Roger Trapp: Corporate venturing: does it really pay off?

As the world - figuratively speaking - gets smaller, it seems inevitable that so

me of the biggest companies will get even bigger.
As the world - figuratively speaking - gets smaller, it seems inevitable that so
me of the biggest companies will get even bigger. Just look at Tesco, which prod
uced its latest staggering set of results earlier this month. And yet there is a
growing conviction that such companies can only continue this growth by devotin
g a certain amount of their time to thinking small.
This is why corporate venturing has taken off as an idea in recent years. Essent
ially, this enables executives in big companies to have their cake and eat it. I
n business parlance, corporate ventures create win-win situations because - by s
etting up fledgling business units within the group - they give companies the ad
vantages of smaller operations (speed, flexibility etc.) at the same time as enj
oying the parent's access to funding and other resources.
It sounds so straightforward that it is no wonder that all kinds of companies in
sectors as diverse as pharmaceuticals, banking and telecommunications have been
up to it in one way or another.
As Ian Bull, chief executive of BT Enterprise, the corporate venturing arm of BT
Retail, puts it, "We're using corporate venturing as a way of harnessing innova
tion." While stressing it is not the only way of doing this, he says it is "a ve
ry quick way".
Bull, who has previously worked in the start-up unit at Whitbread, the brewer-tu
rned-leisure business, says his unit (there are others in other parts of BT) has
started 14 ventures in the three years it has been taking the corporate venturi
ng approach and is now down to six or seven. A success rate of about 50 per cent
is about right for this sort of enterprise, he says, because it reflects the ri
sk of trying new ideas. A success rate much above 50 per cent suggests too much
caution, while one significantly below that figure reflects too much optimism, h
e says. The important thing is to stop a venture if you do not think you can mak
e a business out of it. On the other hand, once a venture reaches a certain poin
t it should become a standalone business.
One of the company's success stories is BT Redcare, which started out in fire an
d security and has been expanded into such areas as CCTV, monitoring and electro
nic tagging. At the end of last year it launched a vehicle security system aimed
at reducing car key crime and assisting in the recovery of stolen vehicles.
However, simple as the concept sounds, doubts over its true effectiveness are ra
ised in a book just published. The Growth Gamble by Andrew Campbell and Robert P
ark (Nicholas Brealey, ¡Ì20) argues that corporate venturing units do not generate n
ew growth, that most companies have few new opportunities that warrant investmen
t and that most companies spend too much on new businesses, not too little.
Never mind that the book - launched at the Growth and New Business Conference -
has attracted kind comments from Gary Hamel and Rosabeth Moss Kanter, two manage
ment gurus noted for urging companies to head in new directions. Campbell, a ren
owned expert on strategy at Ashridge, and Park, an independent consultant who is
an associate at the Ashridge Strategic Management Centre, will no doubt strike
a chord with executives struggling to satisfy the City's obsession with high gro
wth. For support for the view that low growth can work, they point to how Lou Ge
rstner turned around IBM through modest growth combined with aggressive share bu
ybacks. Whether this rather uninspiring approach will win over executives who lo
ve what the writer Michael Lewis called "the new new thing" is another matter.
What is perhaps more important is that what is missing from many corporate ventu
res are the people and the attitudes of start-ups. BT's Bull argues that housing
his 250-odd people (compared with BT's total of 90,000 in the UK) in separate o
ffices in Holborn and putting them on a different pay package goes some way to m
aking the unit more entrepreneurial. But it is difficult to feel that such peopl
e will have the same urgency and determination as those in a regular start-up wh
o feel they are putting everything on the line.
Similarly, their efforts can be undone by the attitudes and approach of their co
lleagues in the parent company. After all, customers are more likely to have con
tact with and be influenced by their views of this business.
The lesson for smaller businesses, then, is that, while big businesses might som
etimes be able to spot opportunities related to their existing businesses, they
will not always be opportunistic enough to benefit from them, nor - for all thei
r training and development programmes - necessarily effective at executing such
strategies. As many big businesses have found, it is much easier to grow when yo
u are small.