Digital Transformation Accelerates the need for Innovation
The traditional mix of innovation (In-house, IPR licensing, M&A, Partnerships & JV) needs to be complemented with the renaissance of Corporate Venturing given some of the characteristics of the digital transformation that industries are suffering (or/and enjoying):
- speed: technology cycles of the digital technologies applied to the transformation of business processes and models are shorter and shorter,
- exogenous and cross-disciplinary: It ain't happen here, not even in the same industry. Telco is a perfect example of that: while industries, i.e. banking (digital banking), are looking into the application of telco/IT enabled digital technologies, telco industry is struggling to get a piece of the cake, and
- uncertainty: paraphrasing, all that it can be digitalised, it will be digitalised. And what we don't think that it can be digitalised, it will also be digitalised.
Now, those characteristics make innovation management like shooting at clay: the target is out there, yet do you know where is coming from and the only way to hit the clay is by aiming ahead of the target. Therefore Corporate Venturing is specially well suited to walk over the digital transformation chasm. Corporate Venturing allows you to identify the target ahead, handle investment risks and spread your shots (remember that you don't need too much to bullseye a clay).
What is the problem then? One of the challenges is that traditional CV tends to focus on financial objectives with a loose link to operational integration.
However, successful CV as a mechanism to support digital transformation needs to add to the financial investment objectives (i.e. RoI, RoCE...), the one of driving advances of the current business, tightly linked to Operational capabilities (while avoiding the potential risk of suffocating the startup in the corporate world).
Then, some considerations to the traditional VC are specially important:
- Strategic Direction and Governance: The investment case is not only related to the direct yield of the investment exit, but also to the impact of the integration/application of the competencies of the investment object in the operations of the investing company. Systematical nursing and followed up of the operational impact of the invested object during the length of the investment and beyond is key: Consider your company as a potential customer/partner to the venture.
- Deal flow sourcing and execution: The involvement and commitment of the operational owners to drive Operational due diligence, tech scouting, industry evolution expert insights, etc... to build the investment business case beyond the As - Is. The synergy business case is initially turned around to reflect the advantages that the transfer or premium access to the competence and skills of the venture would have in the investing company.
- Portfolio company support and strategic yield: Consider that one of the reasons why your company is investing in the object is because they are doing something better than you or that you are not....CV should allow the invested company to enjoy the benefits of being backing up by an industrial player through active coaching and mentoring, supporting the evolution of the company and, thus, increasing the value of it, as well as avoiding to suffocate the investment object in the complex corporate world. Combining CV with other knowledge transfer mechanisms such as IPR licensing, or both ways market entry mechanisms, such as partnerships, can be of great strategic value for the investor and the venture, that not only will lead to financial yield but as well as to strategic one of increasing the capacity to develop and commercialise new and differentiated products and services by the investing company.
More details and checklist on the items above at Digital Transformation fuels the importance of CV in the innovation business mix
Hope you enjoyed!