Achieving corporate renewal through corporate venturing

This study aims at describing the role of corporate venturing in sustaining corporate renewal. By proceeding through the layers of corporate context (strategy, innovation and venturing) it has described the essence of corporate renewal, the conditions that favor it and the management processes that are needed. Yet the deep-down mechanisms of

corporate renewal remain to be described in this chapter – the processes of learning, leveraging and nesting that are needed to harness the renewal potential related to corporate venturing.

Ventures can be seen as a starting point for organizational knowledge creation (Nonaka

& Takeuchi, 1995, p.73) and corporate renewal as the result of it. Generating corporate renewal through corporate venturing demands a systematic approach to knowledge management which Marquardt (2002, p.143) describes as a six stage process including acquisition, creation, storage, analysis and data mining, transfer and dissemination and application and validation. In addition to a systematic approach to knowledge management achieving corporate renewal through corporate venturing requires an open heart, open mind and open will, and the ability to proceed through the 7 stages of the U-model described by Scharmer (2004).

The importance of learning about new opportunities and leveraging existing capabilities needs to be balanced (Sinkula, 1994, Tidd & Taurins, 1999) This study views learning and leveraging as two processes that complement each other. To contribute to corporate renewal they need to be bi-directional and take place simultaneously in the context of existing and emerging businesses (venturing). The focus on these two processes needs to be balanced as an overemphasis of either one will lead to less than optimal results. The importance of nesting relates to the need to manage timing and resource allocation by prioritizing identified opportunities.

Learning in relation to corporate venturing can be described as strategic learning, an attempt to guide the future activities of an organization. This study approaches learning as a process and notes different types of learning and finally relates it to corporate venturing. Learning as a process can be seen to include phases of knowledge discovery, knowledge diffusion and informed action (Honig, 2001) or as a process by which organizations as collectives learn through interaction with their environment, proceeding through phases of knowledge acquisition, information distribution and interpretation and organizational memory (Sinkula, 1994). Furthermore, learning is a cyclical process:

individuals learn within the context of organizations and that context affects their learning which in turn may affect the performance of the organization (Tidd, 1997).

Types of learning involve learning-before-doing that according to Keil (2000) refers to learning processes that take place outside the external corporate venturing relationships before the actual venturing takes place. Other type of learning, learning by doing (Keil, 2002) or trial-and-error learning (Garud & Van de Ven, 1992) is a process during which a corporation learns new capabilities specific to the venture and at the same time builds external venturing capabilities. It involves initiating a course of action and continuing with it only if the outcomes associated with it are positive. Van de Ven et al. (2000b) concluded that while errors and mistakes, by definition, are the major sources of learning by trial-and-error they need to be corrected when detected because they can “snowball”

over time into vicious cycles of even larger and more intractable complexes of problems.

Tidd (1997) approaches types of learning by motivation. He divides learning into learning “how” and learning “why”. Learning “how” involves improving or transferring existing skills whereas learning “why” aims at understanding the underlying logic or causal factors with a view to applying the knowledge in new contexts.

Relating learning and corporate venturing to corporate renewal is about establishing an environment favorable for learning in a corporate wide context. Organizations vary dramatically in the rate at which they learn (Argote, 1999). Thus it appears that creating a venturing organization which favors learning can improve a company’s odds for generating corporate renewal. Burgelman (1988) notes the role of corporate venturing as a social learning process in which managerial action and cognition are intrinsically intertwined. The learning model builds on Burgelman’s earlier studies of internal corporate venturing (Burgelman, 1983a, 1983b, 1984). In his model the interplay of action and cognition start from opportunistic search in the stream of ongoing work at the operational level to form a new concept of business opportunity. In this process, action and cognition evolve in an interactive fashion, as the concept evolves through operational, middle and top management. But learning alone does not guarantee strong performance in innovation. Bunderson & Sutcliffe (2003) conclude that too great an emphasis on learning can actually hurt performance. According to them,

overemphasizing learning and experimentation may distract teams from their goals and induce them to abandon adequate solutions in favor of untried approaches.

To maximize the opportunities to apply new knowledge companies need to seek possibilities to apply existing resources and capabilities in the context of new business and to apply new knowledge generated through exploration of new opportunities in the context of existing business. That leads to finding opportunities to leverage learning.

Leveraging is about exploitation, making the most of the resources and capabilities a company already has through knowledge transfer over a multitude of arenas. According to Honig (2001) leveraging or exploitation involves both knowledge diffusion and informed action. It can be defined by terms like refinement, choice, production, efficiency, selection, implementation and execution (Sinkula, 1994). Knowledge transfer is an essential element of leveraging. It requires a fundamental change in the assumptions that have shaped the way people in an organization have looked at things, and a creation of new communication channels that actually get people to experience the implications of an innovation (Brown, 2002). Knowledge transfer from ventures involves in-depth learning about market structures and dynamics, new technologies and business models and about the management of new business in general (Keil, 2002). Risk reduces as knowledge grows, and as knowledge grows so does the company’s capability to advance (Hamel & Prahalad, 1993).

In practice, companies often do not know what they know (Tidd, 1997). Thus they need to engage in learning about the potential for leverage, identifying where and when specific knowledge and resources can be applied. Leveraging what a company already has, rather than simply allocating it is a more creative approach to scarcity. Hamel &

Prahalad (1993, 1996) identify five arenas of leverage: concentrating, accumulating, complementing, conserving and recovering resources. According to them, concentrating is about having a clear strategic focus. Accumulating involves extracting knowledge and borrowing the necessary skills. Complementing requires the blending and balancing of different types of resources, and creating synergy among them through technological and functional integration and new product imagination. Conserving involves recycling,

co-opting and shielding, aiming at maximal leverage of resources. Finally, recovering is about expediting success, which enables minimizing the time between expenditure and recovery. In addition to resources, the success of venturing activities requires changes to existing resource configurations and routines. Venturing is a mechanism through which a firm gains superior insight about, and access to, firm-specific resources with future rent potential (McGrath et al., 1994).

While learning and leveraging seem to be the different sides of the same coin – both are needed to work simultaneously and bi-directionally to intermediate between venturing context and mainstream context, the third linking process is about establishing a context favorable for learning and leveraging to work.

Nesting as defined in this study consists of activities which enable the management of timing and resource allocation within the corporate venturing process and thus is closely related to managing the portfolio of ventures. As concluded in the previous chapters, the speed and magnitude of change and the overwhelming amount of information available today make it impossible for a company to pursue all the possibilities within the range of opportunities. The process of nesting keeps an eye on markets, technologies and business models that are not within the current scope of ventures but which have been recognized as potential opportunities. The purpose of the nesting process is to provide the capability to respond efficiently when uncertainty and ambiguity related to markets and technologies are decreased to the point that the company has enough information to either drop or deploy an opportunity. Nesting deals with the fact that knowledge within a firm may have different utility at different times (Honig, 2001). The nesting process helps companies to maximize the leverage of emerging opportunities by building a “knowledge buffer” and the capability for systematic waiting. In order for the nesting process to work efficiently, a company needs to establish a database for managing opportunities in the nesting phase. McGrath & MacMillan (2000) outline the concept of an opportunity register as a method for holding onto ideas over time. The opportunity register should include a short description of the idea (business concept) complemented with relevant data, trends indicating when it might be feasible, key customer segments, obstacles and barriers that may hinder the development of ideas, company position, competition,

sources of information, type of opportunity and timing for action. They suggest assessing the types of opportunities in terms of the related market and technological uncertainty.

While this type of assessment may be valuable in defining the overall portfolio of ventures, it may also be helpful in analyzing the potential of venturing ideas.

The processes of learning, leveraging and nesting are key elements of continuous corporate renewal. They are the underlying, deep-down mechanisms that define interaction between people – the key contributors in the process of innovation which was seen as the source of continuous corporate renewal.