Academic journal article The McKinsey Quarterly

Nothing Ventured, Nothing Gained

Academic journal article The McKinsey Quarterly

Nothing Ventured, Nothing Gained

Article excerpt

How can large companies grow and foster a culture of innovation while day-to-day issues consume management's attention? One way is to launch a corporate new-venture unit that invests in internal or external opportunities. Large corporations have advantages over independent venture capital firms: in-house managerial talent, sales channels, supplier and customer networks, and access to capital. But they also face organizational problems that venture capitalists typically avoid. Here, we have highlighted five such problems and the ways best-practice companies overcome them.

Control by the parent company undermines a new venture's autonomy

* To manage the new venture, the parent company recruits seasoned executives, not less experienced (and less independent) managers.

* The new venture is free to chart its own course--even if that means competing against the parent for business or partnering with the parent's competitors.

Reversals of fortune at the corporate parent

* The new venture is insulated from the parent company's economic pressures or impatience.

* The corporate parent dedicates a separate pool of funds to new ventures; a separate board then finances them in stages. …

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