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© 2000 Corporate Executive Board

Corporate Strategy BoardExecutive Inquiry • January 2000

The New Venture DivisionAttributes of an Effective New BusinessIncubation Structure

� Role Clarity

� Senior Governance

� Comprehensive Idea Capture and Triage

� Venture Capital-Style Financing

� Independent Ventures

� Entrepreneurial Talent Pool

ii

Note to Members

This project was researched and written to fulfill the research request of several members of the Corporate Executive Board and as aresult may not satisfy the information needs of all member companies. The Corporate Executive Board encourages members who haveadditional questions about this topic to contact their research manager for further discussion. The views expressed herein bythird-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 upondata obtained from many sources, however, and the Corporate Strategy Board cannot guarantee the accuracy of the information or itsanalysis 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 suchservices are advised to consult an appropriate professional. Neither the Corporate Executive Board nor its programs are responsible forany claims or losses that may arise from any errors or omissions in their reports, whether caused by the Corporate Executive Board orits sources.

© 2000 Corporate Executive Board Catalog No.: 071-216-805

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

www.csb.executiveboard.com

Research Team

Steve BrockelmanJennifer Macauley

Martha PiperKaren TeohSeth Verry

Elizabeth Wharton

Creative Services

E.I. Publications SpecialistsJill Campbell

Jessie DalrympleLisa Goffredi

DirectorRobert G. Headrick

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

v

Markus LindqvistNokia Corporation

Norman LockingtonDofasco Inc.

Jim MackeyHewlett-Packard Company

Paul MarxCorning, Incorporated

Mark McKluskyNewry Associates

Harry SantamäkiNokia Corporation

Vince ShielyBriggs & Stratton Corporation

Dean SmithLion Nathan Ltd.

Steve SocolofLucent Technologies Inc.

Brian SternXerox Corporation

Brenda ValoisNortel Networks Corporation

Warren WatsonMedtronic, Inc.

Advisors to Our Work

The Corporate Strategy Board expresses its appreciation to all of the individuals andorganizations who have so generously contributed their time and expertise to our work. Theircontributions have been invaluable, and we extend our sincere thanks to all of these advisors:

Tuomo AlamäkiNokia Corporation

David BrennerAmway Corporation

Travis BrooksNEC USA, Inc.

Ranjan ChaudhuriSmithKline Beecham

Professor Hank ChesbroughHarvard Business School

Tom EdwardsAmway Corporation

Vince ForlenzaBecton Dickinson and Company

John GaitherBaxter International Inc.

Joanne HylandNortel Networks Corporation

Harumi KatoNEC USA, Inc.

Mark KnickrehmPaging Network, Inc.

David LaHoteEaton Corporation

vi

The Argument in Brief

Observation #1 For several decades, companies have experimented with different mandates forthe new venture division (NVD)—a separate operating unit under the corporateumbrella tasked with incubating new business opportunities; today, companiesare 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 14percent of new business launches, yet generate a disproportionate 61 percent ofprofits; in addition to this striking financial benefit, companies’ successfuldevelopment and commercialization of discontinuous innovations can providesignificant first-mover strategic advantage.

Observation #3 Unfortunately, large companies often struggle to realize these rewards due tocorporate resource allocation processes that favor improvement of existingbusinesses over discontinuous leaps; the NVD, however, can circumvent theparent company’s internal bureaucracy to provide a separate home forincubating and commercializing discontinuous new ventures.

Observation #4 To identify the key attributes of this new business incubation model, theCorporate Strategy Board has studied several contemporary NVDs and finds sixattributes most clearly associated with NVD success; Lucent Technologies’ NewVenture Group most thoroughly incorporates these attributes and serves as thecentral case example in this study.

Observation #5 Attribute I: Role Clarity—Historically, defining an appropriate role for the NVDhas represented an ongoing challenge because companies unrealistically haveexpected the division to revitalize innovation across the organization; to ensure aclear strategic scope, the NVD must determine appropriate performancemeasures to support its role and coordinate business development efforts withother corporate innovation centers.

Observation #6 Attribute II: Senior Governance—The NVD often struggles to secure essentialstrategic guidance and financial support due to the potential threat ofcannibalization and resource drain that new ventures pose to existing corporatebusinesses; establishing senior governance reinforces the NVD’s organizationalstatus and operational autonomy as well as facilitates venture access to neededcorporate resources.

vii

Observation #7 Attribute III: Comprehensive Idea Capture and Triage—Large companies oftenlack methods for cultivating and evaluating new business ideas and thereforemay struggle to achieve a consistent flow of viable ventures to the NVD; asuccessful NVD draws on multiple sources for new business concepts andestablishes a clear screening process to achieve comprehensive idea capture andtriage.

Observation #8 Attribute IV: Venture Capital-Style Financing—Large companies often arepoorly positioned to meet new ventures’ financing needs due to reliance oncalendar-based planning and dependence on inflexible investment approvalprocesses; the NVD must support promising ventures with staged funding linkedto 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 fromthe parent company’s extensive resources, large companies inexperienced inlaunching new businesses often fail to wean ventures from support services asthey mature; to benefit from company resources without compromising long-termventure independence, the NVD must adopt an incubation managementstructure that deliberately phases out support services to advance new ventureindependence over time.

Observation #10 Attribute VI: Entrepreneurial Talent Pool—The NVD faces significant challengesin attracting venture management due to the appeal—i.e., the potential financialand leadership opportunities—of the venture capital community; a successfulNVD capitalizes on its distinct value proposition by developing venturemanagement talent within the division, thus screening for individuals whopossess an entrepreneurial drive and required skills, but often lack provenexperience in the venture capital world.

1Report from the Front

Report from the Front

2 The New Venture Division


Strategists Rank New Business Developmentat the Top of the Corporate Agenda

Strategists’ Interest in Research Topics, 1999

Grade Point Average of Selected Topics

Source: Corporate Strategy Board member survey, 1999.

New business development has risen to the top of the strategist’s agenda as a result of thegrowth imperative of the 1990s.

New Business Development

Managing CorporateTransformation

Profiles of Best-in-ClassStrategy Departments

Planning InnovationsAround the World

The Service Migration

Leveraging the Information Quotient

Business Network Creation

External Monitoring

Responding to Disruptive Entrants

Corporate Venturing

Product Innovation Management

Knowledge Worker Productivity

0 2.0 4.0

66 percent ofsurveyedstrategists gradeNew BusinessDevelopment an“A,” placing it atthe top of 12strategic issues

1.80

2.18

2.21

2.32

2.43

2.42

2.51

2.53

2.62

2.65

2.72

3.20


Existing Products/Operating Platform

AdjacentOpportunitiesIncrease PrimaryMarket Demand

AdjacentOpportunitiesExploit Current Assets,Capabilities

ExistingMarkets

Discontinuous Opportunities Assume Two Forms

1) White space opportunities involve entering new industries, developing newtechnologies and marketing new products. Because they are not modifications of existingproduct lines, pursuit of white space opportunities often requires knowledge andcapabilities that the corporation does not currently possess.

2) Disruptive opportunities are new technologies or business models that constitute athreat to established business lines. Because these opportunities are frequently related to theorganization’s core business, senior management often considers existing business units thelogical home for their stewardship. However, this tendency risks neglect of disruptiveopportunities or even “drowning” by established businesses fearing cannibalization.

NewMarkets

New Products/Operating Platform

Status QuoGrow Market Share,Profits(considered businessexpansion, not newbusiness development)

DiscontinuousOpportunitiesCreate New Markets,New Products

Source: Joni, Saj-Nicole A., et al., “Innovations From the Inside,” ManagementReview (September 1997): 50; Corporate Strategy Board research.

Discontinuous opportunities occupy a distinct and challengingcorner of the new business development terrain…

The New Business Development Terrain

Within the terrain of new business development, and specifically new business incubation,discontinuous opportunities—innovations that move beyond existing business models tocreate new products and enter new markets—generate disproportionate wealth.

Discontinuous new businessopportunities prove uniquelychallenging because theytypically entail both creatingnew products and enteringnew markets


…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

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 FinancialOfficers, The Agile Enterprise: Frontier CFO Practice for Long-Term Value Creation, 1999: 23.

0

50

100

86%62%

39%

Type of NewBusiness Launch

Revenues Profits

14%

38%

61%Number of

New BusinessLaunches

DiscontinuousOpportunities

AdjacentOpportunities


Source: Working Council for Chief Financial Officers, The Agile Enterprise:Frontier CFO Practice for Long-Term Value Creation, 1999: 22.

The standard approach to resource allocation favorslow-risk, incremental investments…

Standard Investment Decision Screen*

Large companies, however, are often unable to realize the rewards of discontinuousopportunities; standard corporate resource allocation structures and management systemstypically favor incremental improvement of existing businesses over discontinuous leaps.

The Gauntlet

FUNDING DENIED

Funding of Low Risk,Incremental Opportunities

➤➤

Does asufficiently

large marketexist?

Does it payback quickly?

➤➤

➤

➤

➤

no

no

no

no

yes

yes

➤Business

Plan

FUNDING DENIED

FUNDING DENIED

FUNDING DENIED

yes

Is it low risk?

Does it have alogical home?

* Conceptual.


…as evidenced by Xerox’s efforts to commercializeinnovations developed in the 1970s

A Comparison of Two Commercialization Processes, 1972–1979

Source: Michael Hiltzik, Dealers of Lightning: Xerox PARC and theDawn of the Computer Age, New York: HarperCollins, 1999.

Does a sufficiently largemarket exist?

Does it pay back quickly?

Does it have a logical home?

Is it low risk?

• Established market for printers exists• Laser printer can be sold to existing

customer base

• No known consumer market forsingle-user computers exists

• Existing computer market based onshared usage due to technology sizeand expense

• Extensive R&D investment requiredto obtain PC functionality

• High-cost market experimentationrequired to identify customers,determine product configurations

• Ease of technology implementationand existing sales channels allowquick returns

• As an improvement on existingprinter technology, the laserprinter has a clear home inXerox’s printer division

• As an extension of currentcapabilities into existing markets,the laser printer representslow-risk opportunity

• Decision makers deem the PCspeculative and untested, a view thatcharacterizes corporate perception ofthe PC throughout the 1970s

• PC has no home within existingmanufacturing or sales structure

• PC poses threat to establishedtypewriter product line

Successful Commercialization:The Laser Printer

Investment ScreenCriteria

Laser printer technology advanced Xerox’sexisting printer product line and thereforecould be marketed through establisheddistribution channels. By the late 1970s,the laser printer emerged as one of thebest-selling products in Xerox’s history.

As a discontinuous innovation, Xerox’s PCrequired different manufacturing and salesprocesses targeted at a new customerbase, while threatening the company’sexisting typewriter sales. Xerox’s failure tocommercialize the PC effectively ceded thePC’s future wealth creation to IBM and Apple.

Unsuccessful Commercialization:The Personal Computer (PC)

Outcome

9A Closer Look

A Closer Look


To capitalize on discontinuous innovations that might otherwise be undermined byexisting businesses, many companies are establishing autonomous new venture divisions;NVDs are separate organizational units under the corporate umbrella tasked withincubating discontinuous opportunities from idea conceptualization throughcommercialization and final venture placement.

NVDs provide a separate home fordiscontinuous new business opportunities…

Organizational Characteristics of the NVD

The Need for Separation

“The search for innovation needs to be organizationally separate and outside of the ongoingmanagerial business. Innovative organizations realize that one cannot simultaneously create thenew and take care of what one already has….Innovative organizations, therefore, put the new intoseparate organizational components concerned with creation of the new.”

Peter DruckerManagement: Tasks, Responsibilities, Practices

Source: Chesbrough, Hank, “Corporate Venturing in the Shadow of Private Venture Capital: A Review of theAcademic Literature,” Working Paper, Harvard Business School, May 1999; Drucker, Peter, Management:Tasks, Responsibilities, Practices, Harper & Row: New York, 1974; Corporate Strategy Board research.

• A separate organization bypasses the internalbureaucracy of the parent company

• Division focuses on internal new businesspotential not currently addressed byparent company

• Division ownership and management controlremains with parent company

…and oversee the entire new venture incubationand commercialization process

New Venture Stages Managed by the NVD

I. OpportunityIdentificationNVD gathers potentialbusiness ideas fromnumerous sources, including:• Non-core R&D projects• New acquisitions• Unique leads from

employees• New technology

opportunities

II. MarketQualificationNVD designs new businessmodel and articulates valueproposition for targetmarket; key concerns include:• Strategic alignment with

corporation• Financial analysis• Preliminary staffing• Market entry

III. New BusinessCommercializationNVD manages marketpenetration and transition toself-sufficiency; key concernsinclude:• New product

development• Operational efficiency• Independence from

shared services

IV. ValueRealization (Exit)Senior-level corporateleaders determine mostlogical home for newbusiness; options include:• Corporate

reintegration• IPO or spin-off• Sale to external bidder

Company

OperatingUnit

OperatingUnit NVD Operating

UnitOperating

Unit

11A Closer Look

With variations among companies, NVDs combine aspects of traditional corporate newbusiness development with elements of the venture capital world; NVDs provide ventureswith a customized level of corporate sponsorship and support along with the flexibility andautonomy of an entrepreneurial environment.

Traditional Corporate NewBusiness Development

Objectives

Scale

Governance

Funding

Compensation

SuccessMeasures

Emphasis on planning,stable growth,adjacent and incrementalopportunities

Large-scale investments

Corporate, rule-oriented,traditional businesshierarchy

Corporate funding

Traditional corporatecompensationstructures

Revenues and profits

New VentureDivision Venture Capital

Emphasis on marketcapitalization, new businesscommercialization

Focused teams, limitedinvestments (<$20 millionto achieve success)

VC partnership, ventureboards, customizedto venture needs

Syndicate funding

Equity risk/rewardstructures

Return on investmentrealized through exit/sale

The NVD Model Blends Corporate BusinessDevelopment and Venture Capital

Characteristics of the NVD Compared with New Business Development and Venture Capital

Source: Burgelman, Robert A., and Leonard R. Sayles, Inside Corporate Innovation: Strategy, Structureand Managerial Skills, 1986; Lucent Technologies; Corporate Strategy Board research.


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 March1998); Xerox Corporation; Corporate Strategy Board research.

Companies across industries and geographies are incubating discontinuous businesseswithin NVDs; by providing an alternative to traditional corporate resource allocationprocesses, these companies are already experiencing internal venturing success.

Xerox Technology Enterprises (XTE)

Background

Objectives

Structure

Early Success

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 businessopportunities. In 1998, all such efforts were consolidated in XTE, a separate organizational unit within Xerox.

• Maximize the commercial options of Xerox technologies that fall beyond the scope of the corporation’sprimary businesses

• Maximize Xerox’s return on intellectual property through entrepreneurial ventures

XTE reports directly to the vice chairman of the board and chief financial officer, and comprises approximatelyfive core group members and 300 venture staff. Out of a pool of approximately 50 ideas considered annually,the division initiates four to five ventures.

Inxight Software, Inc.: Based in Palo Alto, CA, Inxight develops software components for analysisof information obtained via the Internet. The venture’s main products are VizControls and LinguistX, which aremarketed to software companies. Sample customers include Microsoft Corporation, Lotus Development Corporationand Hewlett-Packard Company.

Nokia Ventures Organization (NVO)

Background

Objectives

Structure

Nokia established NVO in 1998 to respond to two strategic needs: first, as the company’s established businessesgrew, its ability to sustain high growth rates began to plateau, leading company management to seek new sourcesof growth; second, senior executives became cognizant of an increasing number of ideas within the organizationthat lacked a conduit for development within existing businesses.

• Develop new solutions in the telecommunications and datacommunications arenas• Provide an outlet for ideas throughout the company that have no other logical home

NVO reports directly to Nokia’s chairman and CEO. A core group of approximately 50 individuals staffs ventureincubation process stages. NVO screens approximately 200 venture ideas annually.

Nokia Internet Communications: Nokia Internet Communications is the result of the successful developmentof three ventures within NVO, now combined as a single business unit under NVO. The new business unit comprisesNokia Wireless Business Communications, Nokia Wireless Software Solutions and Nokia IP Application andConnectivity Platforms.

Source: Nokia Corporation, “Nokia Ventures Organization,” http://www.nokia.com/inbrief/units/nvo.html (9 December 1999); “Nokiato Form Nokia Internet Communications Unit on Serving Corporate Customers and ISPs,” M2 Presswire (25 August 1999); NokiaCorporation; Corporate Strategy Board research.

Early Success

Profiles of Selected

13A Closer Look

Source: Ocean Essentials, “Ocean Essentials—Our Story,” http://www.oceanessentials.com (9 December 1999); “OceanEssentials.com Lets ConsumersTake Charge of Personal Health Management,” PR Newswire (1 September 1999); Amway Corporation; Corporate Strategy Board research.

Amway Business Ventures (ABV)

Background

Objectives

Structure

Amway began to experiment with internal structures for exploring new business ideas in the early 1980s. Theseprevious 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 establishedcorporate processes.

• Identify new audiences for the company through the development of innovative businesses• Incubate new sources of breakthrough growth over the long term

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 divisionstarts approximately four new ventures each year.

Ocean Essentials (OceanEssentials.com): As an Internet-based company that began selling products on-line inSeptember 1999, the venture researches and develops ocean-based supplements. Sample products include CartilageHealth, Balanced Health, Heart Health and Mother’s Health supplements.

Nortel Business Ventures (NBV)

Background

Objectives

Structure

Although Nortel possesses extensive experience incubating and spinning off start-up companies, until recently it pursuedsuch activities on an ad hoc basis. The company established NBV in 1996 to provide a home for these efforts, allowingthe company to capitalize on past learnings through the adoption of a centrally managed program.

• 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

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 initiatesapproximately four ventures.

ChannelWare: ChannelWare develops software activation products that enable consumers to pay for software on aper-use basis. In April 1999, the venture launched a pilot program with Blockbuster to allow rental of PC games. In July1999, 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.

Early Success

Early Success

* See Appendix, pages 41–43 for information on all NVDs studied for this research.

New Venture Divisions*


Study Format

The study is organized around the six attributes most commonly associated with NVDsuccess. Each attribute section includes the following:

• An overview that articulates the challenges that the attribute addressesand lists recommended practices

• Descriptions of Lucent NVG’s practices that support the attributes

• Supplementary information regarding approaches employed by othercorporate NVDs studied

Through the study of several contemporary NVDs, including company interviews and anextensive review of the literature, the Corporate Strategy Board has identified six attributesmost 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

#1: Establish Appropriate Division and Venture Performance Measures (p. 18)

#2: Coordinate with Corporate Innovation Efforts (p. 19)

#3: Establish a Direct Reporting Relationship to Senior Corporate Executives (p. 22)

#4: Designate a Functionally Diverse Executive Leadership Team (p. 23)

#5: Identify and Cultivate Multiple Idea Sources (p. 26)

#6: Implement a Clear Idea Screening Process (p. 27)

#7: Adopt Staged Funding Based on Predetermined Venture Objectives (p. 31)

I. Role Clarity (p. 17)

II. Senior Governance (p. 21)

III. Comprehensive IdeaCapture and Triage (p. 25)

IV. Venture Capital-StyleFinancing (p. 29)

V. Independent Ventures(p. 33)

VI. Entrepreneurial TalentPool (p. 37)

#10: Develop a Standing Pool of Potential Managers for Venture Placement (p. 38)

#8: Establish Venture Boards (p. 34)

#9: Facilitate Venture Transition to Independence (p. 35)

Attributes Recommended Practices

15Overview of the Study

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.

Lucent NVG Successes, 1996–1999

Stars Among the First Ten Ventures

NVG

Veridicom

SirosTechnologies

ElectroplatingChemicals and

ServicesVisual InsightsInferno

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 innovationcapabilities and increase its ability to move discontinuous technologies into themarketplace.

• 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 toincubate new ventures that bring innovations to market more quickly and to create anentrepreneurial 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.

elemedia• Software company that develops

and licenses platforms to Voiceover Internet Protocol applicationdevelopers and service providers

• In 1999, NVG sold elemedia toanother Lucent business unit

Lucent Digital Video (LDV)• Video communications company,

focused on manufacture, licensing andintegration of products for broadcasting,networking and conferencing

• In 1999, NVG sold LDV to Lucent’sOptical Networking Group

Global Cast

Lucent Public Safety Systems• Company provides integrated

solutions for emergency responseand data management

• Revenues in 1999 exceeded$60 million

Lucent DigitalRadio

17

Challenges Defining an appropriate role—i.e., determining the types of new businessopportunities to pursue and delineating the division’s relationship to thecorporation—presents an ongoing challenge for NVDs. Companies frequently turn tothe NVD in an effort to revitalize innovation across the organization, abandoning thestructure when it fails to deliver on this unrealistic promise.

Moreover, companies that do not clearly articulate the division’s relationshipto corporate strategy and other corporate innovation efforts can engender1) a reputation for the division as pursuing inessential projects, 2) an unfocusedventure selection process and 3) conflicts with other divisions regarding new businessdevelopment territory.

Today, companies have determined a more focused role for the NVD as a center for theincubation of discontinuous opportunities—i.e., new businesses that do not fit withinthe company’s strategic intent (white space businesses) or that threaten existing lines ofbusiness (disruptive businesses).

#1 Establish Appropriate Division and Venture Performance Measures

#2 Coordinate with Corporate Innovation Efforts

Attribute I

Role Clarity

RecommendedPractices

Proposition


Establish Appropriate Division and Venture Performance MeasuresTraditional corporate performance metrics are inappropriate for evaluatingventuring success due to the unique resource requirements and time horizonsaffecting returns on new business ventures; companies should adopt performancemetrics borrowed from the venture capital world, adapting them to fit particularcorporate and division objectives and adjusting them as needed when theNVD matures.

Lucent NVG’s Performance Measures Establish RealisticExpectations for Division Performance

Lucent NVG’s Performance Measures

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

Venture Performance:• Financial measures (revenue)• New product introductions• New customer acquisitions

Critical Success Factors:Include characteristics of group necessary for long-termsuccess, 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

Practice #1

Division Financial Measures:• Meeting annual P&L commitment to Lucent• Achieving ROI goals for portfolio of 20+ percent

New Investments:• 5 to 7 new ventures annually• 15 seed investments annually

Realizing Value:• Gains realized through exits and/or syndications

of ventures

Strategic Benefits to Lucent:Success measures focus on the value the group createsfor 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?

Source: Lucent Technologies; Corporate Strategy Board research.

Performance Measures at Start-Up Performance Measures After 2+ Years

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 focusedon building quality of NVG work, with Strategic Benefits to Lucent, focusing on NVGcontribution to Lucent’s strategic goals

19Role Clarity

Lucent NVG Coordinates with All Corporate InnovationEfforts to Leverage Resources and Prevent Redundancies

Lucent NVG’s Coordination Arrangements with Other Innovation Centers

Bell Labs (R&D)Primary Role: To research and develop new products forLucent’s main lines of businessCoordination 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

Practice #2

Coordinate with Corporate Innovation EffortsFailure to coordinate the NVD’s activities with other corporate and business-unitinnovation efforts can result in jurisdictional conflicts and redundancies;delineation of relationships among all innovation centers permits exploitation ofcomplementary activities across the company.

Nokia’s Approach

Established in 1997, Nokia Ventures Organization (NVO) has emerged as a centralcoordinating resource for organic new business development throughout the corporation,in addition to its primary role as an incubator of discontinuous businesses. Thus, NVO hascarved out a role as a valued corporate resource, rather than a potential competitor withother innovation functions. Specific NVO activities in this context include:

1) Serving as new business consultants to Nokia business units—The NVO brings newbusiness expertise to initiatives that will remain within existing business lines. The NVOassists 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 thediscussion of issues related to new business development throughout the corporation. Thegoal of the forum is to preempt potential conflicts and identify coordination opportunities.

New Ventures GroupPrimary Role: To incubate organicnew business opportunities that donot fit in existing lines of business orare promising new areas for Lucent

Coordination Activities: Maintainsongoing communication with allcompany innovation structures toensure cooperation and proactiveidentification of new businessopportunities via:• Technology review meetings

(quarterly)• Monthly portfolio update meeting

and newsletter• Ongoing, informal networking

and communication


Lucent Venture Partners (CVC)Primary Role: To identify and invest in new ventures/start-upsexternal to LucentCoordination Activities: Extensive in-person visits, telephone andE-mail contacts keep parties apprised of each other’s activities

Corporate and Business-Level New BusinessDevelopment (NBD)

Primary Role: To identify and develop new opportunities that fitwithin the company’s strategic business modelCoordination Activities: Ongoing, informal networking

Source: Nokia Corporation; Corporate Strategy Board research.

21

Challenges Existing corporate entities and processes pose a significant potential threat to NVDsurvival. Due to corporate perception that a successful NVD may drain resources fromor cannibalize existing business lines, companies often impede NVD operations in twoways. First, a company may subject the NVD to excessive operational interferenceresulting in insufficient division autonomy. Second, the company may subject theNVD to extreme neglect, resulting in a lack of essential financial and strategic support.

Proposition Establishment of appropriate division governance addresses constraints onentrepreneurial activity that traditional bureaucracies pose to internal venturinginitiatives. Specifically, an effective governance structure secures the following onbehalf of the NVD:

1) Organizational status necessary to sustain support of the division by facilitatingaccess to idea flow and resources

2) Operational autonomy to enable the division to implement distinctentrepreneurial practices and culture without interference from other businessunits or corporate functions

3) Financial support and strategic guidance to ensure division longevity

#3 Establish a Direct Reporting Relationship to Senior Corporate Executives

#4 Designate a Functionally Diverse Executive Leadership Team

Attribute II

Senior Governance



Lucent NVG’s High Profile Reporting StructureIs Central to the Group’s Success

Lucent NVG: Reporting Structure

Establish a Direct Reporting Relationship to Senior Corporate ExecutivesTo ensure organizational status, operational autonomy and financial support,companies should establish direct reporting to senior executives, preferably nomore than one level removed from the CEO or chairman.


Practice #3

OperatingDivision

OperatingDivision

OperatingDivision

OperatingDivision

Office of the Chairman

New Ventures Group

NVG Leadership Team

NVG Central Team

Venture Board Venture Board Venture BoardVenture Board

President

COOs (2),CSO, CFO

NVG president reports to the Office ofthe Chairman along with Lucent’s 10other operating divisions, ensuring thegroup’s organizational visibility,operational autonomy and access tocorporate resources

23Senior Governance

Identifying the NVD Leader

“The head of the [NVD] is critical. This full-time leader must be a proven and respected seniormanager who thoroughly understands the corporate culture and can operate effectively within therules and conventions of ongoing corporate systems. But equally important, he or she mustunderstand and appreciate the entrepreneurial philosophy of the [NVD] and be dedicated to theconcepts involved.”

Robert E. GeeUniversity of Minnesota

Source: Gee, Robert E., “Finding and Commercializing New Businesses,”Research & Technology Management (January–February 1994): 52.


Designate a Functionally Diverse Executive Leadership TeamBy securing cross-functional, executive-level participation in NVD leadership,companies provide the division and its ventures with vital strategic guidance, whilefurther building support for the division’s work within this key constituency.

Practice #4

A Diverse Executive Leadership Team SecuresLucent NVG Access to Strategic Support and Guidance

Lucent NVG Leadership Team


New Ventures GroupPresident

NVG Leadership Team

NVG Central Team

Team Composition:• Partners of Lucent NVG (3), chief

financial officer, human resourcesdirector, general counsel, publicrelations director

Portfolio Oversight:• Senior partners directly oversee the

venture portfolio through ventureboard participation

Managerial Assistance:• Functional members of the leadership

team assist with seed ventures untilformation of individual venturemanagement teams

VentureBoard

VentureBoard

VentureBoard

VentureBoard

25

Challenges Many large companies struggle to achieve a consistent flow of viable new venture ideasto the NVD and fail to systematically evaluate and direct those ideas to appropriateareas for development. An NVD that fails to draw on idea sources throughout thecompany risks missing new business opportunities, while those without a screeningmechanism risk being viewed as a catch-all for new business opportunities withoutregard to merit.

Proposition To ensure comprehensive idea capture and triage, NVDs are turning to the venturecapital world as a model of successful idea cultivation and evaluation. Much of theventure capital industry’s success is due to the sheer volume of venture ideas to whichventure capitalists maintain access and to the stringent triage process by which theyevaluate and identify viable new business opportunities. Although most NVDs will notbe able to replicate the volume of venture capitalist idea intake, NVDs can ensure acomprehensive idea capture and triage to support division and company objectives.

#5 Identify and Cultivate Multiple Idea Sources

#6 Implement a Clear Idea Screening Process

Attribute III

Comprehensive Idea Capture and Triage



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

Identify and Cultivate Multiple Idea SourcesSuccessful NVDs maintain multiple idea sources, best designated on acompany-by-company basis, in the interest of establishing a free market toensure consistent idea flow; regardless of the range of sources, the NVD shouldencourage dialogue regarding potential ventures by establishing low barriers forinitial consideration and providing assistance in early-stage cultivation.

Practice #5

A Sampling of Idea Sources from Other Companies

• Proactive NVD Initiatives—Ideas developed through a top-down process to leveragekey corporate competencies or to enter a predetermined market

• Business Units—New business ideas with potential that are languishing withinbusinesses due to low core business priority ascribed to them

• Research and Development—Innovations that do not fit within current businessesor markets and would otherwise remain undeveloped

• External Partnerships—Ideas accessed through relationships with institutions suchas university research centers, venture capital firms and informal business networks


NVG Idea Intake

The NVG accepts idea submissionsfrom any Lucent employee. Whileemployees can submit concepts viathe NVG’s Web site, they most ofteninitially communicate concepts viatelephone or E-mail.

The NVG frequently engagessubmitters of early-stage ideas indialogue to further develop theconcepts and address areas ofuncertainty.

Other

Bell Labs

30%70%

Bell Labs (R&D) provides majorityof idea flow to NVG

Additional Idea Sources:• Business units• NVG core team and

venture staff• Individuals throughout

company• External sources

(occasionally)

27Comprehensive Idea Capture and Triage

Implement a Clear Idea Screening ProcessThe idea screening mechanism should comprise two key elements: 1) triage processdirecting venture ideas that cannot be profitably pursued elsewhere in thecompany to the NVD; 2) evaluation criteria that provide a solid basis on which todetermine the benefits of pursuing a venture.

Practice #6

Source: Lucent Technologies; CorporateStrategy Board research.

Source: Nortel Networks Corporation; Corporate Strategy Board research.

Lucent NVG’s Screening Process Thoroughly Triages andDirects Ideas to the Appropriate Innovation Center

Lucent’s Commercialization Alternatives

Nortel’s Approach

Nortel’s Business Ventures Group (BVG) accepts ideas from throughout the corporation andalso employs a “scouting” approach to track down ideas that may be languishing elsewhere inthe firm but represent good investment opportunities.

During the initial period of operation, the group’s leaders found that although they werereceiving good ideas, submitting employees were frequently unfamiliar with how tocommunicate business concepts. To fill this knowledge gap and to increase companywideunderstanding of idea evaluation criteria, Nortel BVG developed a series of tools to assistemployees 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

New VenturesGroup

Business Group(Traditional NBD)

New Idea/Technology ➤

IntellectualProperty Division

Y

Y

Y

Reject/Shelve

Is there a licensingopportunity?

Does it fit Lucent’s strategicspace and business model?

1

3

N

N

Idea Evaluation: Identification ofDiscontinuous New Business

Opportunities• What is the market opportunity?

(How big is the market? How fastis it growing?)

• What differentiates the productidea and what makes it sustainable?

• Who will the customer be andhow will the product be sold?

• Does a committed team exist tosponsor the idea?

• Why does the idea not fit in anexisting business group?

N

Does the idea/technologyamount to a new businessopportunity?

2

29

Challenges Large companies typically are poorly positioned to meet the financing needs of newbusiness ventures. Investment in underperforming ventures often is continued inthe absence of rigorous merit evaluation because of large companies’ reliance oncalendar-based planning. In addition, dependence on cumbersome approvalprocesses hinders the flexible decision making necessary for successful venturemanagement. Corporations typically commit one or both of the following errors whenmanaging venture financing:

1) Bestowing too many resources on a new venture, thus underminingthe financial discipline the venture needs to grow

2) Failing to cut losses decisively based on signs of unsatisfactory ventureperformance, thus perpetuating the costly burden of the venture forthe NVD and company

Proposition In contrast to large companies’ traditional approach to financing decisions, theventure capital industry supports promising ventures with incremental fundinglinked to key outputs, while readily abandoning (or redirecting) ventures that failto meet development criteria. Large companies establishing an NVD can address keypitfalls in managing venture financing by adopting staged funding based on venturesatisfaction of investment objectives.

#7 Adopt Staged Funding Based on Predetermined Venture Objectives

Attribute IV

Venture Capital-Style Financing

RecommendedPractice

31Venture Capital-Style Financing

Lucent NVG’s Four Venture Development Stages TieFunding to Achievement of Key Objectives

An Overview of the Four Development Stages

Adopt Staged Funding Based on Predetermined Venture ObjectivesGiven the importance of a disciplined venture financing process, some NVDs haveadopted a venture capitalist framework for staged funding; staged funding, basedon the satisfaction of key venture objectives, allows the NVD to provide promisingventures with needed financing discipline, while retaining the ability to discontinueunderperforming ventures.

Practice #7


DevelopmentStage

TypicalInvestment

AverageTimeframe

RepresentativeObjectives

“Go/No-Go”Decision Makers

• Technical R&D• Market investigation• Business concept generation• Sponsorship determination

$10,000(staff time)

$300,000

$3–4 Million(first year)

NA

4–6 weeks

6–9 months

NA

3–5 years

• Product development• Customer testing/trials• Business plan formation• Business team formation

• Internal “acquisition”• Public sale (IPO)• Private sale• Close or liquidation

• Business structureestablishment (internal/external)

• Product commercialization• Market penetration and

growth

• NVG president• Another executive

• NVG president• COO• CSO• CFO as needed

• “Buyers”

• NVG president• COO• CSO• CFO as needed

Staged (incremental) funding, tied toexplicit objectives, submits venturesto investment discipline and reducesNVD risk exposure

Designated decision makers are empoweredto provide next-stage funding as soon asjustified, as well as to redirect or abrogateventures when necessary

IOpportunityIdentification

IIMarket Qualification

(Seed)

IIINew Business

Commercialization(Venture)

IVValue Realization

(Exit)

33

Challenges Large companies inexperienced in launching new businesses often fail to wean newventures from support as they mature. NVDs often struggle to balance initial venturedependence on the corporation for resources and support services with the ultimateobjective of venture independence.

Proposition NVDs possess significant advantages over private venture capitalists with respect toaccess to resources because of their location within large, established companies.Ventures incubated within a corporate NVD maintain access to a pool of businessknowledge and strategic guidance, as well as required support services. To reinforcethis large company advantage, successful NVDs adopt an incubation managementstructure that deliberately phases out support services to advance venture independenceover time.

#8 Establish Venture Boards

#9 Facilitate Venture Transition to Independence


Attribute V

Independent Ventures


Establish Venture BoardsMany NVDs have turned to the use of venture boards as a model for securingstrategic expertise for new business ventures; effective venture boards—typicallyincluding experienced business leaders from the industry, members of thecorporate executive team and additional sources of expertise as needed—provideoversight and improved access to resources and coaching.

Team Composition• Experienced industry leaders• Members of Lucent’s senior

executive team• Technology experts

Venture Board as Venture Protector

“A significant measure of protection from organizational politics and bureaucratic attack can beachieved by creating a board comprised of important internal and even external advisers whose taskis 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, theywill be in a position to overrule policies and procedures that may be obstructing the venture ordiscourage political moves against the venture management.”

Zenas Block and Ian C. MacMillanCorporate Venturing: Creating New Businesses Within the Firm

Practice #8


Source: Block, Zenas, and Ian C. MacMillan, Corporate Venturing: CreatingNew Businesses Within the Firm, Harvard Business School Press, 1993.

Boards typicallyinclude five membersand meet monthly

Lucent NVG Venture Boards Provide Advocacy,Ensuring Access to Required Resources

Lucent NVG’s Venture Boards

Venture Board Responsibilities

• Provide oversight and guidance to theventure

• Help build the management team

• Approve the business plan and hold theteam accountable for objectives

• Build strategic relationships

• Represent Lucent interests with respectto both potential leverage and conflict

• Assist with support requirements foradditional funding and exit or sales ofbusinesses

• Implement compensation policy for theventure

35Independent Ventures

“Tiered Transitioning” Fosters Venture Independenceat Each Incubation Stage

Lucent NVG Venture Incubation: Tiered Transitioning to Independence

Facilitate Venture Transition to IndependenceEarly-stage ventures typically do not maintain proprietary support services andmust rely on assistance from corporate functions; to ensure effective ventureincubation, companies must implement a structure to achieve smooth transitionof ventures from dependence to independence.

I.OpportunityIdentification

II.Market

Qualification

III.New Business

Commercialization

IV.Value

Realization

Managedby NVD

Complete Dependence

ManagedIndependently

Complete IndependenceTiered Transition

Modular systems support full independence fromNVD at exit stage; end-to-end financial andbusiness management solutions for each ventureintegrated with NVG using SAP software

Practice #9

The Outsourcing Option: An Alternative Approach

A number of the NVDs studied for this research are pursuing outsourcing as an alternative toarranging NVD access to corporate support services. Outsourcing of key services ensures quickerventure independence from corporate structures and processes, and avoids the risk of defaulting toentrenched 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 alinkage with the corporation rather than just book the needed services externally. NVDs shouldmake sure that if they are going to use the corporate bureaucracy, it’s because the internal resourcesperform better or more efficiently than alternative external sources.”

David BrennerSenior Vice President

Amway Business Ventures

Source: Amway Corporation; Corporate Strategy Board research.


Level ofIndependence

Development Stage

➤ ➤

Support services are phasedout over Stage III as venturesdevelop proprietary functions

Stage IVentures

Stage IIVentures

Stage IIIVentures

Stage IIIVentures

Stage IIIVentures

Support team within Lucent NVG provides shared/group services, including:• Public Relations • Legal• Human Resources • Finance/Accounting• Corporate Finance • Operations Management

Stage IVVentures

37Entrepreneurial Talent Pool

Challenges Companies pursuing internal venturing cite the entrepreneurial ability of the venturemanagement team as the most significant determinant of venture success. However,large companies that have not traditionally recruited from an entrepreneurial talentbase often encounter considerable obstacles in attracting and developing experiencedmanagement to the NVD. Specifically, NVDs seeking to identify venture managementtalent from within the corporation often find that individuals successful in a traditionalcorporate environment lack the skills required in a venturing environment.Furthermore, corporations sometimes find that they must compete for talent withventure capitalists and start-ups, which offer both financial and nonfinancialadvantages over NVDs.

Proposition Despite the apparent intractability of the problem, Corporate Strategy Board researchsuggests that the NVD provides a distinct value proposition that does not necessarilycompete directly with venture capitalists and start-ups. The division can develop talentinternally before determining venture management assignment, thus screening forindividuals who possess an entrepreneurial drive and the required skills, but may lackproven experience in the venture capital world.

#10 Develop a Standing Pool of Potential Managers for Venture Placement

Attribute VI

Entrepreneurial Talent Pool

RecommendedPractice


Dimension Traditional Large Company New Venture Division Bootstrap Start-Up

Financial Risk

Financial Gain

LeadershipOpportunity

Autonomy

Minimal to no risk

Develop a Standing Pool of Potential Managers for Venture PlacementRather than directly competing with venture capitalists for entrepreneurial talent,the NVD can attract individuals by leveraging the unique nature of the offer; byinitially incubating talent within the group, the NVD ensures a standing pool ofventure managers and can screen management candidates extensively.

Practice #10

…enticing them with Lucent NVG’s compelling offer

NVG Appeal: “Best of Both Worlds”

Employees need not risk personalsavings to develop new ideas;company provides needed resourcesfor initial development

No guarantee of venturesurvival; employees relinquishrights to benefits, retirementplans

With exception of stockownership plans, employeecompensation unlikely to betied to corporate performance;minimal upside

Employees may captureextraordinary financial windfallif new venture succeeds; in theinterim, may have to forgosalaries for months/years

Obtaining key leadershipopportunities generally requiressignificant time and careerinvestment to ascend corporateladder

Employees (even those with shorttenure) have equal opportunity tolead project teams, assume ownershipof key stages of incubation process

Employees often quickly assumekey leadership responsibilities

Authority concentrated in smallcadre of leaders near or at topof corporation; bureaucracytends to encumber decisionmaking

Employees pursue ideas at their owndiscretion, identifying particularopportunities in which to participate

Employees required to commitenergies across a wide range ofdisciplines; few middle andsenior managers available tolend guidance

Source: Corporate Leadership Council, Sui Generis Opportunities, Washington: TheCorporate Executive Board, 1996, 187; Corporate Strategy Board research.

• 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


Lucent targets candidates possessing a business development spirit…

Profile of Lucent NVG Target Candidates

Inclusion of equity- and/ormilestone-based compensation meansthat venture managers and employeeshave chance of significant financial gain

39Entrepreneurial Talent Pool

Lucent NVG Develops Candidates Internallyfor Eventual Venture Placement

Lucent’s “Entrepreneurs in Residence” Program

Source: Lucent Technologies; Corporate Strategy Board research.* Lucent NVG primarily recruits venture CEOs externally.

Entrepreneurs in Residence

Responsibilities: Entrepreneurs help to manage the venture creation processwithin their respective technology groups.Venture Placement: Individuals typically remain with the Core BusinessTeam for one to two years before being placed with a venture. Highlyindividualized criteria determine placement, depending on the entrepreneur’sskills and the venture portfolio’s current needs.Development: Training occurs primarily on the job, supplemented with formalcoaching as needed.


New Ventures GroupPresident

NVG Leadership Team

VentureBoard

VentureBoard

NVG Central Team:• Support Team• Core Business Team

Core Business Teamconstitutes the group’sEntrepreneurs inResidence—futuremembers of venturemanagement teams witha chance of becoming aventure CEO*

• Team of approximately 20 people• Organized into the five technology

groups into which most venturesare categorized

41Appendix

AppendixAn Overview of New Venture Divisions Studied


1 Aeroquip-Vickers was acquired by Eaton Corporation in 1999. The Business DevelopmentCenter is currently consolidating its activities with the Eaton Innovation Center.

2 Case disguised.

Appendix: An Overview of New Venture Divisions Studied

Aeroquip-Vickers1 Beta Company2

Incubate new businesses thatdo not fit in core businesses,i.e., bring new products orservices to new markets

Approximately 10

Vice President of BusinessDevelopment

High-potential employeeswithin the company

BDC: Stand-alone facility

1994

BDC has annual operatingbudget; ventures funded oncase-by-case basis

Business Development Center(BDC)

Beta Company NewVentures

1994

External recruitment

Corporate

Not available

Not available

1–4

5

Group has annualbudget; ventures fundedon case-by-case basis

NVD and Ventures:Corporate headquarters

Chief ExecutiveOfficer

Diversify the company,leveraging corecompetencies to improvelong-term growth

Approximately 35screened; approximately 12seriously considered

3–4

• Precision Spheres• Epsilon Coupling

Primarily corporatecompensation; supplementedby bonuses for successfulattainment of objectives

Amway Corporation

Name of NVD

Who GroupReports To

Size of Group(excludingventures)

StrategicObjectives

Source ofVenture CEOs

CompensationStructure

Location ofNVD/Ventures

Year Est’d

Funding of NVDand Ventures

Develop new audiences(customers and distributors) forcompany; identify and incubatenew business ideas

Approximately 15

Company owners

Core ANV team

Corporate

ANV and Ventures: Stand-alonefacilities

ANV maintains basic budget;ventures funded on case-by-casebasis

1998

Amway New Ventures (ANV)

No. of IdeasScreenedAnnually

No. of VenturesStarted Annually

Examples ofVenture

Thousands screened; 12–36seriously evaluated

Approximately 4

• Ocean Essentials

Company Size

Industry

Lucent Technologies Inc.

Develop opportunities that donot fit in core business;contribute to the advancementof innovation throughoutcompany

Core business team ofapproximately 20


External recruitment and thecore business team

Includes some equity-basedrewards

NVG: Corporate headquartersVentures: Separate

Operating budget andventure fund allocated byparent on annual basis

1997

Lucent New Ventures Group(NVG)

50–75

5–7 ventures; 15 seeds

• Lucent Digital Video• Lucent Public Safety Systems

TelecommunicationsManufacturingManufacturing Consumer Products

1999 Revenues: $1.1 billionEmployees: 8,000

1999 Revenues: $3 billion (est.)Employees: 10,000

1999 Revenues: $1–2billion; Employees: lessthan 10,000

1999 Revenues: $38 billionEmployees: 141,600

43Appendix

Source: Aeroquip-Vickers; Amway Corporation; Lucent Technologies Inc.;Nokia Corporation; Nortel Networks Corporation; Paging Network,Inc.; Xerox Corporation; Corporate Strategy Board research.

Xerox CorporationPagingNetwork, Inc.

Xerox TechnologyEnterprises (XTE)

VAST Solutions

1998

Maximize return fromcorporate base of intellectualproperty; foster creation ofemerging technology beyondscope of core businesses

Vice Chairman of Board/ChiefFinancial Officer

XTE: Corporate headquartersVentures: Separate

Approximately 50

4–5

• Inxight• Document Sciences• Documentum

4–5 core staff; 300 includingventures

External recruitment

Compensation tied to overallgroup performance; ventureemployees retain some equity

Operating and venture fundallocated by parent on annualbasis

1999

Incubate emerging marketopportunities in wirelesstechnology using network andpeople assets of pagingbusiness; establish basis forcompany’s long-term growth

Chief Executive Officerand Chief Financial Officer

VAST & Ventures: Stand-alonefacility

Not available

150 including venture staff

Not available

• VAST Wireless Solutions• VAST Gateway• VAST On-line

Not available

Internal and external hiresfill SVP and VP roles forproject areas

Noncorporate package withhigher risks and rewards basedon milestones; currentlyconsidering equity-based reward

NokiaCorporation

Nortel NetworksCorporation

Develop new growth avenuesby establishing sustainablebusinesses that do not fit withcore businesses; provideavenues for development oflatent ideas

Approximately 50

Chairman and ChiefExecutive Officer

Initially internal; currentlyincluding external searches

Corporate, but contemplatingequity risk

NVO: Proximate to corporateheadquartersVentures: Separate

NVO has annual budget foroperations and ventures

1998

Pursue opportunitiesbeyond core businesseswith potential toexecute spin–off

Approximately 20

SVP, Business Developmentand Venturing

Largely external;occasionally recruitinternally

Initially, milestone-basedbonuses; currently movingto equity risk

BVG has annual operatingbudget; ventures fundedcase-by-case

1996

Nokia Ventures Organization(NVO)

Nortel Business VenturesGroup (BVG)

Approximately 200 screened;tens developed further

Not available

• Nokia InternetCommunications

BVG and Ventures: Withina strategic business unit

150

• ChannelWare

Approximately 4

Information TechnologyTelecommunicationsTelecommunicationsTelecommunications





Name of NVD

Who GroupReports To

Size of Group(excludingventures)

StrategicObjectives

Source ofVenture CEOs

CompensationStructure

Location ofNVD/Ventures

Year Est’d

Funding of NVDand Ventures

No. of IdeasScreenedAnnually

No. of VenturesStarted Annually

Examples ofVenture

Company Size

Industry


Bibliography

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Clayton, James, Bradley Gambill and Douglas Harned. “The Curse of Too Much Capital: Building NewBusinesses in Large Corporations.” The McKinsey Quarterly (1 January 1999).

Gee, Robert E. “Finding and Commercializing New Businesses.” Research & Technology Management(January–February 1994).

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Books

Block, Zenas, and Ian C. MacMillan. Corporate Venturing: Creating New Businesses Within the Firm.Cambridge: Harvard Business School Press, 1993.

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Corporate Executive Board Publications

Corporate Leadership Council. The Evolution of Benefits from Start-Ups to Mature Companies. Washington,D.C.: The Advisory Board Company, June 1998.

Corporate Leadership Council. Developing and Launching New Business Ventures. Washington, D.C.: TheAdvisory Board Company, March 1998.

Corporate Leadership Council. Human Resources’ Contribution to New Business Ventures. Washington,D.C.: The Advisory Board Company, May 1997.

Corporate Leadership Council. Compelling Careers: Workforce Management Structures of the New “Employersof Choice.” Washington D.C.: The Advisory Board Company, 1996.

Corporate Strategy Board. Member Survey. Corporate Executive Board, 1999.

Corporate Strategy Board. Crafting a Successful Acquisitive Growth Strategy. Washington, D.C.: CorporateExecutive Board, March 1999.

Corporate Strategy Board. Corporate Venturing: Sowing the Seeds for Future Growth. Washington D.C.: TheAdvisory Board Company, 1998.

Corporate Strategy Board. Stall Points: Barriers to Growth for the Large Corporate Enterprise. Washington,D.C.: The Advisory Board Company, 1998.

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Working Council for Chief Financial Officers. The Agile Enterprise: Frontier of CFO Practice for Long-TermValue Creation. Washington, D.C.: Corporate Executive Board, 1999.

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