Opportunity Development through Corporate Venturing - 3M Construction Materials - Case Study Example

Opportunity Development through corporate venturing This study proposes opportunity development in 3M Construction Materials unit. The construction material unit offers a range of comprehensive construction material that assist the customer in designing their houses. These materials improve efficiency and performance enabling the projects be completed in time and within budget. 3M is pushing its boundaries of innovation in construction far and wide. This study proposes opportunity development by 3M through Merck’s corporate venture. Merck has developed a liquid crystal window technology that delivers superior light and energy management in glass-fronted buildings. Key Words: Corporate Venturing, Opportunity Development, Venture Capital, Innovation, liquid crystal window technology Table of Contents Title Page………………………………………………………………………………………….1 Abstract……………………………………………………………………………………………2 Table of Contents…………………………………………………………………...……………..3 Introduction………………………………………………………………………………………..4 Statement of the Business Opportunity……………………………………………………………5 Overview of the Venturing Organisation: 3M……………………………………………….……5 Opportunity Identification………………………………………………………………………...6 Evaluation and selection of opportunity……………………………………………………..……7 Corporate Venturing...…………………………………………………………………………….8 Opportunity Identified ………………………………………………………………………...….9 Conclusion……………………………………………………………………………………….10 References …………………………………………………………………………………...…..11 Introduction Corporation venturing is considered an important tool for innovation. Corporate venturing provides organisations with development opportunities. For example, organisations that have limited experience in technology can still reap profits from it through corporate venturing. A good example of opportunity development through corporate venturing is that of 3M. 3m focuses on developing incremental technology improvements using incentives for internal innovation at all levels. In addition, it also uses collaborative approaches within the company between divisions (Ireland and Hoskisson 2012, p. 399). Corporate ventures focus on more than financial return as an objective. Their aim is to produce businesses that are relevant to the parent company’s strategic intent and assets. Narayan, Yang and Zahra (2009, p. 58) observe that organisations have been using corporate venturing as a way of revitalising their operations. Through corporate venturing, organisations also build new capabilities, achieve strategic renewal, and create value for their shareholders. Stimulating corporate entrepreneurship is dependent on organisational size, familiarity with business concepts, and the length of planning periods. For an organisation to succeed in corporate entrepreneurship, due consideration has to be given to resources, the perceived cost of innovation, and the associated dangers of fixating on competitive space (Gleba 1994, p. 65. In order to avoid losing out new opportunities, they must focus on their competitive space. The main challenge for an organisation is to transform market niches and opportunities into investment opportunities. Organisations have to create capable teams of entrepreneurs to develop these opportunities. Statement of the Business Opportunity Overview of the Venturing Organisation: 3M For some companies, venturing has become a deeply embedded activity, and this is recognised as so fundamental to organisational life and growth to the extent that these companies are referred to as venturing entities. 3M is considered to be a good example of these companies. Formerly, 3M was known as the Minnesota Mining and Manufacturing Company, and it has risen to become the largest multi-technology companies in the world. 3M has its operations in 65 countries around the world, and it recorded over $30 billion in sales (www.3m.com, 2012). 3M has 84,000 employees worldwide. 3M has a wide product portfolio ranging from dental care products to office supplies. 3M focuses on generating 30% of its revenues from products that have been in the market for less than three years. Currently, 3M is considered to be one of the most innovative companies. 3M is an ideal case in defining the characteristics of an opportunity – market demand, market size and structure, and margin analysis. There are turbulent economic business environments, and 3M has weathered this situation by constantly venturing in order to ensure its survival. Jim McNerney left Boeing and joined 3M where together with his team sent considerable time struggling with company’s new approach to innovation. The previous 3M philosophy was “search for excellence”. Under this philosophy, little guidance was given concerning the desired projects and products. McNerney introduced his approach of moving from being a mature, diversified technology organisation to being a premier diversified technology organisation. He implemented a series of initiatives which include 3M Acceleration (prioritises R&D investments), Six Sigma (improvement of cost, cash, and growth), and e-productivity among others. The rewards were enormous as 3M realised over 30 percent increase in stock price from 2002 to 2004. 3M New Ventures is a separate unit that aggregates all venturing activities. 3M New Venture manages a $100 million fund dedicated to generating strategic value (3M 2011, p. 6). Strategic value is realised through radical innovation. The goal of this unit is to develop new opportunities in new technologies and future markets through capitalising on the innovative capabilities of young dynamic firms. Figure 1 presents the 3M innovation strategy. New R&D New-to-3M TECHNOLOGY Existing 3M Core Business Development Current Future MARKET Figure 1: 3M Innovation Strategy. Source (3M 2011, p. 4) Opportunity Identification The first step in opportunity development is opportunity identification. The process of opportunity identification can be systematised, and opportunities can be found by monitoring seven basic sources. These sources are demographic changes, new knowledge, incongruities (gaps between reality and expectations), industry or market structure, unexpected successes or failures, process needs, and changes in perception. In summary, in the process of opportunity identification, many factors can trigger a flow of ideas, with change and problems being the best sources. Information and resulting awareness of developments both within the organisation and the world at large are essential to the process of opportunity identification. 3M main opportunity sources are in young dynamic companies. 3M makes its choice of the company by identifying its innovative capabilities. The main factor that is put into consideration is the financial returns. 3M New Ventures role is to identify “New-to-3M” markets, technologies and business models (3M 2012). To identify the opportunity, 3M uses the process called “deal sourcing. Evaluation and selection of opportunity According to Block (2009, p. 102), this is the point where a proposal is developed for further exploration. At this point, the preliminary judgement is made as to whether the proposal merits proceeding to the next step. The only issue that can be resolved at this point is whether the opportunity is worth pursuing or not. In this step, these questions should be answered: i. Is the opportunity consistent with the organisation’s strategy? ii. Is the opportunity worth the effort? iii. Is the opportunity feasible? After ‘deal sourcing,” the other processes that follow include screening, due diligence, decision making, and deal closing. In the evaluation and selection stage, 3M identifies the opportunities that have the ability to complement, extend or even replace the existing products (3M 2012). The 3M scorecards draw on Six Sigma Technology, making a clear distinction between extremely attractive opportunities and those that are less attractive. Table 1 presents a scorecard of the selection criteria. The score ranges from 1 to 10. Dimension Exceptional if Acceptable if Unfavourable if Score Totals Strategic Intent This venture takes us exactly where we want to go in terms of our strategy This venture is not incompatible with our plan, but provides no engine to run it This venture, even if we thrive, is incoherent with our strategy Builds competitive advantage The opportunity builds both short-term revenue streams and long-term competitive advantage The opportunity has either long- or short-term benefits, but not both The opportunity provides only short-term benefits and may interfere with a long-term opportunity Builds knowledge capabilities The idea will assist us develop our capabilities significantly The idea will allow us devise new skills, but only in very limited areas The idea will not lead us to extend our capabilities in any meaningful way Use of existing assets The idea requires no investment in new assets The idea does require some investment but takes advantage of assets in place The idea will require entirely new investment in assets Table 1. Scorecard Selection Criteria Corporate Venturing Corporate venturing is on the rise, and it is attracting the policymakers’ interests. It is clear that the firms that did not dissolve their venture capital units after the emergence of the dotcom bust are outperforming those firms that do not have a minority investment strategy (RSA 2012, p. 5). It is important understand the organisation’s mission and strategic objectives first in order to establish whether the opportunity is consistent with it. If the opportunity is found to be inconsistent with the organisation’s strategy on its face, it should be by-passed. However, there are opportunities that seem too good to by-pass but are inconsistent with the organisation’s objectives and mission. In such a case, Block (2009) suggests that an organisation can employ a spin-off approach. According to Narayan, Yang and Zahra (2009, p. 65), in a spin-off approach, an organisation creates a new business based on the ideas of the incumbent. One occasion where spin-offs are more common is where an opportunity depends more on human capital than on physical assets. The reason behind this is that entrepreneurs cannot move physical assets with them when they exit an organisation (Acs and Audretsch 2013, p. 72). When opportunities present are architectural reconfiguring the way products are developed, spin-offs approach will be ideal because established organisations find it difficult to exploit such innovations. The key to achieving success from the opportunity is to focus on learning. The initial assumptions must be converted into commercialisable knowledge (Block 1995, p. 196). It is important understand the organisation’s mission and strategic objectives first in order to establish whether the opportunity is consistent with it. If the opportunity is found to be inconsistent with the organisation’s strategy on its face, it should be by-passed. However, there are opportunities that seem too good to by-pass but are inconsistent with the organisation’s objectives and mission. In such a case, Block (2009) suggests that an organisation can employ a spin-off approach. According to Narayan, Yang and Zahra (2009, p. 65), in a spin-off approach, an organisation creates a new business based on the ideas of the incumbent. Opportunity Identified Architects, designers and construction companies are looking forward to a completely transparent and uncluttered structure that offers a combination of all functional features. In the Western world, 40 percent of total energy usage is attributed to buildings. Another 20 percent is used on lighting and a further 15 percent used in cooling. Smart technologies can contribute greatly to the reduction of energy consumption by and in buildings. Merck’s Liquid Crystal Technology (LWC) can go a long way into optimising sunlight, and thermal radiation and this technology may also help to conserve energy. 3M can capitalise on Merck’s technology, adopt that technology and develop the opportunity for its success. Merck Group is one of the companies that are distinguished for their excellence and in 2015, it has won German Industrial Innovation Award (MERCK 2015). Merck develops performance materials ranging from display materials, LC Windows Technology, Materials for Lighting, Chemicals for Electronic Industry, Fuel Cells, and pigments and additives for printing among others. This opportunity is ideal for 3M because the opportunity is consistent with the organisational strategy, it is worth the effort, and finally, it is feasible. 3M has a culture that encourages innovation and develops opportunities that encourage its employees to have creative ideas. 3M has a network of that includes the most innovative companies in the world, and this could be the opportunity to bring Merck Group in. Conclusion Merck has developed a liquid crystal window technology that delivers superior light and energy management in glass-fronted buildings. In using Merck’s technology, 3M will gain more strength in its leadership in the construction sector. This opportunity is ideal for 3M because the opportunity is consistent with the organisational strategy, it is worth the effort, and finally, it is feasible. References Acs, Z. and Audretsch, D. 2013. Handbook of Entrepreneurship Research: An Interdisciplinary Survey and Introduction. Springer Science & Business Media. Block, Z. 1995. Corporate Venturing: Creating New Businesses Within the Firm. Harvard: Harvard Business Press Gerybadze, A. and Reger, G. 2008. Globalisation of R&D: Recent Changes in the Management of Innovation in Transnational Corporations. Discussion Paper, 97(1). Hitt, M., Ireland, R. and Hoskisson, R. 2012. Strategic Management: Concepts and Cases: Competitiveness and Globalization. Mason: Cengage Learning Merck. 2015. Available at http://www.merckgroup.com/en/company/mission_statement_values_strategy/mission_statement_values_strategy.html Narayan, A., Yang, J. and Zahra, M. 2009. Corporate Venturing and Value Creation: A review and Proposed Framework. Research Policy, 38, pp. 58-76 Studt, T. 2003. 3M – Where Innovation Rules. R&D Magazine (April), 45(4). 3M. 2012. Available at http://media.corporate-ir.net/media_files/irol/80/80574/Annual_Report_2012.pdf 3M. 2011. Available at http://media.corporate-ir.net/media_files/irol/80/80574/Annual_Report_2011.pdf Gleba, D.T., 1994. Corporate venturing. Upside, 6(9), pp. 65. Read More