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Sep 12, 2002
The Guide to Corporate New Venture Units (NVUs)
Corporate units to build new ventures from within demand a very specific management methodology and behavior. McKinsey details these in their very good article "Rebuilding business building". Following, I will summarize the main points of the article.
New venture units have increased in importance in recent years. "... acting as catalysts for the development of business-building capabilities within the wider company. NVUs are magnets for entrepreneurial talent, which is often difficult for big companies to recruit, and many employees forge networks outside the company that bring in funding, technology, and venture expertise." That's why it is important to know how to manage them.
In general, they are characterized by the following:
- They are located at corporate headquarters.
- They report directly to the CEO.
- A small team of portfolio managers -- both company insiders and outsiders -- manages the unit.
But the most distinct difference and focal point of NVUs is their focus on exactly one NVU approach (see further down this page as well). Following multiple approaches within one unit has been found to be much less successful than focus. If there needs to be several focusses for one corporation, then they should set up distinct NVUs for each purpose in contrast to a hybrid NVU.
The three different approaches and the associated requirements to successful NVUs are detailed as follows:
- NVUs that build new businesses
- Support by line managers is crucial. Structured incentive systems for those need to be set up to support the NVU.
Example: "... giving its line managers credit for revenues generated through its NVU and by not penalizing these managers for the costs they incurred in cooperating with the unit."
- External resources need to be used when internal competence is missing. Using internal resources just for the sake of making the incumbents happy might lead to slow progress or even stalling of projects.
- Building large business opportunities. "At the end of five years, if the corporation is left with only many relatively small though profitable businesses, the NVU hasn't done its job." Of course, this is only true for large corporations. But for those, it is important to aim large. With $10bn of revenues, having a concurrent increase of only $50m means growth of only 0.5%. That would not be worth all the effort.
- Actively manage the portfolio. "Bundle or rebundle businesses into broader themes to determine how those businesses might fit witht he overall corporate strategy. These NVUs divest some ventures as growth platforms evolve and acquire others to scale up promising platforms quickly."
- Support by line managers is crucial. Structured incentive systems for those need to be set up to support the NVU.
- NVUs that enhance the core businesses
- Don't rely on internal resources for ideas. Because that's why the unit operates: to fill gaps.
- Close internal cooperation from the start. As later re-integration with the core is imperative, the new businesses must be shaped accordingly from the get-go.
Example: "... the NVU won't pursue an opportunity unless a division of the main company is also on board."
- Don't rely on internal resources for ideas. Because that's why the unit operates: to fill gaps.
- NVUs that tap intellectual property
- External partners. To understand what is possible with IP outside of the firm, one needs to seek outside counsel.
- Internal independence. As new uses of intellectual property are outside of the company, by definition, the NVU needs to be independent in their decision-making as much as possible. Otherwise, internal decision-making processes will slow down the unit.
Example: "... Ford Motor, for example, has given its intellectual-asset group ... control over all technologies for nonautomotive applications"
Posted by Stefan Smalla on Sep 12, 2002 at 10:47 | Permalink - External partners. To understand what is possible with IP outside of the firm, one needs to seek outside counsel.