According to new research from global management consulting firm and leading advisor on business strategy The Boston Consulting Group (BCG), corporate venture investing has become a meaningful instrument for getting access to innovations, discovering technologies, and addressing new markets.
The research, part of a new BCG report,”Corporate Venturing Shifts Gears: How the Largest Companies Apply a Broad Set of Tools to Speed Innovation“, says that 40% of the 30 largest companies by market capitalization in each of seven innovation-intensive industries (automotive, chemical, consumer goods, financial services, media and publishing, technology, and telecommunications)- and 57% of the top 10 — are engaged in corporate venture capital (CVC) investing.
While CVC has spread across the corporate landscape, the related activities have also grown. In addition to minority equity investments, companies have launched accelerators and incubators, innovation labs, organized events, such as hackathons, startup competitions, and scouting missions to university research facilities. accelerators and incubators are the most popular among the new tools (in use at 44% of the top 30 companies) while one out of five of them operate an innovation lab.
A deep study of the top 30 companies in the above mentioned seven innovation-intensive industries reveals how the tools and search fields favored by companies vary depending upon their industry. Chemical, media, and technology companies, for example, search for innovation in their core businesses mainly using CVC. Telecommunications companies focus on core-business innovation and adjacencies using a combination of CVC and accelerators or incubators. Financial services, automotive, and consumer goods companies use mostly accelerators and incubators to search for innovations in adjacent industries.
The research identifies three factors that are critical to an effective innovation strategy. These factors apply regardless of industry or region.
– Choosing an appropriate CVC model
– Forming accelerator and incubator partnerships
– Designing customer-centric innovation labs that speed time to market.
Choosing an Appropriate CVC Model
CVC in its nascent years was mainly invested to produce financial returns. After 2000, the focus shifted to accomplishing strategic objectives. In the past few years, CVC investing has further evolved into four distinct models:
– The strategically oriented corporate-led model
– The strategically oriented business-unit-led model
– The financially oriented corporate-led model
– The financially oriented independent model
The first two models have primarily strategic objectives, but they differ in three important respects: the unit responsible for defining the search fields, the objectives for the CVC, and the preferred approach to value creation. In contrast to the strategically oriented CVC models, the other two models focus on financially oriented objectives.
The value of CVC investments in software by the top 30 companies now surpasses the value of their investments in all other target industries combined. The value of investments in software startups has risen 24 percentage points, from 28% between 2010 and 2012 to 52% between 2013 and 2015.
Forming Accelerator and Incubator Partnerships
The current environment is marked by an increase in the use of partnership-led accelerators and incubators. In 2010, only two of the existing accelerators and incubators in the top 30 companies were partnerships, compared with one-third in 2015. Companies see these tools as the preferred means of engaging with a greater number and wider array of startups.
Successful accelerators and incubators typically form partnerships with venturing operations from other corporations or team up with an independent accelerator or incubator. Such partnerships enable companies to reach critical mass in their venturing activities and gain access to a greater number of high-quality startups than they could on their own.
Designing Customer-Centric Innovation Labs That Speed Time to Market
Corporations increasingly use innovation labs to accelerate the time to market of internal innovations. These labs are in-house units designed to complement conventional R&D and often interact closely with the outside entrepreneurial world. They take a customer-centric approach to innovation. In effect, such labs present an attempt to operate as in-house startups with all the speed and agility that characterize them.