In 1950, more than 60 percent of the largest Fortune 500 industrial companies were either single-business or dominant-business firms, meaning they generated less than 25 percent of their revenues from diversified ac-tivities.32 However, in the 1960s and 1970s, the trend was for firms to diversify to reduce their dependence on any single industry. By 1974, the percentage of single-business or dominant-business firms in the Fortune 500 had dropped to 37 percent.33 Although firms were able to spread business risk across different industries, shareholders were less than enthusiastic about this, believing that they could accomplish similar returns themselves by purchasing equity in firms in different industries. Diversification only made sense to the extent that it added more value to the shareholder than what they could earn acting individually. The industries chosen for diversification thus needed to yield consistently higher returns and synergies across operating divisions than the businesses could achieve in isolation.

The late 1970s and 1980s saw a reversal of the trend to diversify as firms began to refocus on core businesses, and divested business units unrelated to core business activities. Between 1981 and 1987, approximately 50 percent of Fortune 500 firms refocused on their core business,34 and by 1988, the percentage of single-business or dominant-business firms on the Fortune 500 had risen to 53 percent.35 In the words of Michael Porter, "Management found it couldn't manage the beast."36 The complexities of managing different businesses under one corporation caused firms to sell or close less-profitable divisions in order to focus on their core businesses.

Although modern businesses remain more likely to invest in their core businesses than to engage in unrelated diversification, current thinking acknowledges innovation as crucial to the long-term survival and growth of the firm.37 As such, current thinking on diversification focuses on corporate innovation, manifested as internal entrepreneurial activity. This is being embraced by executives as being not just a component of a company's strategy but as the focus of an organization's success.38 According to Hamel, "In these suddenly sober times, the inescapable imperative for every organization must be to make innovation an all-the-time, everywhere capability."39 Firms with a corporate innovation strategy signal their strategic intent to continuously and deliberately leverage entrepreneurial opportunities for growth and advantage-seeking purposes.40 Rather than react to changes in a complex external environment, these firms define themselves as agents of change, aggressively creating new markets and rewriting the rules of the competitive game.41


Firms that create internal entrepreneurial initiatives to explore new products and markets are engaging in a practice known as internal corporate venturing. Internal corporate ventures (ICVs) are vehicles for firm diversification that result from a deliberate effort on the part of the firm to create new businesses internally. ICVs have been defined as entrepreneurial initiatives that originate within the corporate structure (or within an existing business of the corporation), and are intended from inception as new businesses.42 Since there is no consensus regarding what constitutes a new business in a corporation, Morris, Kuratko, and Covin developed a new businesses identification growth matrix43 (Figure 4.2) based on Ansoff's product/market growth matrix. The matrix includes intermediate-level variations in product and market novelty, thus allowing for more degrees of "newness." For example, a market can be new to the firm or new to the world, and a product can be new for the firm in its current industry or take the firm into a new industry. The matrix also allows new businesses to be classified as "extensions" on one dimension (product or market) as long as they are "new" on the other. To be classified as a new business, a business organization thus need not be situated in new product and market domains simultaneously. Rather, certain variants of pure market development activity and pure product development activity are consistent with the definition of ICVs.

Although they operate within an existing organizational domain, ICVs are nonetheless independent units, and are formed with the specific purpose of developing new products or entering new industries.44 They are seen as being increasingly important for corporations seeking new competitive advantages with which to face accelerating global competition.45 However, despite widespread agreement about their implications for competitive advantage, there continues to be a lack of agreement among scholars and practitioners regarding the factors that determine whether or not ICVs will succeed.46

Much of the literature on ICV success has been anecdotal in nature, coming from researchers and practitioners who observe a venture and

Figure 4.2. New Business Identification Matrix

New Business Identification Matrix

Source: Morris, M. H., D. F. Kuratko, and J. G. Covin. 2008. Corporate Entrepreneurship and Innovation. Mason, OH: Thomson South-Western.

then report on what managerial actions succeeded or did not succeed. Empirical research on the antecedents of ICV performance began as early as 197747 but there have been few quantitative studies on ICV performance since. Even some of the most recent research continues to use anecdotal evidence from a small number of cases to gain insight into the corporate venturing process.48 This has led to the assertion that "research on ICV has typically relied on field study investigations, focusing on the construction of useful process models for ICV."49

ICVs have a high incidence of failure. A study of 68 ventures launched by 35 Fortune 500 companies found an average return on investment (ROI) of -40 percent in the first two years and an average of eight years required to break even.50 Despite the difficulties inherent in the venturing process, Burgelman and Valikangas indicated that it is imperative to understand more about ICV performance and its antecedents so that firms can benefit from the learning outcomes, increased innovativeness, and improved firm performance that are postulated to be important outcomes from ICVs.51 Prior studies have asserted that a critical obstacle to ICV success is the structural relationship between the venture and the mainstream businesses of the parent company—in other words, the larger organizational context. The systems and processes of established businesses are hostile to an ICV's more uncertain activities. Specifically, new ventures and established businesses frequently differ in their objectives, patterns of hierarchy, evaluation systems, rewards and incentives, and risk orientations.52 These differences make it difficult for ICVs to exist under the same roof as established businesses. Indeed, recent empirical research indicates that structural separation has a positive effect on ICV performance.53

By their very nature, ICVs operate within a unique organizational con-text—that is, they are businesses within a business—and frequently face challenges navigating the complex sociopolitical maze inside their parent corporations.54 Venkataraman, MacMillan, and McGrath suggested that venture managers often have trouble building a coalition around the idea of the new business, finding protection when corporate routines are disrupted, procuring the necessary strategic assets for the venture, and preparing the venture for institutionalization by creating fit between the new business and the parent corporation.55 Shifting assets and resources from corporate managers to ICVs is frequently marked by intense power struggles and considered to be the central dynamic of the venturing pro-cess.56 Overcoming the power struggles involved in transferring strategic resources from the corporate parent to the ICV, championing, or top management support of the venture, is often required. Senior managers committed to the success of the ICV lobby on the behalf of the venture, and help to ensure that it gains the strategic resources it needs to be successful. What motivates and enables corporate-level top managers to support internal venturing activity is thus critical to understanding the ICV phenomenon.

Top management support of ICVs, defined as the corporate parent's senior-level executives' support of and commitment to the ICV, involves more than just helping in the acquisition of necessary financial and organizational resources. It embodies how aggressively top management advocates for and acts on behalf of the ICV.57 Top managers can provide valuable knowledge, expertise, and legitimacy to nascent ventures. ICVs can often lead to tensions in corporate rules, processes, and procedures, and corporate managers might need to resolve resulting conflicts or advocate for the ICV's activities. In addition, there is often pressure within a firm that prevents venture management from altering venture plans,58 which support from parent-level top management can offsets. The support of top management can not only help ICVs navigate the complex organizational and political climate in which they find themselves in, but also create a facilitative environment for the venture's ultimate success.

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