Corporate New Ventures (CNV)

Dimension of a corporate new venture

• The activity involves the act of INNOVATION - endowing resources with wealth producing capacity
• An activity which might entail the introduction of new products, to new market segments (having to face different set of competitors), by utilizing new technologies and new distribution channels and requiring entirely different human ressources
• The implementation of the venture requires the mobilization of a wide range of corporate resources and capabilities. Organizational bounderies need to be crossed, organizational procedures may need to be changed and the administrative structure of the corporation may need to be modified
• The risk / Reward ratio is substantially different from the one associated with the management of the firm's ongoing operations
• A CNV may be initiated from the "bottom-up" of from the "top-down"
• It may be a result of a "technology push" or a "demand pull"
• Its implementation may require futher investments in some assets, which could be either developed internally or acquired (e.g. purchasing a patent, or a distribution channel)
• A Joint Venture with another organization may be set -up, to facilitate some aspect of the commercialization of the innovation
• The design of the communication, coordination and control mechanisms (i.e. the structure) of the venture should, among other factors, facilitate the sharing of resources with the parent corporation and the transfer of skills required to implement the innovation

  Process of new venture planning

• Business definition : Product, Services, Market segments, Technology, Distribution channel
• Analyses : Customer analysis, Competitor analysis, Industry analysis, Environmental trends
• Strategies formulation : corporate strategy, business strategy
• Functional Plans : Organizational Structure, Marketing & Sales,Operations, R & D
• Financial Plans :
  • Pro Formas : Capital budget, Income Statement, Balance sheet, Cash Flow
  • Financing Plan : Type, Timing, Amount
  • Evaluations : NPV, IRR, Breakeven, Ratios, Business valuation

  When is corporate venturing attractive ?

• The competitive advantage of the corporation is enhanced by the new venture or vice versa
• Surplus resources and capabilities can be efficiently utilized by the new venture
• The new venture facilitates the transfer of skills and the sharing of activities
• The value / practices inherent to new venture industry are compatible with the company's
• The company can afford the risks associated with the new venture
• Organizational barriers may easily be removed
• Cost of entry is less than the anticipated DCF (Discounted Cash Flow)
• The shareholder value created exceeds the value created through alternative modes of diversification

   

Source :

Strategic Management, Raphael Amit, Professor at Wharton University of Pennsylvania, US

 

 

 

(c) ECOFINE.COM, Bernard Jaquier, Professor in Economics and Finance, Lausanne, Switzerland, 2020