When employees with entrepreneurial tendencies are wary of giving up employed status or organisations want to try out new lines of business, a corporate venture - launching a stand-alone business within an existing company - is one way to square the circle.
But Andy Gaule, of Henley Incubator at the Henley School of Management, says, "Organisations must have a very clear idea of why they are doing it."
BT, for example, is looking at corporate ventures in order to fill the revenue gap it is experiencing, while Powergen's purpose is to get innovation into a business which, as a privatised utility, has been cost-cutting for years. Even if the purpose changes, be very clear about that change, and the new purpose, says Gaule.
Clearly, a corporate venture cannot succeed if it does not have top-down sponsorship and approval. Making sure you select the right people to run the venture is essential. "They need to have an entrepreneurial spirit and they need to be supported," according to Gaule.
Such spirit can be found in unlikely places - among IT professionals, scientists or engineers. "There can be hidden talents and frustrations - you can find surprising ideas in people," he says.
Governance of a corporate venture is critical, as is top-down support. The fledgling company must have strict financial controls, and it may need outsiders as partners.
Non-executive directors from organisations such as Henley Incubator can offer experience garnered from other corporate ventures: external experts in the specialist area of the venture also make good partners, as when British Airways worked with Logica to commercialise its software portfolio.
Also, as Gaule points out, making sure some of the money comes from outside the parent company can bring a good financial discipline. In a giant corporation, "Half a million pounds plus or minus can be a rounding error in an internal budget," he points out. In a fledgling business it can be a critical amount.
Staff who set up a corporate venture should also "put skin in the game" - such as their annual bonus - as this will help to focus their minds on profitability. So, too, will positive incentives. "Individuals can get a significant equity stake," suggests Gaule.
High-flying intrapreneurs may, Gaule acknowledges, face resentment from their own departmental colleagues - which is another reason why it should be clear to other staff that they are themselves taking a financial risk, not just hoping for riches to come.
The originating department can win strong positive feedback, creating a virtuous circle between the venture and the department. "That's where the real prize to the company is," Gaule asserts. Staff who previously just "did the day job" start thinking in terms of value-creation for the business across the board.
Is the sky the limit for corporate ventures? Gaule has two caveats. The venture must be measured for its risk to the existing brand - a venture that bombs, or dilutes the existing brand value, can do more damage than good. Also, the dotcom fall-out has made corporates wary of the Web so e-ventures need exceptionally clear business drivers.
But, if ventures succeed, involvement in new ventures can become addictive. "Once an individual has done one corporate venture they start looking for another," says Gaule.
How to be a successful intrapreneur
Rick Wills came from British Airways' systems development department to commercialise the airline's in-house applications. But the new company, Speedwing, lacked commercial experience so he partnered with Logica. Speedwing has just been sold to reservations company, Amadeus. Wills had already moved to BA's London Eye venture, of which he is chairman.
- Unless your chief executive believes in what you're doing, don't do it - the board must back you
- Do not try and do two jobs - you cannot build systems for in-house and sell them externally as well. Wills kept Speedwing separate from BA's internal IT to avoid any potential conflict of interest
- Do not alienate the IT department - get the IT director on board
- Establish a separate identity with clear responsibilities
- Be careful about who gets involved, you need people on board who are different
- Take people in from outside the host company as well - they provide an external "sanity check"
- Be wary of outside finance: provided you can impose good discipline, if the host company can afford the investment all on its own, why make a venture capitalist rich?
- Remember who you represent, whatever your venture is. You need to honour your host's brand value - it is the company's money you are working with
- Keep a close eye on risk. Your business case needs to be a 150% better than for a normal project and you will need to deliver some quick hits
- If the venture fails, stop it as soon as possible. Do not hide problems that could become a risk to the host company.
Other corporate ventures based on R&D successes
- Soap-maker Unilever launched Insense to build scent-detection instruments
- BT launched Brightstar as a "venture incubator"
- Powergen is launching Spark as its "venture incubator"
- BA built the London Eye, which is considering being launched as a listed company to build and run more "Eyes"
- Shell spun off its business intelligence software as Kalido.
This was first published in July 2002