment to ascend corporate
ladder
Employees (even those with short
tenure) have equal opportunity to
lead project teams, assume ownership
of key stages of incubation process
Employees often quickly assume
key leadership responsibilities
Autonomy
Authority concentrated in small
cadre of leaders near or at top
of corporation; bureaucracy
tends to encumber decision
making
Employees pursue ideas at their own
discretion, identifying particular
opportunities in which to participate
Employees required to commit
energies across a wide range of
disciplines; few middle and
senior managers available to
lend guidance
Source: Corporate Leadership Council, Sui Generis Opportunities, Washington: The
Corporate Executive Board, 1996, 187; Corporate Strategy Board research.
Entrepreneurial Talent Pool
Lucent NVG Develops Candidates Internally
for Eventual Venture Placement
Lucent’s “Entrepreneurs in Residence” Program
Office of the Chairman
Core Business Team
constitutes the group’s
Entrepreneurs in
Residence—future
members of venture
management teams with
a chance of becoming a
venture CEO*
New Ventures Group
President
• Team of approximately 20 people
• Organized into the five technology
groups into which most ventures
are categorized
NVG Leadership Team
NVG Central Team:
• Support Team
• Core Business Team
Venture
Board
Venture
Board
Entrepreneurs in Residence
Responsibilities: Entrepreneurs help to manage the venture creation process
within their respective technology groups.
Venture Placement: Individuals typically remain with the Core Business
Team for one to two years before being placed with a venture. Highly
individualized criteria determine placement, depending on the entrepreneur’s
skills and the venture portfolio’s current needs.
Development: Training occurs primarily on the job, supplemented with formal
coaching as needed.
* Lucent NVG primarily recruits venture CEOs externally.
Source: Lucent Technologies; Corporate Strategy Board research.
39
40
The New Venture Division
Appendix
Appendix
An Overview of New Venture Divisions Studied
41
42
The New Venture Division
Appendix: An Overview of New Venture Divisions Studied
Aeroquip-Vickers1
Industry
Beta Company2
Amway Corporation
Lucent Technologies Inc.
Manufacturing
Consumer Products
Manufacturing
Telecommunications
Company Size
1999 Revenues: $1.1 billion
Employees: 8,000
1999 Revenues: $3 billion (est.)
Employees: 10,000
1999 Revenues: $1–2
billion; Employees: less
than 10,000
1999 Revenues: $38 billion
Employees: 141,600
Name of NVD
Business Development Center
(BDC)
Amway New Ventures (ANV)
Beta Company New
Ventures
Lucent New Ventures Group
(NVG)
Year Est’d
1994
1998
1994
1997
Strategic
Objectives
Incubate new businesses that
do not fit in core businesses,
i.e., bring new products or
services to new markets
Develop new audiences
(customers and distributors) for
company; identify and incubate
new business ideas
Diversify the company,
leveraging core
competencies to improve
long-term growth
Develop opportunities that do
not fit in core business;
contribute to the advancement
of innovation throughout
company
Who Group
Reports To
Vice President of Business
Development
Company owners
Chief Executive
Officer
Office of the Chairman
Location of
NVD/Ventures
BDC: Stand-alone facility
ANV and Ventures: Stand-alone
facilities
NVD and Ventures:
Corporate headquarters
NVG: Corporate headquarters
Ventures: Separate
Funding of NVD
and Ventures
BDC has annual operating
budget; ventures funded on
case-by-case basis
ANV maintains basic budget;
ventures funded on case-by-case
basis
Group has annual
budget; ventures funded
on case-by-case basis
Operating budget and
venture fund allocated by
parent on annual basis
No. of Ideas
Screened
Annually
Approximately 35
screened; approximately 12
seriously considered
Thousands screened; 12–36
seriously evaluated
Not available
50–75
3–4
Approximately 4
1–4
5–7 ventures; 15 seeds
• Precision Spheres
• Epsilon Coupling
• Ocean Essentials
Not available
• Lucent Digital Video
• Lucent Public Safety Systems
Approximately 10
Approximately 15
5
Core business team of
approximately 20
Source of
Venture CEOs
High-potential employees
within the company
Core ANV team
External recruitment
External recruitment and the
core business team
Compensation
Structure
Primarily corporate
compensation; supplemented
by bonuses for successful
attainment of objectives
Corporate
Corporate
Includes some equity-based
rewards
No. of Ventures
Started Annually
Examples of
Venture
Size of Group
(excluding
ventures)
1
Aeroquip-Vickers was acquired by Eaton Corporation in 1999. The Business Development
Center is currently consolidating its activities with the Eaton Innovation Center.
2
Case disguised.
Appendix
Nokia
Corporation
Industry
Nortel Networks
Corporation
Paging
Network, Inc.
Xerox Corporation
Telecommunications
Telecommunications
Telecommunications
Information Technology
Company Size
1999 Revenues: $15 billion
Employees: 44,543
1999 Revenues: $17 billion
Employees: 75,052
1999 Revenues: $1 billion
Employees: 7,100
1999 Revenues: $19 billion
Employees: 92,700
Name of NVD
Nokia Ventures Organization
(NVO)
Nortel Business Ventures
Group (BVG)
VAST Solutions
Xerox Technology
Enterprises (XTE)
Year Est’d
1998
1996
1999
1998
Strategic
Objectives
Develop new growth avenues
by establishing sustainable
businesses that do not fit with
core businesses; provide
avenues for development of
latent ideas
Pursue opportunities
beyond core businesses
with potential to
execute spin–off
Incubate emerging market
opportunities in wireless
technology using network and
people assets of paging
business; establish basis for
company’s long-term growth
Maximize return from
corporate base of intellectual
property; foster creation of
emerging technology beyond
scope of core businesses
Chairman and Chief
Executive Officer
SVP, Business Development
and Venturing
Chief Executive Officer
and Chief Financial Officer
Vice Chairman of Board/Chief
Financial Officer
NVO: Proximate to corporate
headquarters
Ventures: Separate
BVG and Ventures: Within
a strategic business unit
VAST & Ventures: Stand-alone
facility
XTE: Corporate headquarters
Ventures: Separate
BVG has annual operating
budget; ventures funded
case-by-case
Not available
Operating and venture fund
allocated by parent on annual
basis
150
Not available
Approximately 50
Approximately 4
Not available
4–5
• Nokia Internet
Communications
• ChannelWare
• VAST Wireless Solutions
• VAST Gateway
• VAST On-line
• Inxight
• Document Sciences
• Documentum
Size of Group
(excluding
ventures)
Approximately 50
Approximately 20
150 including venture staff
4–5 core staff; 300 including
ventures
Source of
Venture CEOs
Initially internal; currently
including external searches
Largely external;
occasionally recruit
internally
Internal and external hires
fill SVP and VP roles for
project areas
External recruitment
Compensation
Structure
Corporate, but contemplating
equity risk
Initially, milestone-based
bonuses; currently moving
to equity risk
Noncorporate package with
higher risks and rewards based
on milestones; currently
considering equity-based reward
Compensation tied to overall
group performance; venture
employees retain some equity
Who Group
Reports To
Location of
NVD/Ventures
Funding of NVD NVO has annual budget for
operations and ventures
and Ventures
No. of Ideas
Screened
Annually
Approximately 200 screened;
tens developed further
No. of Ventures Not available
Started Annually
Examples of
Venture
Source: Aeroquip-Vickers; Amway Corporation; Lucent Technologies Inc.;
Nokia Corporation; Nortel Networks Corporation; Paging Network,
Inc.; Xerox Corporation; Corporate Strategy Board research.
43
44
The New Venture Division
Bibliography
Articles
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Chesbrough, Hank. “Corporate Strategy in the Shadow of Private Venture Capital: A Review of the
Academic Literature.” Working Paper, Harvard Business School (May 1999).
Clayton, James, Bradley Gambill and Douglas Harned. “The Curse of Too Much Capital: Building New
Businesses in Large Corporations.” The McKinsey Quarterly (1 January 1999).
Gee, Robert E. “Finding and Commercializing New Businesses.” Research & Technology Management
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Greene, Patricia G., Candida G. Brush and Myra M. Hart. “The Corporate Venture Champion: A
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Sharma, Pramodita and James J. Chrisman. “Toward a Reconciliation of the Definitional Issues in the Field
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“Start-Ups: A Bold Approach to Capitalizing on Bell Labs Technology…Finally.” Telecommunications
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Teresko, John. “From Invention to Innovation.” Industry Week (21 September 1998).
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Block, Zenas, and Ian C. MacMillan. Corporate Venturing: Creating New Businesses Within the Firm.
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