Unpacking the role of strategy work in internal corporate venturing

(1)

Master’s Programme in Industrial Engineering and Management

Unpacking the role of strategy work in internal corporate

venturing

Elias Lohilahti 21.11.2022

Master’s Thesis 2022

(2)

(3)

3 Author Elias Lohilahti

Title of thesis Unpacking the role of strategy work in internal corporate venturing Programme Master’s programme in Industrial Engineering and Management Major Strategy and Venturing

Thesis supervisor Assistant Professor Marina Biniari, Ph.D.

Thesis advisor Tapio Sirén, M.Sc

Date 21.11.2022 Number of pages 97 Language English

Abstract

By taking an assumption that strategy work has taken place prior to setting up an internal corporate venturing unit, the existing literature has overlooked the role of strategy work and how it occurs within organizations despite extensive research on corporate venturing. This thesis tries to unpack and understand the role of strategy work in incubating internal ventures. By adopting a microfoundations perspective, I explore in greater detail why and how strategy work matters in managing a successful incubator.

The study draws from the empirical investigation into an incubator within a leading European energy company. To explore the role of strategy work through the eyes of the participants, this thesis employs a qualitative method of an inductive case study, utilizing 21 interviews, a workshop to validate and reinforce the findings, and secondary data.

The findings illustrate how insufficient strategy work, diverse views on a venture unit’s purpose and a misalignment of its strategic and structural contexts can cause suboptimal outcomes for the unit’s performance. If the strategy work has not been conducted properly to align all stakeholders on the unit’s purpose and goals, and the strategy not deployed throughout the organization, it is impossible to consciously design the structure of the unit to be aligned with its strategy.

This thesis contributes to literature by supporting the need for a fit between a venture unit’s strategy and its organizational design, further highlighting the importance of strategy work in achieving this fit, and presenting subpar implications for insufficient strategy work. The findings also provide implications for managers, recommending to communicate a clear strategic purpose and goals and to ensure appropriate support from top management.

Keywords Internal Corporate Venturing, Strategy Work, Growth and Renewal

(4)

4 Tekijä Elias Lohilahti

Työn nimi Strategiatyön rooli sisäisten kasvuyritysten inkuboinnissa Koulutusohjelma Tuotantotalouden maisteriohjelma

Pääaine Strateginen johtaminen ja kasvuyrittäjyys

Vastuuopettaja/valvoja Apulaisprofessori Marina Biniari, Ph.D.

Työn ohjaaja Tapio Sirén, DI

Päivämäärä 21.11.2022 Sivumäärä 97 Kieli Englanti

Tiivistelmä

Olettamalla että strategiatyö tapahtuu ennen sisäisen yrittäjyyden ohjelmien rakentamista, ja että yritysjohdolla on riittävät kyvyt sen onnistumisen takaamiseen, aiempi tutkimus on ohittanut strategiatyön merkityksen ja siinä onnistumisen tutkimisen. Tämä diplomityö yrittää laajentaa ymmärrystä strategiatyön roolista sisäisten kasvuyritysten inkuboinnissa.

Tutkin tarkemmin miten ja miksi strategiatyöllä on merkitystä tuloksellisen inkubaattorin johtamisessa mikrotason perustusten perspektiivistä.

Diplomityö perustuu empiiriseen tutkimukseen johtavan eurooppalaisen energiayhtiön sisäisestä inkubaattorista. Avatakseen strategiatyön roolia siihen osallistuneiden työntekijöiden näkökulmasta, diplomityö hyödyntää kvalitatiivista induktiivisen tapaustutkimuksen metodologiaa. Työn data koostuu 21 haastattelusta, validaatiotyöpajasta ja sekundäärilähteistä.

Työn löydökset havainnollistavat miten vajavainen strategiatyö, ristiriitaiset näkemykset yksikön tarkoituksesta ja tavoitteista sekä yhteensopimaton strategia ja organisaatiorakenne voivat aiheuttaa epäoptimaalisia lopputulemia yksikön tulosten kannalta. Jos strategiatyö ei ole onnistunut saattamaan kaikkia keskeisiä sidosryhmiä samalle linjalle yksikön tarkoituksesta ja tavoitteista, ja yksikön strategiaa ei ole onnistuneesti jalkautettu organisaatioon, ei ole mahdollista tietoisesti suunnitella yksikön rakenteita tukemaan sen strategiaa.

Diplomityö ottaa osaa alan teoriaan tukemalla aiempia löydöksiä sisäisen yrittäjyyden rakenteiden ja strategian yhteensopivuuden tarpeesta, korostaen strategiatyön roolia kyseisen tilan saavuttamisessa, ja esittäen riittämättömästä strategiatyöstä johtuvia epäoptimaalisia lopputulemia.

Tulokset myös tarjoavat käytännön suosituksia: johdon tulisi viestiä selkeä strateginen tarkoitus ja tavoitteet ja varmistaa sopiva ylemmän johdon tuki.

Avainsanat Strategiatyö, Sisäinen yrittäjyys, Yrityksen kasvu ja uudistuminen

(5)

5

Preface

I wish to thank my supervisor, Assistant Professor Marina Biniari for an abundance of visionary guidance and valuable support during the thesis process. You have been an inspiring instructor throughout my studies at Aalto and it was a delight to work with you on my Master’s thesis. All the best Marina on your future challenges and adventures!

I wish also to thank my advisor, Tapio Sirén, for enabling and guiding the process, supporting me in all its phases, and finally motivating me to conclude it. I wish also to thank everyone else within and outside the organization who made it possible to study the topic in an exciting context, agreed to be interviewed, and contributed to help me find all the great interviewees that really enabled my study.

Finally, I wish to extend my greatest gratitude to my dear family and friends.

I have received incredible support and immense encouragement throughout the journey of education that has lasted almost 20 years. I am grateful to my parents for showing how you value education and support my choices on that path. And, dear friends, thank you for being a balance in the sometimes hectic and heavy life of thesis writing. Thank you for all the practical tips, thank you for being the light and fun in many grey days, and thank you for checking up, giving an ear, and caring for me throughout the process.

(6)

6

Abbreviations

BU Business Unit

ExCo Executive Committee

iBP Innovation Business Platform (I)CV (Internal) Corporate Venturing LT Leadership team

SteCo Steering Group VP Vice President

(9)

9

List of Tables and Figures

Figure 1: Innovation portfolio graph, adapted from Nagji and Tuff (2012) ... 19

Figure 2: Data structure ... 42

Figure 3: Data structure (cont.) ... 42

Figure 4: Data structure (cont.) ... 43

Figure 5: Process model ... 81

Table 1: Interviewee descriptions ... 39

Table 2: External Interviewee Descriptions ... 41

(10)

10

1 Introduction

First, the field of the thesis is introduced and set within the larger context of strategy and organizational studies. A brief look into existing literature reveals a clear lack of understanding of the importance of strategy work in corporate venturing and motivates the study of the thesis topic. Then, the research objectives and the empirical context are presented and this chapter concludes with the outline of the thesis structure.

1.1 Thesis background and motivation

Venturing as a mode to create new businesses has gathered increasing interest in the business literature. McKinsey experts explain how “repeatable, scalable innovation—in the form of new-business launches—has become an imperative” and most of world’s largest companies nowadays have an incubator, accelerator or a CVC fund (Hillenbrand et al., 2021, p. 2). The motivation behind setting up these units can be to facilitate growth for large companies by tapping into the agile methods of start-ups. Wolcott and Lippitz (2007) acknowledge the pain and difficulties large companies face in trying to induce growth and suggest corporate entrepreneurship in its many forms as one solution.

Corporate venturing is a term used to describe “corporate entrepreneurial efforts that lead to the creation of new business organizations within the corporate organization” (Sharma & Chrisman, 1999, p. 19). Corporate venturing can be used both to build on current core business and competencies as well as to build new competencies to make more transformative change and even to “leapfrog out of declining businesses”

(Covin & Miles, 2007, p. 183-184).

(11)

11

While Covin and Miles (2007) acknowledge the possibility to use Corporate Venturing for building long-term growth and strategic renewal, they state that firms have not historically been very successful with utilising CV for these purposes. Different factors affecting the success of corporate venturing programs have been studied by many scholars. These include e.g. the relatedness of the ventures to the main organization (Garrett & Covin, 2015;

Hill & Birkinshaw, 2008; Kuratko et al., 2009; Sorrentino & Williams, 1995;

Sykes, 1986; Thornhill & Amit, 2001), market positioning of the ventures (Miller and Camp, 1985), structural separation (Birkinshaw et al., 2002;

Burgers et al., 2009; Garrett & Covin, 2015; Thornhill & Amit, 2001), venture autonomy (Covin et al., 2020, 2021; Garrett & Covin, 2015; Kuratko et al., 2009; Sykes, 1986; Thornhill & Amit, 2001) whether the ventures are opportunistic or deliberate by nature (Kuratko et al., 2009), venturing experience (Kuratko et al., 2009; Macmillan et al., 1986), venture management’s knowledge (Kuratko et al., 2009; Sykes, 1986), top management support (Covin et al., 2020; Dodd, 2004; Garrett & Neubaum, 2013; Kuratko et al., 2009; Makarevich, 2017; Thornhill & Amit, 2001;

Waldkirch et al., 2021), goal clarity (Kuratko et al., 2009; Covin et al., 2020) and venture evolution (Covin et al., 2015, 2020; Kuratko et al., 2009).

Most of these studied factors, however, are at the level of a single venture.

The studies seem to take the assumption that the venturing units have an appropriate strategy and goals, and they are successfully deployed throughout the organization. However, despite the extensive research into different singular performance factors outlined in the previous paragraph, a more strategic perspective into the process of setting the purpose and goals of the venturing unit and successfully deploying them to the organization is lacking. Hill and Birkinshaw (2008) studied how strategy-organization configurations of corporate venture units impact on performance and survival and Burgelman (1983a, 1983b, 1984a, 1984b) wrote a series of articles in the 1980s on the designs and managing of internal corporate venturing processes, both highlighting the need to align the venture unit’s

(12)

12

strategy and its organizational profile. Now that we understand the structural matters of corporate venturing fairly well through the existing literature, the need to understand the other side of the equation, setting the strategy for the venture unit is highlighted. Unfortunately, research focusing on the importance of strategy work especially from the microfoundations perspective of lower-level influences and interactions is lacking from the corporate venturing literature.

1.2 Research objective

As referenced earlier, Covin and Miles (2007) argue that while companies aim to use corporate venturing for building long-term growth and strategic renewal, they have not historically been very successful with utilising CV for these purposes. This finding in conjunction with the fact that scholars highlight the importance of aligning corporate venture units’ structural and strategic contexts strongly motivates to research the importance and influence of strategy work in those contexts.

This research would be in the interest of managers of various levels in companies both which have already set up corporate venturing activities as well as those facing the need grow and renew and are possibly considering corporate venturing as an option. Also, increasing the understanding would be in the interest of scholars to develop a holistic view of how to successfully manage corporate venturing units.

Thus, motivated by the knowledge gap and its clear importance within the field of strategy and management for growth and renewal, this thesis aims to study and unpack the importance of strategy work in corporate venturing.

The topic is studied empirically using a single-case inductive, qualitative research design and the findings are reflected with a review of relevant literature on managing corporate ventures.

(13)

13

The objective of this research is formulated in short to answer the research question of how and why strategy work matters when incubating internal ventures in multidivisional organisations.

1.3 Empirical context

The empirical context for the case study is an incubator organization within Corporation Alpha, a European energy company, operating globally in a multidivisional organization and active in oil as well as renewable fuels and materials. The incubator at Alpha is an internal corporate venturing unit and was formed in 2019 as a new strategy called Faster, Bolder, Together had Increased Innovation as one of its must-win battles. In that strategy the company launched Innovation Business Platforms to expand its business into adjacent areas including lignocellulosics, municipal solid waste, renewable hydrogen and algae as new sources of renewable fuels, and the incubator was set as the home for explorative and transformational topics beyond the business platforms. It is operating with a direct and focused model, i.e. a specific unit with the goal to create new businesses within the organization, and funding the activities from the budget of the innovation function.

The incubator’s current stated goal is to create new business outside the current core to support the company with its vision of being a global leader in bio- and circular economy. However, the unit has not so far been able to deliver new businesses, which has created some frustration among the incubator employees and further stakeholders. This has sparked discussions on the incubator’s vision, scope and ways of working and provides an excellent empirical setting to study the research question outlined in the previous section.

(14)

14

1.4 Thesis structure

Next, a more elaborate analysis of relevant literature in the field of corporate venturing is presented, and the missing theoretical understanding of the importance of strategy work and microfoundations perspective in connection to successfully managing internal corporate venturing units is highlighted. In the Chapter 3, the methods of the empirical data collection are outlined and justified, and the findings of the study are presented in Chapter 4. The findings are summarized and discussed in Chapter 5 together with theoretical and managerial implications, and the thesis concludes with a final summary in Chapter 6.

(15)

15

2 Literature

The study starts with a review of relevant literature to understand the current state of knowledge on the topic in the academic literature. First, corporate venturing as a field is explored to set the scene, including the definitions of CV and its different forms, with emphasis on the Internal CV, and the purposes why companies undertake these activities. Next, the success of venturing units can arguably be traced to the venture level, which is why the success factors identified in the existing literature on venture level are reviewed before moving on to the venture unit level. While scholars regularly arrive at conclusions that are contradictory with the existing body of literature and explain these differences with contextual factors, they have rarely studied why these differences emerge from the perspective of strategy work and microfoundations. Thus, lastly, recognizing the limitations of the existing prevailing perspectives, the literature of microfoundations is briefly reviewed before synthetizing the literature review and motivating the empirical research that follows.

The review is conducted by searching for literature using keywords such as corporate ventur*, internal corporate ventur*, incubat* and accelerat*

from the databases Scopus and Google Scholar, focusing on journals Entrepreneurship Theory and Practice, Journal of Business Venturing, Strategic Entrepreneurship Journal and Strategic Management Journal, but also including relevant articles from other journals. Furthermore, the ancestry method of checking for citing and cited articles was also used. The literature review does not aim to be comprehensive, nor are any bibliometric methods utilised. Instead, the review is mainly conducted to familiarize us with the most central topics in the field, and to reflect the empirical findings with relevant academic literature.

(16)

16

2.1 Understanding corporate venturing as a field

Corporate venturing, seen often as part of the larger domain of corporate entrepreneurship and being linked to both innovation and strategic renewal, aims for “creation of new business within or outside the organization”

(Narayanan et al., 2009, p. 59). Furthermore, many scholars emphasize not only the aim, but also distinctive methods when defining corporate venturing – it is said to have a “focus on the steps and processes of new business creation (Hill & Georgulas, 2016, p. 15), and defined as “a set of corporate mechanisms designed to accelerate innovation and new business creation”

(Gutmann, 2019, p. 123), as well as “corporate entrepreneurial efforts that lead to the creation of new business” (Sharma & Chrisman, 1999, p. 19).

Corporate venturing exists in many forms, and their categorization has received moderate scholarly attention. One of the most salient factors of differentiation is that of locus of opportunity or focus of venturing (Gutmann, 2019; Hill & Georgoulas, 2016). This factor most often leads to categorization between internal and external corporate venturing, meaning whether the businesses created through corporate venturing “reside within [or outside] an existing organizational domain” (Sharma & Chrisman, 1999, p. 19-20). Taking further into account the source where the initiatives originate, the classification can be extended to cover inside-in, inside-out as well as outside-in approaches to corporate venturing (Gutmann, 2019).

Another dimension often used in categorization of corporate venturing activities is that of investment intermediation. It is typically divided into direct and indirect, and refers to whether the venturing organization has a direct ownership of the ventures, or whether the capital allocations are made indirectly through an intermediary, like a corporate venturing fund (Gutmann, 2019). Miles and Covin (2002, p. 21) combine the dimension of investment intermediation with that focus of venturing and arrive at an overall classification of corporate venturing into four forms: “(1) direct-

(17)

17

internal venturing; (2) direct-external venturing; (3) indirect-internal venturing; and (4) indirect-external venturing”. Gutmann (2019) agrees that both indirect and direct forms of venturing can coexist with both internal and external venturing approaches, and further defines that indirect venturing is typically a better fit when the venturing is done for a financial purpose, while the direct venturing, allowing for closer control, is better suited with strategic objectives.

When studying how different corporations have set up venturing programs, the focus is heavily on focused, or deliberate venturing, where a venturing program has been purposefully set up and managed in order to build new businesses. However, ventures can also emerge independently, and only afterwards given a place in the organization. Hill and Georgoulas (2016) call this model dispersed corporate venturing, and note how even the emergent ventures can be later managed informally, for example within a mainstream business division, or formally, through a program designed to stimulate venturing activities within the company.

Gutmann (2019) further classifies corporate venturing through dimensions including prioritization of objectives, meaning whether the stated goals of a venturing unit are financial or strategic; ambidexterity, whether the venturing seeks to explore new opportunities or to exploit current businesses; how the venturing program is linked to its parent firm; and whether there is equity involvement or not. The next section will provide information on issues specific to the internal form of corporate venturing.

2.1.1 Focusing on Internal Corporate Venturing

Internal corporate venturing, the “corporate entrepreneurial efforts that lead to the creation of new business” (Sharma & Chrisman, 1999, p. 19) within the parent corporation, can also take many different forms. Sharma and Chrisman (1999) define four dimensions to classify internal corporate

(18)

18

ventures: 1) structural autonomy, 2) degree of relatedness to existing business, 3) extent of innovation, and 4) nature of sponsorship.

First, structural autonomy refers to how venturing is organized within the corporate organization. Sharma and Chrisman (1999) explain how some ventures are tightly embedded within the core business divisions, and in the other extreme, some companies have very independent venturing programs, separate from all other businesses within the company, and reporting directly to the top management. According to them “the ideal place to locate a venture will depend on its needs for managerial attention, resources, learning opportunities, and protection from corporate antagonism” (Sharma

& Chrisman, 1999, p.22).

Another dimension of relatedness in addition to organization is that of the content of the projects. Sharma and Chrisman (1999, p. 22) describe how ICVs may vary “in terms of product offerings, markets, or core competencies and resources required”. One classification on this dimension is presented by Nagji and Tuff (2012), who divide innovation projects into three categories:

core, adjacent and transformational. The classification, visualized in Figure 1, is based on two axes, where to play referring to customers and markets, and how to win to products and assets. Transformational innovations are those where both the markets and customers as well as products and assets are new to the company, whereas core innovations are incremental improvements to existing products to existing customers. Adjacent innovations have some degree of novelty on either or both axes, it can, for example, be an application of the firm’s technology to a new customer need, or creating new capabilities to better serve the current customers and markets.

(19)

19

Figure 1: Innovation portfolio graph, adapted from Nagji and Tuff (2012)

Sharma and Chrisman (1999) further elaborate on the classification of types of innovation by adding a dimension of extent of innovation. According to them the challenges and required learnings will be considerably different based on whether the venture is an imitative entry to an already existing market or a totally new, pioneering breakthrough idea.

Lastly Sharma and Chrisman (1999) discuss a dimension of nature of sponsorship, which is similar to the concept of focused vs. deliberate venturing. As a matter specific to internal CV, they call these modes also by the well-known corporate terms top-down vs. bottom-up. This dimension has significant implications on how the ventures are managed. Sharma and Chrisman (1999) argue that for the bottom-up, or autonomous entrepreneurial efforts it is essential to have an organizational champion and a sponsor, but for top-down, or formally induced ventures, the needed support should be already built into the structure.

(20)

20

A further distinction presented by many scholars (see Hill & Georgoulas, 2016) is a strategic one: categorizing the ventures e.g. into exploratory and exploitative classes. This and other factors related to why companies undertake venturing activities are explored in the next section.

2.1.2 Why do companies engage in corporate venturing?

Narayanan et al. (2009, p. 64) explain the attractiveness of corporate venturing by referring to a literature finding that “CV activities have a positive effect on a firm’s short-term economic benefits as well as its long- term strategic gains”. Additionally, they elaborate how “research underscores the importance of CV for developing new business, learning and building new organizational capabilities that can promote companies’ survival, profitability and growth” (Narayanan et al., 2009, p. 68). Scholars are not, however, unanimous on the topic. Covin and Miles (2007, p. 184) argue that

“many firms employing CV never achieve nor sustain positive overall results through their venturing efforts – [but] have historically struggled with the successful employment of CV for long term growth and corporate renewal purposes”.

Keil et al. (2009, p. 601) make note of the discrepancy, stating that a lot of research on ICV rests on the assumption that “they are an effective vehicle for driving new business development within established organizations”, despite the fact that many studies have shown the link between CV and company growth is weak, and the success rate of ventures as low as 5%. Thus they argue that ICV being seen as “an important element in companies’

growth strategies” (Keil et al., 2009, p. 601) must be due to indirect benefits, such as creation of new capabilities and internal variety.

For the possible benefits, Hill and Georgoulas (2016) developed a classification with three main categories: explorative, exploitative, and unintended learning outcomes. These all provide a different role for the

(21)

21

internal CV in the parent firm strategy. The explorative dimension is the most salient in literature, while the unintended learnings have received quite scarce attention (Narayanan et al., 2009; Hill and Georgoulas, 2016).

The explorative purpose and outcomes refer to companies expanding their offering through, for example, the means of searching, risk taking, varying, experimenting, discovering and innovating (March, 1991). The explorative approach is the one traditionally most attached to ICV, it being seen as a vehicle for creating new sources of value and new areas of competence (Hill

& Georgoulas, 2016).

The exploitative purpose, on the other hand, refers to better utilisation of the company’s current assets and capabilities through, for example, improvements in efficiency, production, implementation and execution (March, 1991). According to Hill and Georgoulas (2016), this leveraging motive of ICV, as opposed to the learning motive of the explorative approach, has been identified more recently. They refer to work of Tidd and Taurins (1999, as referenced in Hill & Georgoulas, 2016, p. 31) as they list five objectives for exploitative ICV:

1. to exploit underutilized (technological and human) resources;

2. to extract further value from existing resources;

3. to place competitive pressure on internal suppliers;

4. to spread the risk and cost of product development;

5. to divest non-core activities.

Lastly, the unintended learning consequences have been mainly brought up in the works of Keil et al. (2009) and McGrath (1995), and is the most recent addition to the possible purposes and benefits of ICV. The finding of Keil et al. (2009) was that the commercial success of a venture was not, contrary to traditional way of thinking, the main benefit of investing into ventures.

(22)

22

Instead, they argue that the main contribution of ventures is that of capability development and transfer for other ventures and existing business units.

Next, the factors influencing the success of venturing identified in the literature are presented. The chapter 2.2 will go through factors influencing the success of ventures themselves, whereas the chapter 2.3 will explore the success factors on a venturing program level. The literature mainly assesses success in commercial terms, giving limited attention to the aspect of unintended learning consequences such as capability development, brought up by Keil et al. (2009).

2.2 Do venture-level factors affect the performance of a venturing unit?

On venture level, the research has identified factors such as venture autonomy, relatedness to parent corporation, venture management’s capabilities and venture’s evolution during its lifetime to have an impact on venture performance, and they are analyzed more closely in the following chapters. While the focus of this thesis is mainly on the level of a venturing unit, the venture-level success factors also show dependence on the strategic choices of focus and goals, and are thus interesting to examine in this context.

2.2.1 Venture autonomy and performance

Autonomy of a venture and it’s implication on the venture performance is a topic often researched within the internal corporate venturing literature (Covin et al., 2021). According to Hill and Georgoulas (2016, p. 35), “there is a broad agreement that, in general, autonomy from the core activities of the parent firm has a positive impact on venture outcomes”. The research could be categorized into three main dimensions of autonomy, planning autonomy,

(23)

23

operations autonomy and financial autonomy, to afford a more granular analysis.

Kuratko et al. (2009) define the planning autonomy to refer to the extent of control the venture’s management, as opposed to the corporate parent’s management, has over matter such as setting goals, timeline, and the strategy of the venture. This type of autonomy is seen especially beneficial for the venture, as the “venture-level management often has the best knowledge of how to strategically lead their business” (Kuratko et al., 2009, p. 465). This view and argumentation is shared widely within the ICV literature (Covin et al., 2021).

Financial autonomy, both having an own budget as well as authority over investment decisions, is also seen to have positive implications on venture success by many scholars (Hill & Georgoulas, 2016). Hill and Georgoulas (2016) also report some positive findings on operational autonomy, whereas Kuratko et al. (2009) found no strong relationship between operational autonomy and venture success.

However, despite the broad consensus on the need of autonomy for internal ventures, Hill and Georgoulas (2016) also report of a finding of too much autonomy being harmful, and Thornhill and Amit (2001) find low autonomy to be associated with venture success. Such contrasting findings have motivated more granular research on the conditions and determinants of the suitable level of autonomy. Covin et al. (2020, p. 1) state that parenting style remains “a significant uncertainty, particularly in the case of ICVs operating in business domains new to the corporation”, whereas in another piece of research they argue how “past research does a poor job of identifying when or why planning autonomy might variously matter as a driver of venture performance” (Covin et al., 2021, p. 294). Their findings suggest that there is no universally correct level of autonomy for ICVs but it is context-specific,

(24)

24

based on factors of strategic clarity (Covin et al., 2020) and types and levels of strategic evolution (Covin et al., 2021).

2.2.2 Venture relatedness to core business and performance

A close factor to autonomy is also that of relatedness. According to Kuratko et al. (2009, p. 464) “it is a generally accepted tenet within the corporate venturing literature that ventures will be most likely to succeed if they operate in product-market domains that are adjacent to those of the firm’s established business”. This is supported e.g. by Thornhill and Amit (2001, p.

25), whose study results support their hypothesis that “a close connection may enable a venture to capitalize on the competencies and resources of the parent”.

Hill and Georgoulas (2016) divide their approach to analysing the impact of ventures’ strategic relatedness indeed into that of competencies, or parent company experience in the market of the venture, and resources, or more specifically sharing of them, between the venture and the parent company.

While the resource sharing is found to have twofold results, parent company experience is reported to increase the probability of success for a venture.

Sorrentino and Williams (1995) support this by explaining that relatedness may boost success for a venture if the parent has intangible assets the venture is able to exploit.

Sykes (1986) also reports that structural congruence, a measure of similarity composed of factors of technology, market, organization and people, has a direct relation to success of the venture. He, however, notes that to take a corporation into new markets, as often is the mission of a venture, by definition requires some incongruence. Thus there is a slight paradox, if corporations do use venturing with the aim to participate in new markets and as means to develop new capabilities, but venture market relatedness and utilising the parent’s existing capabilities are the main success factors for

(25)

25

venturing, how can ventures of this type ever be successful? This again highlights the multifaceted view on the purposes of venturing, and the argument by Keil et al. (2009), that the benefits from venturing may be nonfinancial, and thus the ventures should not be measured solely on their direct financial performance.

Furthermore, some scholars have found parent-venture relatedness not to be unconditionally supportive of venture success, but dependent on other contextual elements. For parent companies with no intangible assets for the venture to exploit, Sorrentino and Williams (1995) did not find any association between venture market familiarity and venture success.

Similarly, Garrett and Covin (2015) did not find market familiarity to generally have any impact on ICV performance, but only when the venture is in closely linked to the parent, allowing for knowledge transfer to occur and facilitate venture success.

2.2.3 Venture management capabilities and performance

While it is difficult to influence the amount of experience a company has in a certain market, what can be influenced through recruiting is the experience the venture’s managers themselves have. Venture management knowledge is another factor which has been subject to research in terms of its implications for venture success. This research has had a few approaches, including venture management’s experience in the focal market, general management experience, and their capability to learn.

Sykes (1986) studied the effect venture managers’ previous experience in the venture’s focal market has on the ventures’ financial success. Kuratko et al.

(2009, p. 466) defined a more elaborate dimension of venture knowledge adequacy: “The perceived size of the gap between what the venture’s management currently knows and what they believe they need to know regarding various aspects of the venture’s operations”, and also studied the

(26)

26

demonstrated abilities by venture managers to learn and apply knowledge in managing the venture. While Kuratko et al. (2009) lift the learning capability above the knowledge adequacy in importance, they find significant positive correlation between the factors and venture success and longevity, as did also Sykes (1986) for the previous experience and financial success.

According to Hill and Georgoulas (2016), general management skills have been shown to have a positive effect on venture success. Contrastingly, they also report that “medium-and high-level corporate managers were associated with worse ICV outcomes than managers who had previously worked in lower-level corporate jobs” (Hill & Georgoulas, 2016, p. 38), and highlight the importance of venture managers having expressed motivation to work on ICV instead of being appointed to that task by the corporation. Another finding suggests that ventures managed by the intrapreneurs who started them are more successful and innovative than those with a separately recruited manager (Hill & Georgoulas, 2016).

2.2.4 Venture evolution and performance

Ventures are, by definition, vehicles of new development for their parent corporations. Thus, as reported from the study by Kuratko et al. (2009) in the previous chapter, learning is a very important capability for them.

Learning in connection to ICVs has been studied by scholars for example in terms of learning proficiency (Covin et al., 2020), value proposition evolution (Covin et al., 2015) and initial strategic clarity (Kuratko et al., 2009).

Perhaps surprisingly, Kuratko et al. (2009) themselves report initial goal and value proposition clarity to significantly increase the probability of success for ventures, and evolution of both goals and value proposition to be negatively associated with venture performance. They note, however, that the direction of influence is unclear, as it is also possible that poor success causes evolution of goals and value proposal.

(27)

27

Still, if ICVs are used as vehicles for new capability development and exploration into unknown areas, it is not likely they have the knowledge and capabilities needed to choose suitable goals and value proposition at the start. Indeed, Covin et al. (2015, p. 761) remind how “the changes enacted will be aimed at better aligning the ICV's offerings with recognized market demand drivers”, and in a later study state how “parent corporations cannot be expected to possess all prior knowledge needed to consistently spawn and successfully develop these entrepreneurial initiatives” (Covin et al., 2020, p.

15).

Covin et al.’s (2015) research into value proposition evolution in ICVs had a more detailed approach and showed a U-shaped correlation between venture performance and the evolution. Contrary to Kuratko et al. (2009), the finding suggests that no value proposition evolution is associated with low performance. However, the results also show diminishing effectiveness for learning, as the performance is again shown to be low for the highest degree of value proposition evolution. As an avenue for future research the scholars suggest a phenomenon of learning by markets. As the returns of learning of markets diminish over time, more effective learning might occur by letting the product out on the market and finding the value proposition fit by learning with the customers.

Here again ventures benefit from any experience their parent company might have from the focal market, as that is shown to make the learning and value proposition evolution more effective (Covin et al., 2015). Covin et al. (2020, p. 16) explain how “having initial strategic clarity can promote the flow of knowledge into the venture by focusing attention on matters pertinent to the ventures' goals and strategies”. Companies engaging in venturing specifically for the purpose of expanding their capabilities into new areas might need to accept the fact that the ventures in themselves will not be as successful as

(28)

28

they would be in more familiar markets, but consider also the indirect benefits of acquiring new capabilities when managing those ventures.

2.3 Refocusing attention at the venturing unit level

Next, we will focus on factors which have an impact not only on single ventures, but also on higher level on venture portfolios, such as venturing units or venturing programs. They might apply also on the level of an individual venture, but their influence surpasses that and is applicable also to venturing programs as a whole. These include top management support, structural separation, experience effects and strategy work regarding venturing.

2.3.1 The impact of top management support on venture units

Corporate ventures, and especially those of the internal kind, are highly likely to be subject to upper management decision making at sooner or later in their lifetime. This is true especially in decisions of escalating activity into larger investments and broader market entry, events often seen as examples of success for a venture. Thus the phenomenon of top management support has received broad attention in venturing literature (Hill & Georgoulas, 2016).

In a broad study by Kuratko et al. (2009, p. 464), top management support was identified as “one of the strongest correlates of venturing success”. Hill and Georgoulas (2016, p. 36) also report that “in broad terms, top management support has been found to be important to ICV performance”.

They, however, also take a closer look into the nature of the support, noting that top management attention may also be harmful for venturing performance if it focuses on producing short-term results, as the ventures might be shut down before successes materialize. Thornhill and Amit (2001) similarly find active CEO support to be important for established, successful ventures, but CEO interference to be associated with less successful ones.

(29)

29

Furthermore, Waldkirch et al. (2021) also warn of an active top management involvement. While it may legitimize innovation and provide the necessary resources, it can also restrict entrepreneurial activities and redirect focus onto the status quo, hindering innovation.

Patience in regards to tangible results might be an important condition for effective top management support, but it is not sufficient in itself.

Makarevich (2017), after studying two venturing programs and the determinants of their success highlights two further aspects of top management support: decision-making power and broad involvement.

According to him the managers sponsoring the venturing program need to be in a place of high decision-making power to be able to provide the ventures with access to needed resources, the factor seen as one of the main parenting advantages of organizing venturing within the corporate boundaries.

Furthermore, a broad managerial involvement as opposed to singular management sponsor was seen as key to integrate the venture into the existing organization, to further ensure the access to resources and reduce the inherent risk of venturing.

Finally, Dodd (2004, p. 38) elaborates on the tasks of the managers supporting internal corporate venturing programs. He found it to be

“important for top management to set a strategic direction for the internal venturing group. The lack of such a strategy caused some venture groups to become confused about their goals, try to “do everything” and then fail.”

Furthermore, he argues top management should communicate their commitment to venturing publicly and encourage business units also to support the venturing initiatives to, again, ensure the ventures have an access to the internal resource base.

(30)

30

2.3.2 Should venturing units be structurally separated?

As already explained in sections on venture autonomy and relatedness, the way ventures can benefit from a parenting advantage include access to resources and intangible assets (Thornhill & Amit, 2001). Thus, a high degree of operational autonomy hinders the knowledge transfer between the venture and parent company, undermining the parenting advantage and hurting results especially when operating in market environments familiar to the parent company (Garrett & Covin, 2015). Thornhill and Amit (2001, p. 25) indeed report results showing that venturing “success is associated with high levels of awareness, commitment, and connection”.

Still, there is a large body of literature suggesting that structural separation is actually beneficial for venturing programs. Studies by Burgers et al. (2009) and Birkinshaw et al. (2002) report a positive impact for structural separation on venturing success. Hill and Georgoulas (2016, p. 35) even report as a result of a broad literature study that “in general, empirical research has indicated that structural separation has a positive impact on ICV performance”, and cite hostile systems and processes, bureaucracy, and several other procedural issues to be the reason for this.

However, it is unclear if the scholars finding structural separation beneficial have taken different management systems into account in the studies. It has been noted already decades ago that ventures need to be managed in a different way than existing mainstream businesses are (Burgelman, 1983a;

Kanter, 1985). This does not necessarily mean that the venturing program should be structurally separated and thus stripped of access to resources and parenting advantage. Kelley (2009) calls for corporate parents to structure the venturing programs in a way to maximize the ventures’ benefit from the parent’s resources but minimize the constraints the bureaucracy and inflexibility may bring.

(31)

31

Kelley (2009, p. 497) goes on to write that “despite rational arguments for separating innovative activity from the mainstream -- the literature also recognizes a number of problems associated with isolating this activity”, and adds how choosing an adequate structure can be dependent on many factors, and that, again, there is no single, universally correct model. Instead, what is constant, is “the need for maintaining the organizational connection” (Kelley, 2009, p. 497). Similarly, Makarevich (2017) calls for a strong involvement of the mainstream business units in ICV activities. The grounds for the strong difference between these scholars and those who advocate for the benefit of structural separation remain unclear and would call for further, more detailed research.

2.3.3 The role of the company’s previous experience in venturing

Some scholars have studied also the prevalence of experience effects, that is, whether the experience a firm has in corporate venturing affects the success of subsequent venturing attempts. Kuratko et al. (2009) found no indication of success-improving effect for neither the firm’s nor the venture managers’

previous experience in venturing. Macmillan et al. (1986, p. 177) also found the effect to be minimal at first, but reported venturing experience to improve later performance “after several venture attempts”.

Regardless of experience, Macmillan et al. (1986) note inabilities in planning for the ventures and providing adequate support to be prevalent obstacles for venture success. Thus, again, they call for different management systems to be designed for ventures as compared to mainstream businesses, with more flexibility in planning and new approaches to measuring success.

For companies wishing to gain experience with venturing, Macmillan et al.

(1986) lay out some recommendations. First of all, they identified joint ventures, i.e. activities taken together by two or more companies, to be more successful than traditional corporate ventures. Secondly, to manage the risk

(32)

32

and use resources wisely, they advise companies to start small, expect failures, use them consciously for learning, and be patient with success expectations. Thirdly, Macmillan et al. (1986) argue that the experience effects reside with the employees who have taken part in the unsuccessful ventures, and thus recommend to keep the same people on board. This is somewhat controversial, since in addition to Kuratko et al’s (2009) finding, also Hill and Georgoulas (2016) suggest venturing experience not to be important, and put more weight on general managerial skills, capability to learn as well as experience and knowledge related to the venture’s target market.

2.3.4 Current understanding on strategy work in venturing

As explained earlier in part 2.1.2., venturing can be used for a variety of purposes within a corporation. The possible strategic outcomes of venturing are often classified into explorative, exploitative and unintended lessons learned (Hill & Georgoulas, 2016). However, the strategy work that relates to articulating a purpose for the venturing unit and setting goals for it has received scarce attention in venturing literature.

Apart from Burgelman’s work in early 1980s (Burgelman, 1983a, 1983b, 1984a, 1984b), very little research has been done on the relationship of corporate strategy and venturing (Hill & Georgoulas, 2016). One later contribution is by Covin and Miles (2007) who studied whether and how companies use venturing strategically, and how they form the link between corporate strategy and venturing. They also however argue that “the effective integration of CV and organizational strategy is essential to the pursuit of innovation-based strategies -- Unfortunately, what precisely constitutes the effective integration of CV and organizational strategy—or, more specifically, what constitutes the strategic use of CV—is hard to define.” (Covin & Miles, 2007, p. 202), clearly calling for more research around the topic.

(33)

33

The importance of understanding the role of strategy work around venturing is high for managers wishing to run their venturing units effectively as well as for academics wanting to understand root causes of differences in venturing performance. As seen in the previous chapters, many factors influencing venturing success are very context-specific, with especially the dimensions of venture autonomy, venture relatedness, top management support and the structural separation of the venturing unit being highly impacted by the goals or the purpose set for the ventures.

The importance of a strategic direction and organizational fit is further highlighted by some studies. Kelley (2009, p. 498) argues that “the concern is -- about how managers can establish a clear strategic direction that is allowed to evolve as experience is gained”. Hill and Birkinshaw (2008) further highlight how no single venturing type performs the best, but the key to a top performance is a strong alignment and fit between the venture unit’s strategy and its organizational profile.

Biniari et al. (2015) offer some advice on how companies, based on their organizational contexts, should choose an operational logic for their venturing units. Their 8-part typology is based on an integrated resource dependence and institutional perspective, and calls for empirical validation.

Biniari et al. (2005, p. 351-352) note how the previous research has mainly focused on internal factors when studying the configurations of CV programs, and that “the question of how parent companies should approach CV to achieve higher performance -- continues to puzzle scholars and practitioners alike”.

2.4 Taking a microfoundations perspective

The currently existing literature on corporate venturing has mainly taken the top-down, deterministic perspective of assuming that the top management or venturing managers are capable to design and manage the units to be

(34)

34

successful by aligning the organizational design with the strategy of the unit.

In doing so, the literature has largely omitted the microfoundations perspective of what happens and who are involved when the strategy work is undertaken and when the strategy is deployed to the unit. Thus, it is indicated that the microfoundations of venturing are not currently properly understood. Recent studies (Felin et al., 2015) suggest that focusing on the microfoundations helps us unpack organizational concepts more holistically, thus motivating this thesis to take a microfoundations perspective to understand the role of strategy work in corporate venturing. The literature on microfoundations is reviewed briefly in this section.

Felin et al. (2015, p. 576) describe the main driver of the microfoundational research perspective to be “to unpack collective concepts to understand how individual-level factors impact organizations, how the interaction of individuals leads to emergent, collective, and organization-level outcomes and performance, and how relations between macro variables are mediated by micro actions and interactions”. They explain that the perspective is rooted in social sciences, where tensions have existed as to whether individual and collective level outcomes should be explained by factors on individual or collective levels.

The microfoundations perspective is not new to the organizational literature either. The early theories of the firm were microfoundational, but over time the emphasis has shifted increasingly to a more macro view, highlighting collective theories such as resource dependency and institutional theory (Felin et al., 2015). The microfoundational argument is not to say that the macro level views should not be involved into organizational theories. Felin et al. (2015, p. 582) highlight that “while including the collective and macro concepts in explanation is not problematic per se, it is of concern when it has come at the exclusion of individual-level considerations that in fact might be driving—or highly consequential for explaining—collective outcomes”.

Indeed, Zahra et al. (2020) argue that the micro and macro levels of analysis

(35)

35

should be integrated, as their interplay can be important but is often overlooked.

Thus, the goal here is not to argue that the microfoundations perspective would be superior to the more traditional, macro level of organizational analysis. But, since the literature for a long time has focused on a macro and top-down approach of resource dependency and institutional logics among others, incorporating the microfoundations perspective of analysis might be able to offer new insights into the topic. As Felin et al. (2015, p. 584) argue,

“there are significant opportunities to more carefully unpack how various macro factors (organizations, institutions, categories, and markets) originate and emerge as a result of micro factors and interactions”. Thus, this thesis will make an attempt to understand through the individual level the role strategy work has in successfully managing internal corporate venturing.

2.5 Synthesis of literature

What is evident based on the analysis of corporate venturing literature on both the venture and venturing unit level, is that no one size fits all. There is no universal best practice in terms of how internal corporate venturing programs should be managed to produce results effectively. A variety of scholars report contrasting findings on how to organize venturing in terms of venture autonomy, relatedness to core business, management capabilities and evolution over its lifetime, as well as top management support, structural separation, experience effects and strategy work regarding venturing units.

What emerges from the analysis thus is that how to manage internal corporate venturing effectively is highly context specific, and impacted by e.g.

the type of venturing, determined in terms of 1) structural autonomy, 2) degree of relatedness to existing business, 3) extent of innovation, and 4) nature of sponsorship. From another perspective, the goals, and the strategy the company has for the venturing unit have an impact on what kind of an

(36)

36

organization is the most effective. Hill and Birkinshaw (2008, p. 424) write that “the better aligned the elements of its strategic profile and (most importantly) the elements of its organizational profile, the better the performance of the venture unit, irrespective of its type”.

Thus, before deciding how the venturing unit should be managed, it is vital to design the venturing strategy. Hill and Birkinshaw (2008, p. 424) again highlight how it is important to ensure “that a venture unit has clear and consistent strategic objectives”. The literature around the strategy work aiming to make these decisions, however, is scarce. Covin and Miles (2007, p. 184) write how “while corporations are strongly advised to be strategic in their CV practice --, what they might do to heed this guidance is not entirely clear from the extant literature”.

Therefore, while the venturing scholars have studied and discovered the importance of clear strategy and goals for venture units, the existing literature is lacking a perspective of why and how companies may succeed or fail in the job of creating a fruitful environment for those venture units.

Especially the existing literature has taken a deterministic, top-down approach of assuming that the success of venture units is dependent on the ability of its management to make the correct choices in the organizational setup. By taking that assumption, the literature has omitted the microfoundations perspective of how individual-level factors and their interaction may play a significant role in the outcomes.

It appears that strategy work may influence the performance of venturing units, but its role has not been studied sufficiently. This gap in the understanding of how strategy and venturing link together motivates this thesis to study how and why strategy work matters in internal corporate venturing. Unpacking the role would help both scholars and practitioners understand how multidivisional companies can manage venturing units to effectively achieve the goals set in the strategy.

(37)

37

3 Methodology

The methods used in the empirical research of this study are presented in this chapter. First, the data collection process is presented, along with descriptions of the study context and interview participants. This is followed by description of the data analysis process, and finally a discussion on how the validity and reliability of the chosen research methods and thus the study findings was ensured.

3.1 Research design and methodology

Given the nature of the knowledge gap, it was evident it needs to be studied empirically, within a corporate venturing unit. The research process started by rough scoping of the topic and drafting an initial research question. As the aim of this thesis is to explore a novel angle not studied before, it is a type of theory building research, and suitable to be studied using an inductive case- study method (Eisenhardt, 1989). Furthermore, scholars argue that to study questions of why and how, a qualitative case study is an appropriate method choice, as it allows to trace processes as they have happened over time (Baxter and Jack, 2015; Yin, 2018). Thus, the chosen method to unpack the role of strategy work in internal corporate venturing is a qualitative single case study using inductive theory building research methods.

The main data collection method suitable for this type of research is semi- structured interviews, as they enable the researcher to immerse into the studied context through the interviewees’ eyes and language (Gioia et al., 2013). The interviews are run according to an interview guide, which is a living document, constantly updated to reflect the current understanding to best seek answers to the question at hand.

(38)

38

To empirically study the role of strategy work in incubation, I approached Corporation Alpha, a European energy company. I was familiar with their incubator team beforehand, and knew that it is a fairly new unit, with ongoing discussions on whether the results it has been able to produce are satisfactory and how the unit should be managed, thus making it an optimal context to unpack the dynamics of strategy work. Alpha was able to offer access to study the incubator team, including interviewing team members and key stakeholders and accessing key documents and events.

Alpha Corporation was founded in the mid-20^th century in Europe.

Historically a local oil refiner, it has in the last decades diversified into renewable fuels and materials and has invested significantly into a geographical expansion to be a global player operating on several continents.

The company employs more than 5000 people in more than 10 countries worldwide and operates several divisions with different kinds of fuels and materials businesses.

The incubator at Alpha is located in the Innovation function, works on transformative topics, and is mainly responsible for the internal corporate venturing activities within the company. The incubation work is since January 2022 mainly done in a project as a cooperation between the Incubator and a Foresight team. The foresight team provides future studies, scenario work and trend analysis to discover opportunities, and supports the incubation team in incubating and future-proofing the selected opportunities. The foresight work, however, is outside of the scope of the study.

3.2 Data collection

Based on initial familiarization with the most relevant literature and frequent discussions with the incubator manager on the team’s current status, an initial research question was drafted and an interview guide created. The goal

Unpacking the role of strategy work in internal corporate venturing