Finding and Commercializing New Businesses

Abstract

OVERVIEW: A methodology for technology-based industrial companies is suggested that can systematically improve and diversify their business portfolios. The proposed Business Renewal function is based on lessons learned from successful and unsuccessful corporate-level new business development experiments over the past 30 years (e.g., the New Venture effort at Du Pont in the 1960s). The author argues that the business function described here, and built from historical trial and error, will be an effective approach for the successful worldwide business enterprises of the future. After defining the function, an ideal scenario for its design and implementation is discussed including its formation, charter, functions, organization, and staffing. Criteria for a business are discussed and the process for finding and developing such related diversifications is described. Several potential pitfalls in establishing and operating such a function are derived from past failures. Over the next decade I anticipate a significant resurgence of corporate-level efforts to bring new businesses into the corporation. I believe the basic methodology described in this article will become an important tool of the successful worldwide business enterprise. The proposal set forth here for a corporate business renewal function is based upon the experience of myself and many others in conceptualizing, initiating, operating, and studying corporate-level business groups in large and diverse industrial companies. At least 270 companies have experimented with these techniques since the early 1960s, and 65 have been identified and discussed in the literature. I have been intimately involved with the first of these, at Du Pont, and with four others not discussed in the literature. As many as 200 additional companies may have experimented with various aspects of corporate-level business renewal, particularly with internal venturing (1-4). The need for effective business is becoming increasingly vital to the success of U.S. industrial companies as the economy cycles, foreign competition becomes stronger, existing businesses mature, and profitability levels off. This was so in the 1960s and it is so in the 1990s. Corporations must continually renew and revitalize their business portfolios. They must deliberately encourage and nurture the nucleation of new businesses to rebalance the portfolio as existing businesses change, provide alternative growth mechanisms, improve financial performance, stimulate change and counter stagnation, improve their image, keep ahead of fast-moving competition, and provide an avenue for the diversification that is so essential in a changing environment. The process for renewing the business portfolio is one of change, which makes it inherently difficult. It is made doubly difficult because brining new businesses into the corporation is counter to the experience of most executives, who make their mark by excelling at managing and controlling established businesses. It has often been said that the special demands of managing a new business are exactly opposite those of managing an ongoing business (See 5, for example). These two very different management techniques have rarely coexisted in a company, and some think they cannot (6); yet they must if the company is to cope successfully with worldwide competition and change. There is a continuing and pressing need for a compatible innovation process that is less risky, more effective and less costly (7). RENEWAL IN THE CORPORATION Corporate business (CBR) as defined here is based on the much-discussed idea that the success of a large corporation's diversification and revitalization strategy rests upon the ability to simulate, within the firm, the key environmental characteristics of successful individual entrepreneurs (12-Z5) and venture capitalists (5,1-18) outside the firm. …