The 1988 Annual Report says, "The New Enterprises organizations' charter is to enter completely new businesses in emerging high growth, high technology arenas." The appearance of this statement in the Annual Report dramatizes the importance of a charter but, by no means, signifies the strategic intent. We could not find a comprehensive strategy, and so, we assumed that none exists. Without a clear strategy, Mne's direction, legitimacy, and viability can always be called into question, both inside and outside of M.

Strategic Renewal is a need widely recognized by the senior management of M and forcefully fostered by Bob Galvin. However, we found no clear connection between Mcorp's overall strategy and Mne's purpose. The condition of a forceful mentor and a strategy disconnect has been correlated with the demise of corporate venturing elsewhere. This can, and often does, pre-empt the actualization of investments because of the lapse in long term support.

The absence of a strategy and management process and some other basics were mentioned in the interviews. Specifically, it was mentioned more than once that Mne lacked a crisp statement of its strategy, a thought out plan, and the discipline to adhere to them. This is a constructive criticism with the obvious invitation to be turned around. Barring the installation of these basics, however, reduced support is to be the expected consequence.

As a substitute for a strategy, financial criteria for investing and the overall performance of Mne were promulgated. These criteria served as operational guidelines and as vehicles to demonstrate the direction and legitimacy of Mne. Some of the criteria were indeed helpful, for example: a) focus on software, electronics, and factory automation, b) total initial investment of less than $6 million in any one venture, c) investment limited to ventures in emerging markets growing faster than 50% per year and of total size between $50 million and $200 million. Other criteria hurt Mne's credibility, such as: a) aggregate venture sales of $1 billion in 10 years, b) very profitable industry (i.e., attractive) where acquisition can be made at a low level of investment (i.e., cheap), and c) large  experienced  (and emerging?) companies not participating despite high margins. The presence of unachievable and mutually inconsistent objectives undermines Mne's credibility.

New venture arms in large corporations are created as separate entities to provide: a) a center of responsibility focused on growth by venturing, b) appropriate organizational climate and structure to foster emerging businesses, and c) insulation from the dominant values, concerns, norms and bureaucracy of the maturer businesses.

The root cause for separating large corporations' main line businesses from corporate venturing is  corporate asymmetry." That is, the differences between emerging ventures and established divisions are so stark with respect to predictability, planning, funding, evaluation, objectives, time frames, structure, administration, and culture as to cry out for them to be managed separately until the "emerging" becomes "established."

A chemical company's venture arm established a venture strategy in the absence of an overall corporate strategy and got tacit approval and recurring vacillation. The activity was then viewed as out in left field and later as an elitist clandestine operation. When the parent company's president retired, the venture arm was disbanded.

DuPont changed its strategy from diversification to consolidation around 1970. The corporate venturing did not change its strategy (it could have begun investing in start-ups exploiting advanced technology in its main line markets, for example) which is why it lost support and was nearly disbanded. Unrealistically short time spans and large sales expectations also undermined support for DuPont's corporate venturing.

"After we painfully learned that ventures might take 15 years to pay off, we adopted the practice of making ventures self-supporting early on. Furthermore, we withhold making large investments until both market acceptance and financial return have been demonstrated," according to the Development Controller of DuPont.

Mcorp and Mops review, at least quarterly, division by division earnings performance. This is an inappropriate and counter-productive basis on which to portray Mne. Inappropriate because Mne's ventures are emerging and almost by definition are losing money, but creating shareholder value. Counter-productive because support for Mne is undermined.

Mne has not exploited Dan Noble Fellows nor the M Science Advisory Board members to get leveraged relationships and networking mileage. These and some additional formally and informally recognized individuals could be "magnets" for ideas and, potentially, deal flow and "intelligence" from within the network of M employees everywhere.

Mne has had numerous instances of good relationships with Mops, particularly APRDL and the Semiconductor division. In the past, there has been some serious strains due to heavy-handed pressure, overstated claims by Mne about ventures' products, and the perception that Mops could make much better use of investment funds. The continuation of good relations with Mops is vital to Mne's ability to leverage Mops' World Class technical capabilities. This is an important comparative advantage of Mne ventures over venture capital backed ventures.

Mne doesn't have the time to cultivate relationships inside Mops because Mne is understaffed. Consequently, one of the vital resources of Mne, namely leveraging Mops' talent and know-how, is languishing.

Mne relationships with venture capitalists is non-existent. This can be explained by: +a) Mne has no option for shared ownership, b) Mne has no framework or basis for a relationship, and c) Mne does not have a clear venture strategy for them to relate to. By not establishing links with the venture capital community, Mne is foregoing one of the best sources of deal flow, talent and assessment.

Kodak populates each geographic location with a trained "facilitator" who is available to package ideas from within Kodak's operations for funding by Kodak's New Opportunity Division. Furthermore, on a systematic basis, ideas for businesses unrelated to existing businesses which are rejected by line divisions are reviewed by the New Opportunity Division.

One chemical company's corporate venturing operation engendered the following attitudes: a) "another mouth to feed," i.e., a competitor for capital, b) "hot area," i.e., its limelight generated unrealistic expectations and jealousy, c) "the brightest young people in the company," i.e., line operations are inferior, and d) not surprisingly, it had very little grass roots support. Consequently, the corporate venturing arm received virtually no line cooperation which prevented its ultimate success.

Ralston Purina corporate venturing exploited an extensive network of contacts in the corporate R&D organization. This effective networking was an outgrowth of previous associations of the corporate venturing leader.

Business cases indicate that a crisis of relationships occurs when the venture arm experiences disappointments which, in turn, discourages relationships out of concern for being tainted. On the other hand, repeated successes by the venture arm raises the spectre of a potential, threatening competitor (of the line operations) for talent and resources, also resulting in a deterioration, and even crisis, in relationships.

Three mechanisms have been cited to improve relations between corporate venturing arms and corporate operations. They are: a) a prestigious "Resource Board" composed of talented operating personnel, b) reducing the elitist status associated with corporate venturing, and c) reduction of lavish levels of funding, (e.g., in one instance, from hundreds of millions per year to tens of millions per year).

Relationships are vital for intelligence gathering regarding deals, talent, competitors, substitutes, technology, and events. The more key sources you are in touch with, the better your chances of success.

1. Stop the practice of posting Mne investments as M losses. (E)
   
   
2. Get Mcorp okay to do deals with venture capitalists, then draw up a strategy to share in deal flow, joint investing, technology transfer, and deferred buy-out (of marginal performers who might be good performers with M know-how). (E)*
   
   
3. Foster interaction with Noble Fellows and other "Idea Magnets" within M. (W)*
   
   
4. Communicate Mne benefits to Mops such as funding of pivotal technology development and/or transfer, participation on Mne ventures' board, or "spin-in" of Mne ventures to Mops unit. (W)
   
   
5. Publicize and reward M who help Mne ventures. (W)
   
   
6. Adopt higher M profile so that Mne does not become detached and alienated, but avoid "consensus" style for Mne venture decisions. (W)
   
   
7. Create Technology Advisory board consisting of international luminaries (and be prepared to treat them handsomely) drawn from academia, the trade press, industry and within M to create (talent, research, and investment) leads, vision, informed screening, and excitement. (W)*
   
   

The arena (or cluster) concept for corporate venturing proposes that a group of ventures be started or acquired, each of which is in a field related to one or more of the others. The relationship could be based upon complementary technologies or markets. Because of the relationship, each venture can benefit from the complementary capabilities of the others through cooperation on technical and/or marketing issues.

The arena concept began with expectations of concentrated competency within prescribed venture investment areas. Later, this concept was further leveraged as a facilitator of transfers between ventures, cooperation between people in corresponding functions (of different ventures within the same arena), and sharing of technical platforms among ventures. The transfers did not take into account "aculturation" issues which delay the effectiveness of transfers. The co-operation simply did not materialize because venture staffs did not have the time. The sharing of platforms was a disaster because it was imposed forcefully on the ventures and, because it was not "solid," it jeopardized the venture

The arenas are: a) health care systems, b) factory automation, and c) semi-conductor fabrication equipment. Health care systems and factory automation were chosen because they both are emerging markets where mobile communications can yield a competitive advantage. Semiconductor fabrication equipment, on the other hand, was chosen for corporate strategic reasons and not for reasons rigorously tied to Mne's charter. The result is Mne is somewhat tainted as a refuge from tough business practice and not focused on "discontinuous renewal."

The "arena" concept is almost universally applied by venture capital firms. Applied to the venture's funding organization it has conspicuous benefits. For example, the management supervising the overall venture program can build a background of knowledge about a selected business arena thereby improving their awareness of new opportunities and their judgment about competitive developments and trends. Given time and patience, it also allows the testing and development of new managers, and the maturation of ventures, one of which may in the future become the core around which to form an integrated, consolidated new business division.

However, applied outside the funding organization, that is, between ventures within an arena, and the theoretical synergies get overridden by the empirical realities. Those empirical realities were experienced when Exxon Enterprises tried to merge several of its ventures within an arena. The resulting experience has been categorized as being caused by "technology mis-match" and "rampant individualism."

Technology mis-match can occur for two reasons. The technology development stage of venture "A" may not match the needs of the proposed user, venture "B", or "A's" technology may not be optimum for "B" compared to a competitive technology available from a competitor to "A." Forcing "B" to use "A's" technology can delay "B's" product introduction, or, worse, cause it to be non-competitive. Meanwhile "A" is under a lot of pressure to meet "B's" needs, which may not be the optimum market for "A" to initially target. Consequently, both ventures suffer.

Rampant individualism is a more complex problem to diagnose and deal with. It results in a venture's management putting their venture first versus the over-all good of the arena. This behavior is fostered by the entrepreneurial environment most venture programs try to create, namely, autonomy and all-out effort to make the venture successful by the most expeditious means available. Cooperation and subordination to the needs of the whole is a corporate behavior. The only cooperation of interest to the entrepreneur is a relationship that will move the venture faster and surer to its goal. The odds are that the optimum relationship for the venture will be with an outsider who has exactly what it needs when it needs it.

M has had success with informal corporate venturing which resulted into its semi-conductor and cellular phone successes. One was technology driven, the other was market driven. Both were based on outside technology (from Bell Labs), both had long gestation periods (10 to 20 years), and both took over 10 years (even after gestation) to become $1 billion businesses. Finally, both were related to the Mobile Radio business and had the personal support of the Galvins.

1. Study previous M strategic renewal successes and failures for the underlying critical factors, some of which are bound to be unique to M. (W)*
   
   
2. Unify Mne arenas under a single, sustaining theme (such as, ready communications for a better quality of life) and shed any venture which doesn't fit (because it will take up management mind space). (W)*
   
   
3. Organize for arenas (specific overall organization recommendation is in Chapter III Section A.3) by hiring expertise in each arena suitable to be a Partner/Gatekeeper. (E)*
   
   
4. Inquire of the ventures within an arena what relationships they would like Mne to foster, and inquire among all the key people of a function (such as manufacturing) how Mne might foster relationships they want among themselves, Mops, customers, vendors, academia, etc. (W)