Key points in this article:
- Disruption is at an all-time high. But CEOs who engage their business with unique innovation ecosystems thrive.
- Corporate venture units are often created for this purpose. The CEOs who do a few key things find the most success with their CVC units.
- One is that they involve business unit leaders in the venture process early, and in a way that challenges the status quo of day-to-day operations. Another is that they incentivize business units (financially and in other ways) to help CVCs succeed.
Certain corporate leaders are adapting (and thriving) in an age of disruption.
They’re doing so by engaging a larger ecosystem of ventures and innovators.
They involve their senior leadership teams, including business unit heads, early in the process. They challenge the status quo of day-to-day operations and go beyond the immediate quarterly aspects that their corporations live by.
Traditionally, corporate venturing has been the mode by which they do this. CVC arms are often created as an offshoot of finance or as the strategic arm of the organization — positioned in the C-suite above the business units.
Smart CEOs give their CVC units the proper mandate.
Too often, CVC units are set up with a mandate to be financially oriented, rather than strategically focused. And to be properly strategically focused, business unit heads must be part of the conversation.
They’re the ones who will strategize, implement, and integrate what the investments will do for the corporation — specifically as it relates to the product output.
But getting business unit heads involved in early-stage ventures is not a simple task, as they’re primarily focused on pushing out products within the next 30, 60, 90, or 120 days. This is fundamental to their operation, but this focus can run counter to thinking big picture about a corporation’s future.
Smart CEOs bridge the gap between their business unit leaders and CVC units.
Here’s an all-too-common scenario: a business unit leader watches as the CVC arm of the company goes out and invests in a company. “This company will be relevant in two to three years,” says the CVC unit. “Let’s get in now.”
The CVC unit puts in the million dollars, but then they come back to the business unit and say, “You should go help these guys. They can’t figure out a certain problem.” The business unit is unable to — they have to ship a thousand units that week.
Miscommunications occur. Little gets done. Funding may then be cut; the average lifespan of a CVC unit is 18 months.
The challenge, therefore, is to bridge the gap between these two perspectives and get business unit heads to recognize the importance of being involved in early-stage ventures. This requires them to step out of their comfort zones, challenge norms, and prioritize long-term growth over immediate results.
Proper incentivization is key — and business units need to be involved early.
For CVC units to thrive, business units (BUs) need to be incentivized to help them – in both direct financial and non-financial ways. In our work with corporate partners, we have found four initiatives that can align the goals of business units and CVC:
- Make organizational development an explicit goal of the CVC effort. For example, one of our partners assigned an up-and-coming star to lead the integration of a venture into the BU’s workflows. This was an easy way for the BU head to hit a key performance indicator — the development of new talent — while focusing on his unit’s day-to-day output.
- Fund venture collaboration, topside. Venture collaboration often requires extra expense and/or extra workforce labor. Smart CEOs carve out specific collaboration budgets held at the corporate level so as to not sully the operational budgets of BUs.
- Write venture initiatives directly into BU financial plans. This explicit link between BU financial goals and venture contributions incentivizes BU managers to follow through on capturing benefits.
- Link collaboration to goals and bonuses. Some corporations write venture collaboration objectives directly into individual performance goals for annual reviews. When venture solutions can translate into major cost savings or new revenue streams, corporations can motivate action to capture those benefits with special bonuses.
Corporate leaders who do these things can see where things are headed.
Other business leaders who use these solutions will gain wider visibility with their board, and position themselves for ascension to the “C-level”.
By leveraging the free insights available to you, you benefit tremendously. While the venture portion may not be free, if every venture in the world wants to talk to you, you can take advantage of that and cultivate relationships that provide valuable insights.
There are hundreds of ventures that want to talk to you and, yes, they want to sell to you. Smart CEOs see it as an opportunity to connect with hundreds of innovative entrepreneurs who want to help them grow.
That’s the real opportunity here. The leaders who understand this are thriving — even in an age of unprecedented disruption.