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

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The Independent Online

As the world - figuratively speaking - gets smaller, it seems inevitable that some of the biggest companies will get even bigger.

As the world - figuratively speaking - gets smaller, it seems inevitable that some of the biggest companies will get even bigger. Just look at Tesco, which produced 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 devoting a certain amount of their time to thinking small.

This is why corporate venturing has taken off as an idea in recent years. Essentially, this enables executives in big companies to have their cake and eat it. In business parlance, corporate ventures create win-win situations because - by setting up fledgling business units within the group - they give companies the advantages of smaller operations (speed, flexibility etc.) at the same time as enjoying 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 innovation." While stressing it is not the only way of doing this, he says it is "a very quick way".

Bull, who has previously worked in the start-up unit at Whitbread, the brewer-turned-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 venturing 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 risk 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, he says. The important thing is to stop a venture if you do not think you can make a business out of it. On the other hand, once a venture reaches a certain point it should become a standalone business.

One of the company's success stories is BT Redcare, which started out in fire and security and has been expanded into such areas as CCTV, monitoring and electronic 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 raised in a book just published. The Growth Gamble by Andrew Campbell and Robert Park (Nicholas Brealey, £20) argues that corporate venturing units do not generate new growth, that most companies have few new opportunities that warrant investment 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 management gurus noted for urging companies to head in new directions. Campbell, a renowned 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 growth. For support for the view that low growth can work, they point to how Lou Gerstner turned around IBM through modest growth combined with aggressive share buybacks. Whether this rather uninspiring approach will win over executives who love 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 ventures 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 offices in Holborn and putting them on a different pay package goes some way to making the unit more entrepreneurial. But it is difficult to feel that such people will have the same urgency and determination as those in a regular start-up who feel they are putting everything on the line.

Similarly, their efforts can be undone by the attitudes and approach of their colleagues in the parent company. After all, customers are more likely to have contact with and be influenced by their views of this business.

The lesson for smaller businesses, then, is that, while big businesses might sometimes be able to spot opportunities related to their existing businesses, they will not always be opportunistic enough to benefit from them, nor - for all their training and development programmes - necessarily effective at executing such strategies. As many big businesses have found, it is much easier to grow when you are small.

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