Corporate innovation - 5 min
The Crucial Role of Governance for the Success of Corporate Venturing
Jan shares his insights on why the right governance setup is so important for innovation efforts to be successful.
"If a company wants to remain relevant and profitable, it needs to make innovation a habit."
Innovation has become an increasingly imperative part of any successful enterprise. If a company wants to remain relevant and profitable, it needs to make innovation a habit. Yet, many corporates we talk to have difficulties designing their innovation efforts in a very effective way. Most of them have at least some innovation initiatives or programs in place, but overall there is room for improvement. If you ask corporate innovation managers why their innovation initiatives fail, governance is a large part of their answer. Often, unclear goals, insufficient budgets, long decision cycles, or the lack of the right resources are part of the story. But when innovation projects lack the right governance, i.e. lacking or ill-defined guardrails to give innovation a chance, they simply do not survive pressure from the core.
Needless to say, there are no one-size-fits-all solutions to governance issues. The prerequisites to manage an empire as Amazon differ starkly from a large, traditional, industrial conglomerate. There are some core features of effective governance, though, that should be part of any initiative.
In essence, governance needs to provide the framework to work in an agile, decentralized and fail-friendly culture. Secondly, governance must provide access to relevant assets from the corporation, namely the right to play for corporate venture building. Without these two aspects, all ventures will be outperformed by venture capital financed startups. Readers from large corporations will recognize the paradox in this - it is widely known as the necessary organizational ambidexterity to cope with innovation.
It has been surprising to see methods, such as corporate venture capital, being set up as separate entities - or at least very separate from the core business - and watch how they have evolved over the years. For instance, line managers were once permitted to be part of investment committees in corporate venture capital funds, but this has changed for the benefit of independent decision-making.
From these learnings, it becomes clear that we need an entirely new mindset for corporate venture building, with a bespoke solution design for every single organization. Although the architecture must adapt to the needs and market of every venture, we believe the same foundational structures can always be applied. We understand that corporate venture building is essentially about building walls and bridges between the core organization and the venture building team. With that in mind, we see the following repeated pattern that could be used as a blueprint:
In order for corporate venture building to be taken seriously in a corporate, quick wins must be achieved to showcase contribution to the success of the overall enterprise. While in theory, this sounds simple, the difficulty lies in its operationalization. Managers’ learnings from the past now seem outdated, such as ‘corporates cannot act like startups’. These learnings need to be re-evaluated and companies need to showcase corporate venture building projects by achieving first results quickly.
As an initial step, a corporate should build a first minimum viable product of the target organization and then continue to improve it through various iterations. A commitment to a certain budget is crucial and needs to be constantly reviewed against predefined key performance indicators (KPIs). We recommend a step-by-step approach in order to keep track of the project’s progress.
To ensure the buy-in of the stakeholders involved, the venture team should deliver beyond expectations and seize any large opportunities as soon as they arise, whilst also supporting the core organization in its agenda. Corporate venture building methods can easily add value to the core organization with, for example, a prototype or a test setup.
Perhaps the most important note to emphasize is that no governance can be defined in the target state on day one - it needs to evolve. A corporate venture building team must earn the freedom it needs to deliver at scale, step-by-step, all the way.