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Measuring ICV Performance

Due to the diverse motives for establishing ICVs, measuring their performance can be a challenge for firm-level managers. For example, some ICVs are founded for the purpose of leveraging a corporation's preexisting assets in new business arenas, whereas others are founded as market probes where success is best measured in terms of the knowledge generated through the venturing effort.61 Moreover, many financial performance metrics commonly used to assess corporate performance (e.g., sales growth rate, return on assets [ROA]) can be problematic when assessing ICV performance. For example, ICVs all start with zero sales and are young businesses, factors that greatly skew and render incomparable the year-to-year computations of sales growth rate often used to assess the performance of more established businesses. Profitability-related criteria, such as ROA, are equally troublesome due to the variety of accounting methods and decision policies corporate parents adopt when allocating costs to corporate ventures. Moreover, many ICVs are too nascent to be profitable; thus although they may achieve the performance milestones and benchmarks established by their managers, they may not initially generate sufficient (or any) revenues to match the parent company's initial investment in the ICV.

In light of these considerations, the most defensible approach to measuring ICV performance may be to use subjective perceptions of ICVs' outcomes. Subjective perceptions allow managers to judge ventures based on their ability to meet the expectations of the parent, achieve critical milestones on schedule, and perform well in terms of the criteria (e.g., market share, returns, or learning) that the parent considers most important to the venture's success. Subjective measures of performance are useful when objective measures are not readily available as is the case with ICVs. Subjective measures also provide insight into managers' perceptions of and satisfaction with an organization's performance, insights that cannot typically be drawn from objective measures.

Position and Control as Determinants of ICV Performance

Although the importance of ICVs for innovation, revenue growth, profitability, and even survival have been long understood, the factors associated with successful corporate entrepreneurship are less certain. Prior research, which is far from universal in its assessment of the organizational conditions contributing to performance, has often pointed to the positive influence of two factors, structural positioning of the ICV within the firm,62 and the degree of autonomous decision making granted to ICV managers.93 Corporate parents typically have bureaucratic structures and systems. These create boundaries between ventures and their parents that result in increased transaction costs. Furthermore, ventures may be established with the intention of keeping them separate from the corporate parent. This creates even more boundaries between the venture and its parent than those that exist inherently. When considering the structural positioning of an ICV with respect to its parent corporation, there are two main issues to be considered: whether a given ICV should be part of an organization's internal structure or developed externally, and, if it is to be part of the internal structure, what structural design should be employed.

Burgelman proposed that structural designs for entrepreneurial initiatives should be chosen according to the strategic importance of the initiatives to the corporation, and their operational relatedness to the core capabilities of the corporation.64 An initiative's strategic importance helps to determine the degree to which the corporation needs to maintain control over the development of the initiative. In assessing strategic importance, corporate managers should focus on the following:

• The consistency of the initiative with the corporation's current scope of business operations.

• The potential for the initiative to help the corporation transition to new and more attractive business domains.

• The ability of the initiative to create options for the corporation to explore new strategic directions.

• The potential for the initiative to enhance the corporation's competitiveness in the chosen product-market domain or to reposition the firm within the domain.

The operational relatedness of the initiative has implications for how efficiently the operations of the initiative can be managed with respect to the corporation's current operations. Operational relatedness can be assessed by the following criteria:

• The extent to which the initiative requires product, technology, or market-related knowledge not currently possessed by the corporation.

• The extent to which the initiative's functional area activities are complementary to the corporation's existing businesses.

• The extent to which the corporation's core competencies provide a basis for strategic advantage in the competitive domain of the initiative.

• The ability of the corporation to transfer strategic resources and capabilities to the initiative.

Burgelman suggested that initiatives with high strategic importance be integrated into the corporation's existing structures, whereas those that are not strategically important can be handled as independent business units or even spin-offs.65 Similarly, initiatives that have strong operational relatedness to their corporate parents should be integrated and nurtured by the parent, whereas those that do not have operational relatedness benefit from a more hands-off approach by corporate management. Dukane's under-car neon lighting business was, for example, operated as an autonomous business and eventually spun off.

Corporations frequently establish internal venture divisions to identify, launch, and grow promising new businesses in structurally independent entrepreneurial islands.66 Since these divisions focus on entrepreneurship, their cultures, norms, objectives, time horizons, and reward systems may differ significantly from those of mainstream corporate operations. Internal venture units value experimentation and creativity, and have a high tolerance for risk and a low focus on immediate profitability. However, this often leads to an uneasy coexistence with the rest of the corporation, with mainstream businesses increasing pressure for tight oversight and control of the unit. For this reason, new venture units typically have short life spans, and corporate enthusiasm for new ventures tends to be cyclical.

Another important design consideration for ICVs is how much autonomy will be granted to venture managers. Freedom from parental oversight and involvement in the venture is typically referred to as venture autonomy.67 Previous research has indicated that autonomy may be positively associated with ICV performance68 because the control systems used by the parent are typically too restrictive for ICVs. Venture autonomy may empower venture managers and permit them greater flexibility to pursue worthwhile opportunities, especially in cases where corporate managers might not have the necessary knowledge or strategic expertise to effective manage venture activity.69 Bureaucratic executives who guide an ICV with an iron fist can squelch innovation and risk taking within the ICV, especially if resource provisions are contingent on the ICV achieving a timeline or performance threshold demanded by corporate executives.

Providing venture management with complete operations autonomy also has risks. Autonomy may create boundaries between the venture and its parent that are detrimental to the ICV. Too much autonomy, while reducing the ICV's dependence on its parent, may cause the venture to incur significant losses, and make it difficult for corporate managers to set expectations for the venture, evaluate its success, or provide it with necessary assets.7 0 As a result of their separation from the corporation, autonomous ICVs may not benefit as much from corporate advocates as from more tightly managed counterparts. Although the autonomous ICVs benefit from more venture-level managerial discretion, they thus also have a more distant relationship with the larger organization upon which they are dependent for resources. In the case of allocating assets, corporate executives may want to maintain greater control over a venture's operations after the investment of strategic assets has been made. Balancing the level of autonomy given to ICVs is a significant managerial challenge.

 
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