I received a great question from a reader of Grow From Within about the relationship of corporate entrepreneurship—that is, largely internal new business creation—to forming a subsidiary or spinning out a new business concept. “Can’t these be pursued within a firm together as a strategy? What is the impact of corporate entrepreneurship on the internal innovation dynamics of the firm?”
The short answer is that corporate entrepreneurship is part of a continuum, based on how different the new business is from the current core, as depicted in the figure. We think of it as falling between standard new product development on one side and a stand-alone acquisition on the other. Spin-outs/subsidiaries and external venture funds are closer to the acquisition side, while corporate entrepreneurship is closer to new product development.
The distinctions among each type of development approach depend on how many aspects of the business are changing. With new product development, one may just be adding a new product or process, while keeping the distribution, customers and most other business processes the same. With an acquisition where the acquired company is left to operate independently, just about everything about the new business may be different, except for some technical or market overlaps.
Corporate entrepreneurship and spin-outs/subsidiaries are somewhere in the middle. The use of one strategy versus the other pivots on whether the new business requires substantial leveraging of core corporate assets and capabilities in order to succeed. If it does, it should be kept internal and be managed as a corporate entrepreneurship effort. If the judgment is that new business will only thrive if separated more from core operations, then it should be spun out. But there is a large gray area in there.
We believe that large companies should develop a corporate entrepreneurship capability alongside other growth efforts, such as standard research and development and business development, venture funds, or an incubator. In fact, many of the well-defined corporate entrepreneurship efforts we studied grew out of a corporate venture fund or incubator activity. So, operationally, these kinds of efforts are close. The right management structure for any particular company will depend on its context, people and, most importantly, its objectives.
In particular, the “internal innovation dynamics of the firm” are key. Corporate entrepreneurship implementation requires careful and conscious change management. Firms starting up corporate entrepreneurship efforts should spend a substantial amount of time up front getting top executives comfortable with the idea, particularly those who could, if unhappy, throw sand in the gears. (We call it “neutralizing the naysayers.”) The corporate entrepreneurship should be positioned as a partner with existing growth engines of the company. This may take some time, but it is certain to take lots of communication.
