Corporate venturing will be emerged when the large company invests in the small businesses under the firm authority (Batenburg,Birkinshaw and Murray,2002). Normally, the management of corporate venturing separates from the parent company. Corporate venturing implements in the circumstances that there is no alternative solutions in order to compete with the competitors and improve its product and the market. The purpose can be totally different from company’s products or services (Block, Macmillan, 1993).
The firm’s objective is to boost the company growth and profit. The classification of corporate venturing can be grouping in many different types but in this essay will focus mainly about 4 common forms which categorized by the type of entrepreneurship and the money that is invested in the financial institution which are direct-internal venturing, direct-external venturing, Indirect-internal venturing and indirect-external venturing (Covin, Miles, 2002).
Moreover, in this essay will describe about the obstacles that company might face ,for instance, the company is unable to establish policy from what ventures really need, lack of knowledge or entrepreneurial skills and lack of top manager commitment and having no eagerness to wait until it success and also it will give the solutions for coping with the problems, for example, creating the entrepreneurial environment, building the clear goal or objectives, and monitoring the result against the plan.
The corporate venturing forms had been divided into 4 types which are direct-internal venturing, direct-external venturing, Indirect-internal venturing and indirect-external venturing. To begin with, direct-internal venturing is the easy type of corporate venturing. It happens with the idea that company persuades its own employees to contribute the idea to business. The new ventures will be funded by using within company’s resources and monitored by employees(Covin,Miles,2002). 3M,unilever can be the good example of this type.
The clearly advantages of direct-internal venturing is providing the alternative choices that help organization to develop not only its capabilities and knowledge but also it can improve in human resource management. The disadvantage of this type is requiring a lot of money for management. Secondly, direct-external venturing is emerged by acquiring the equity from external firm without creating the venture fund. It can say that it is partnering between large company and small company in order to enhance the market share and reputation and it is easier to get into the new market.
Chevron and the generics group are the example of company that using this type of corporate venturing. There are also many bad sides of this corporate venturing ‘s type. It is possible that it can be ruined the company’s reputation because the social and culture of large firm different from small firm. Furthermore, the internal shareholders might feel that they are not receiving the “fair shared”. The managers might be give advantages to themselves rather than stockholders. Thirdly, Indirect-Internal venturing is happened when capital venture is funded by company but there is a intermediary which invests separately.
Normally, capital venture is operated by employees in the company. 3M and Procter and Gamble has carried out this type for corporate venturing. One of main advantages is to reduce the fear of unsuccessful by promoting inductive reasoning. Moreover, it creates more entrepreneur culture. One of the downsides is pricey as same as the direct-internal corporate venturing. Moreover, it is a possibility that financial losses might be occurred. It can make the employees in the company feel dissatisfied because they choose not to involve in dependent venturing.
Finally, indirect-External venturing happens when capital venture is funded by company. There are two types of this type of corporate venturing. First, the fund is from the external venture and is monitored by the person who is from external company. The company managed by one of the stockholders. The other type is the fund can be employed and organized by the employees. The similarity between these two types of indirect-External venturing is the company expects the investment from external in the capital fund. This type of corporate venturing is used for expanding the markets.
The company gets benefits by the decreasing in the due diligence cost. Additional benefit is the company will gain more knowledge about new market and technologies but it is not the direct transfer of the knowledge. British Gas Technology and Unilever are the example of the company which is using this type. It is no doubt that the companies who decide to do corporate venturing desire to get more profit and enhance its success. To be succeed in corporate venturing, company need to go through many obstacles which most ventures cannot achieve and finally, the company had met the failure.
One of the obstacles is companies which have the mix objective policies (Batenburg, Birkinshaw, Campbell and Morrison,2003) which guide the new ventures in the wrong direction. The inappropriate policies also effect the management practices(Block,Sykes,1989). Hence, The new venture does not have a very clear goal. It will lead the new ventures to the dead end. Secondly, the new venture has managers who don’t have enough knowledge and entrepreneurial skills(Block, Macmillan and Narasimha,1986). The main reasons of lacking of knowledge is the company is unable to create the enthusiasm culture.
The employees will not have any motivation to come up with the new ideas. It will effect to the plan directly because no one will interested in it and the target wont be reached (Block,Macmillan,1993). The managers who are talented wont desire to work for the new ventures as their perception of the venture is not significant and it can cause them the risk in the job. Furthermore, if the top management doesn’t attempt to promote the important of the new venture as the top priority, the new venture would not be successful. It will be more worst if the company does not know much about what is going on in the market.
They will not know about the new opportunity. Finally, the top managers should understand that succeed in venturing needs long time. Almost 50 percent of. Corporate ventures in U. S spent 6 years until they got the profit and only 1 in 7 companies gained more profits on investment than the normal business(Block,Macmillan,1993). Although, it is very hard to meet accomplishment, there are still the solutions to pave the way for business to reach the goal. For starters, the company should have a well-defined goal with only one objective and plan for long term.
The employees will know exactly what they should go for. For example, the strategies should be developed in 2 direction whether the venture unit is for enhancing the product line into the new product or market or entering into the new product into the new market(Block,Macmillan,1993). It depends on the business that which one gives them more advantages. Not only setting the goal but also the top managers should develop the procedures or record the performance which is for evaluation purpose in order to control the results that should meet the target and to avoid the mistakes as well.
The most important thing is trying to create the entrepreneurial environment. Supporting Employees to contribute the new ideas to new corporate venturing and also let talented managers perceive that the job is very important and place them in the top position of new ventures by giving them the shares to make them feel that they are a part of the new ventures. The venture unit need to be separated from the base business(Batenburg,Birkinshaw,and Murray,2002) because when there are the new ideas that against with the parent company, that idea will not be implemented and it also include the fund that should be separated too.
The reward of doing good business are the bonuses or interest. After venture unit succeed, it sometimes needs support from parent company. Johnson and Johnson development corporation is the good example for linking back to parent company. Last but not least, before the venture unit is successful. The company should keep the secret and wait until it is accomplish the target first otherwise the company will give a chance to its competitors to adjust themselves to adjust themselves.