The doctoral dissertations of the former Helsinki University of Technology (TKK) and Aalto University Schools of Technology (CHEM, ELEC, ENG, SCI) published in electronic format are available in the electronic publications archive of Aalto University - Aaltodoc.

The Unexpected Benefits of Internal Corporate Ventures: An Empirical Examination of the Consequences of Investment in Corporate Ventures

Taina Tukiainen

Dissertation for the degree of Doctor of Science in Technology to be presented with due permission of the Department of Industrial Engineering and Management for public examination and debate in Auditorium TU2 at Helsinki University of Technology (Espoo, Finland) on the 22nd of June, 2004, at 12 o'clock noon.

Dissertation in PDF format (ISBN 951-22-7122-2)   [1029 KB]
Dissertation is also available in print (ISBN 951-22-7121-4)


Corporate ventures, the projects representing significant attempts by established firms to extend their domains into new areas, have long presented a fundamental puzzle. They are uncertain, thus results are unpredictable, in a world that values corporate predictability and reliability. They often do not deliver the intended results, and expose the corporation to significant risks. On the other hand, firms persistently make substantial investments in pursuing internal corporate ventures, and corporate venturing is often described as a key process through which organizations renew their capabilities and maintain their competitiveness. The question arises why would firms do this? Do corporate ventures create benefits for their parent firms, even when outcomes are not what was intended when the ventures were initiated?

In this dissertation, I address this question offering evidence that suggests that ventures can create positive outcomes for the corporation even if they do not produce intended results. Drawing on ecological models, resource dependence models, and real options thinking I develop propositions of environment, venture level, and firm level factors that correlate with value creation in corporate ventures.

To empirically explore these propositions, I collected data on 37 corporate ventures in a large European telecommunications equipment manufacturer during the period from 1998-2002. I collected both quantitative and qualitative data from internal documentation, public sources and press releases and through multiple interviews (ranging from one to six interviews) in the ventures. Altogether I conducted 104 interviews. The ventures in question are the entire population of ventures authorized through a formal stage/gate process (with three major stages) in place within this firm at the time. As distinct from projects intended to enhance the existing business, these ventures all represent forays into either new market spaces or into the commercialization of new technological solutions. To analyze the decision-making processes I used both qualitative and quantitative analysis methods allowing us to exploit the depth of data but also systematically compare patterns across ventures.

Several key findings emerged from the data. I found support for the importance of venture level, firm level and venture environment variables in explaining venture outcomes. Value created by ventures depends on both the intrinsic value potential and how this value is managed and captured in the firm. While I found that value creation in terms of revenues or number of patents grew with the age of ventures, in line with real options arguments, I found ample evidence of value creation in discontinued ventures. In fact, discontinuing ventures in which time had disproved the venture concept and reallocating the resources that these ventures had created was a major value creation mechanism in the corporation. Central to this value creation process was redirecting or discontinuing ventures, as key milestones were approached. Several mechanisms permitted the firm to benefit even from discontinued ventures. They include transferring personnel with important individual skills, the development of new products, creation of important new organizational capabilities, development of new knowledge and the creation of intellectual property. I further found that strategic relatedness plays a pivotal role in venture survival and value creation. In line with resource dependence arguments, ventures that are related to the corporate strategy receive more management attention and survive longer.

This dissertation informs several bodies of literature. First, the study contributes to the literature on corporate venturing by empirically examining some of the controversies surrounding value creation through corporate ventures. The study further informs recent debates around applicability of a real options perspective on strategic investments under high uncertainty by showing that a rigorously structured staged investment program helped the focal firm to manage its investment projects and to create significant value even from ventures that were discontinued. The research sheds light on ecological models by showing that a firm can adapt to changing environment in the world of high uncertainty, although not easily. The study also informs literature on organizational search. Particularly in complex and dynamic environments, intelligent search heuristics are needed to be able to explore beyond the vicinity of existing knowledge. This study helps to establish that real options reasoning can inform such a search heuristic by helping organizations and managers to systematically explore business domains that are further away from established lines of business. The study contributes to resource dependence theory by showing how management of key resource dependencies such as access to corporate resources or management attention influence value creation. Further by analysing the value creation from redirecting and exiting ventures, the study contributes to the dynamic capabilities view in the strategic management.

Based on the findings of the dissertation I derive a number of practical implications for managers in the corporate, portfolio and venture level. The key finding of the study is that the value of ventures depends on the intrinsic value produced in a venture, and how the value is managed and widely used holistically in the firm. The first one is the responsibility of venture management and the latter one of senior executives in the firm. Both of these have clear managerial implications for the firm.

Keywords: corporate ventures, real options, search, performance, resource-dependence, organizational ecology

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© 2004 Helsinki University of Technology

Last update 2011-05-26