Corporate Venture Capital as a Viable Instrument to Foster Innovation
Analysis with Special Emphasis on Brazil
©2002
Diplomarbeit
104 Seiten
Zusammenfassung
Inhaltsangabe:Zusammenfassung:
Immer mehr junge Unternehmungen erobern Märkte, die vormals von etablierten Konzernen dominiert waren. Innovationen können verhindern, dass Konzerne langfristig von solchen Unternehmungen verdrängt werden. Corporate Venture Capital (CVC) stellt eine geeignete Form dar das Innovationsmanagement zu unterstützen. Obwohl es eng mit dem Venture Capital Finanzierungskonzept verwandt ist, stellt CVC eine für Unternehmen variierte Form Innovation zu schüren dar.
Die Diplomarbeit beschäftigt sich in einem empirischen Teil mit dem Einsatz dieses Instrumentes in einem Entwicklungsland, wo naturgemäß Innovationsaktivitäten weniger ausgeprägt sind. Deswegen stoßen Konzerne beim erfolgreichen Einsatz von CVC auf Hindernisse und Grenzen. Eine Analyse des Brasilianischen CVC Marktes und eine integrierte Fallstudie eines großen nationalen CVC Gebers offenbaren Unterschiede zu Industrieländern. Die gegenwärtige Forschung, welche meist auf Industrieländer beschränkt bleibt, stuft strategische CVC Aktivitäten als sehr sinnvoll sein. Die Analyse ergibt jedoch, dass finanzielle Zielsetzungen in Brasilien überwiegen.
Unterschiedliche Markt und Regulierungsbedingungen, Kulturunterschiede, Schwachstellen im der Makroökonomischen Umwelt, im Anreizsystem sowie andere Herausforderungen, erfordern Anpassungen beim Einsatz von CVC, um mit erhöhten Risiken besser umzugehen, unabhängig in welcher Phase des CVC Prozesses. Nichtsdestotrotz erscheint CVC ein geeignetes Innovationsinstrument in Brasilien zu sein und besitzt noch Entwicklungspotential.
Abstract:
Corporations require innovation to maintain business, since small enterprises with new products can rapidly overtake slow established ones. Corporate venture capital seems attractive to generate radical innovation. While CVC is closely related to the financing concept of venture capital, corporations increasingly use corporate venture capital to foster innovation efforts.
In developing countries, where innovation activities are scarce, corporations face many obstacles and barriers to deploy successfully corporate venture capital. An empirical study of Brazil's corporate venture capital market reveals business practices different from conventional concepts in industrialized countries. According to conventional knowledge, strategic corporate venture capital investments make most sense, but in practice financial objectives dominate in Brazil. Different market and regulatory conditions, […]
Immer mehr junge Unternehmungen erobern Märkte, die vormals von etablierten Konzernen dominiert waren. Innovationen können verhindern, dass Konzerne langfristig von solchen Unternehmungen verdrängt werden. Corporate Venture Capital (CVC) stellt eine geeignete Form dar das Innovationsmanagement zu unterstützen. Obwohl es eng mit dem Venture Capital Finanzierungskonzept verwandt ist, stellt CVC eine für Unternehmen variierte Form Innovation zu schüren dar.
Die Diplomarbeit beschäftigt sich in einem empirischen Teil mit dem Einsatz dieses Instrumentes in einem Entwicklungsland, wo naturgemäß Innovationsaktivitäten weniger ausgeprägt sind. Deswegen stoßen Konzerne beim erfolgreichen Einsatz von CVC auf Hindernisse und Grenzen. Eine Analyse des Brasilianischen CVC Marktes und eine integrierte Fallstudie eines großen nationalen CVC Gebers offenbaren Unterschiede zu Industrieländern. Die gegenwärtige Forschung, welche meist auf Industrieländer beschränkt bleibt, stuft strategische CVC Aktivitäten als sehr sinnvoll sein. Die Analyse ergibt jedoch, dass finanzielle Zielsetzungen in Brasilien überwiegen.
Unterschiedliche Markt und Regulierungsbedingungen, Kulturunterschiede, Schwachstellen im der Makroökonomischen Umwelt, im Anreizsystem sowie andere Herausforderungen, erfordern Anpassungen beim Einsatz von CVC, um mit erhöhten Risiken besser umzugehen, unabhängig in welcher Phase des CVC Prozesses. Nichtsdestotrotz erscheint CVC ein geeignetes Innovationsinstrument in Brasilien zu sein und besitzt noch Entwicklungspotential.
Abstract:
Corporations require innovation to maintain business, since small enterprises with new products can rapidly overtake slow established ones. Corporate venture capital seems attractive to generate radical innovation. While CVC is closely related to the financing concept of venture capital, corporations increasingly use corporate venture capital to foster innovation efforts.
In developing countries, where innovation activities are scarce, corporations face many obstacles and barriers to deploy successfully corporate venture capital. An empirical study of Brazil's corporate venture capital market reveals business practices different from conventional concepts in industrialized countries. According to conventional knowledge, strategic corporate venture capital investments make most sense, but in practice financial objectives dominate in Brazil. Different market and regulatory conditions, […]
Leseprobe
Inhaltsverzeichnis
ID 6833
Kunzmann, Thomas: Corporate Venture Capital as a Viable Instrument to Foster
Innovation - Analysis with Special Emphasis on Brazil
Hamburg: Diplomica GmbH, 2003
Zugl.: Friedrich-Alexander-Universität Erlangen-Nürnberg, Universität, Diplomarbeit,
2002
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- I -
ABSTRACT
Corporations require innovation to maintain business, since small
enterprises with new products can rapidly overtake slow established ones.
Corporate venture capital seems attractive to generate radical innovation. While
CVC is closely related to the financing concept of venture capital, corporations
increasingly use corporate venture capital to foster innovation efforts.
In developing countries, where innovation activities are scarce, corporations
face many obstacles and barriers to deploy successfully corporate venture capital.
An empirical study of Brazil's corporate venture capital market reveals business
practices different from conventional concepts in industrialized countries.
According to conventional knowledge, strategic corporate venture capital
investments make most sense, but in practice financial objectives dominate in
Brazil. Different market and regulatory conditions, cultural differences, gaps in the
economy and incentive system and other challenges require adaptations for the
deployment of corporate venture capital in Brazil to cope with environmental risks,
regardless of which phase the corporate venture capital process is in.
Notwithstanding, corporate venture capital appears to be an appropriate
innovation instrument in Brazil.
Key words: Brazil, Corporate Venturing, Developing Countries, Innovation,
Venture Capital.
- II -
TABLE OF CONTENTS
TABLE OF CONTENTS ... II
LIST OF ABBREVIATIONS... V
LIST OF FIGURES ... VI
LIST OF TABLES... VII
1. INTRODUCTION...1
2. INNOVATION IN CORPORATIONS ...6
2.1. Delimitation of Innovation ...6
2.2. Innovation Process...7
2.3. Innovation Goals in Corporations ...9
2.4. Innovation-Influencing Factors...10
2.4.1. Internal Factors...11
2.4.1.1. Resource-Based View of a Firm ...12
2.4.1.2. Knowledge-Based View of a Firm ...14
2.4.2. External Factors ...15
2.5. Innovation Activities...17
2.5.1. Internal and External Innovation Activities...18
2.5.2. Inter-Organizational Innovation Activities ...18
3. CORPORATE VENTURE CAPITAL FROM A CORPORATE VIEW...23
3.1. Delimitation of Corporate Venture Capital...23
3.1.1. Concept of Venture Capital ...24
3.1.2. Concept of Corporate Venture Capital...26
- III -
3.2. History and Performance Review ...27
3.3. Corporate Venture Capital as a Phase Model...29
3.3.1. Financing Stages of New Ventures ...29
3.3.2. Corporate Venture Capital Process ...32
3.3.2.1. Objectives and Resource Provision ...32
3.3.2.2. Deal-flow and Due-Diligence...33
3.3.2.3. Building Business Value...34
3.3.2.4. Exiting ...35
3.4. Objectives of Corporate Venture Capital ...36
3.4.1. Objectives of the Venture ...36
3.4.2. Objectives of the Corporation ...38
3.4.2.1. Financial Objectives ...38
3.4.2.2. Strategic Objectives ...39
3.5. Organization Forms of Corporate Venture Capital ...41
3.5.1. Third Party-Funds...42
3.5.2. Dedicated-Funds ...42
3.5.3. Self-Managed Funds ...43
3.6. Influencing Factors...43
3.6.1. Structural Factors ...44
3.6.2. Relational Factors...46
3.7. Evaluation...46
4. INNOVATION AND CORPORATE VENTURE CAPITAL IN BRAZIL ...50
4.1. Innovation in Brazil...51
4.1.1. Political and Legal Environment ...51
4.1.2. Economical Environment...52
4.1.3. Technological Environment ...53
4.1.4. Societal Environment...54
4.1.5. Ecological Environment ...55
4.2. Venture Capital and Corporate Venture Capital in Brazil ...57
- IV -
4.2.1. Venture Capital in Brazil ...57
4.2.2. Corporate Venture Capital in Brazil ...60
4.3. A Case Study on Votorantim Ventures ...62
4.3.1. Objectives and Strategy ...62
4.3.2. Organization ...63
4.3.3. Process ...64
4.3.3.1. Deal-Flow and Due Diligence...64
4.3.3.2. Monitoring and Building Business Value ...66
4.3.3.3. Exiting ...66
4.3.4. Investments Made ...67
4.3.5. Deviations from Conventional Practices ...69
4.3.6. Summary and Outlook...70
4.4. Evaluation...71
5. CONCLUSION AND FURTHER DEVELOPMENTS...73
APPENDICES ... VIII
BIBLIOGRAPHY ...XVI
LIST OF INTERVIEW PARTNERS... XXIV
- V -
LIST OF ABBREVIATIONS
ABCR =
Associação Brasileira de Capital de Risco
CVC
=
Corporate Venture Capital
DC =
Developing
Country
GDP = Gross
Domestic
Product
HBR
=
Harvard Business Review
IBGE =
Instituto Brasileiro de Geografia e Estatistica
IC =
Industrialized
Country
IPO
=
Initial Public Offering
IT =
Information
Technology
JBV
=
Journal of Business Venturing
MNC = Multinational
Company
NVCA =
National Venture Capital Association
PE =
Private
Equity
R&D
=
Research and Development
RBV = Resource-Based
View
SMJ = Strategic
Management
Journal
US =
United
States
VC =
Venture
Capital
- VI -
LIST OF FIGURES
Figure 1:
Structure of the Thesis...4
Figure 2:
Innovation Goals of Corporations ...9
Figure 3:
Innovation-Influencing Factors...11
Figure 4:
Overview of Innovation Activities ...17
Figure 5:
Corporate Venturing Framework...20
Figure 6:
Financing Stages of New Firms ...30
Figure 7:
Total Venture Capital Investments In Brazil ...58
Figure 8:
Venture Capital Deals and Average Deal Size in Brazil...58
Figure 9:
Venture Capital Sources in Brazil ...60
Figure 10: Venture Capital Deals by Stages in Brazil ...60
Figure 11: Votorantim Group's Business Segments ...62
Figure 12: Votorantim Ventures' Portfolio by Stages ...68
Figure 13: Votorantim Ventures' Portfolio by Industry...68
Figure 14: Innovation Influences in Brazil ...74
- VII -
LIST OF TABLES
Table 1:
Characteristics of Venture Capital...26
Table 2:
Complementarities of Resources and Capabilities...41
Table 3:
Corporate Venture Capital in Brazil...61
Table 4:
Votorantim Ventures Screening Criteria...65
Table 5:
Votorantim Ventures' Portfolio...68
Table 6:
Bridging Gaps in the Brazilian Economy ...69
- 1 -
1. Introduction
"Innovation is at once the creator and destroyer of
industries and corporations"
1
.
The impact of innovation for corporations is profound. Innovation is seen as
a driving factor to maintain the existence of firms through growth and profitability.
From a firm level, successful innovation grants corporations
2
long-term profitability
through competitive advantages. Furthermore, innovation helps to sustain leading
market positions and avoids a displacement of incumbent corporations through
competitors by introducing such
3
.
Structural changes in the worldwide economy make the importance of
innovation even more pressing. Linkages in finance, procurement, production and
sales markets, shorter product lifecycles make processes more dynamic. The
globalization of economical activities, progress of modern technologies as well as
increased complexity and specialization of value chains has transformed the
worldwide economy and has had several profound implications on productivity.
Consequences of this trend are new organization forms and increased
collaboration between business partners. It follows that innovation is essential for
corporations' future
4
.
Innovation develops in creativity thriving environments
5
. New firms that
commonly provide such an environment account for half of all innovation and 95
percent of all radical innovation in the US
6
. As a result, corporations today are
increasingly forced to find new methods to generate innovation, since existent
R&D departments face organizational obstacles, which often hinder
1
Utterback (1994), p. XI.
2
Corporations here are defined as large and established firms. A further refinement in terms of
numbers does not seem helpful, since size and age of an enterprise do not necessarily
correlate. See also Nathusius (1979), p. 121.
3
See Schuster (2000), p. 1.
4
See Hämäläinen / Schienstock (2001), p. 17.
5
See Gerpott (1999), pp. 1 13.
- 2 -
entrepreneurial spirit
7
. Commonly, new firms are better qualified to provide such
an environment, leaving more space for employees' ideas, since hierarchy
structures and politics are virtually not present
8
.
A tool that leverages the various advantages of new firms in creating
innovation is corporate venture capital (CVC) and it is the main focus of this thesis.
While CVC is known for its relatedness to venture capital (VC) and its financial
impact, CVC is not a new concept. In contrast to pure financial objectives in VC,
corporations can define strategic goals with CVC. Although corporations have
been using CVC since the 1960s, in the past strategies were mainly dominated by
financial goals
9
. The financial impact of CVC has been partially disappointing and
subject to cyclical movements. Throughout the most recent trend in the late 1990s,
when corporations feared being displaced by new Internet-based firms in the first
half of 2000, some 350 CVC funds invested worldwide approximately US$ 8.2
billion in new ventures
10
. One year later, nearly one third of the companies that
were actively investing in corporate funds had stopped making such investments,
which then tumbled to US$ 848 million in the third quarter of 2001
11
. While private
VC investments also decreased, the shift in CVC has been particularly dramatic.
Providing this volatility, strategic objectives in CVC gained importance.
Innovation is the base for economic development
12
. A delay of modern
technologies offers great potential for corporations. Especially saturated demand
in homegrown markets and a reduction of trade barriers offer attractive growth
6
See Timmons (1999), p. 9. According to Müller / Schienstock (1978), p. 240, the size of a
corporation is not necessarily of advantage to be innovative, thereby rejecting Schumpeter's
contrary assumption.
7
See Niederkofler (1989), p. 47; Gerpott (1999), pp. 1 13, identified three reasons established
corporations struggle with. First, established corporations face difficulties in managing
technical innovations. Second, efficiency differences in developing innovations have been
observed. Lastly, a necessity for a high degree of resources deployment to generate new
products explains why small firms are better able to cope with innovations.
8
The National Science Foundation found that between 1953 and 1976 the majority of
innovations in the US derived from small companies with less than 1000 employees. See
Bleicher / Paul (1987), p. 64.
9
See Gompers / Lerner (2001), pp. 150 151.
10
See Asset Alternatives (2001b).
11
See Chesbrough (2002), p. 90.
12
See Meyer-Stamer (2001), p. 2.
- 3 -
potential and make market presence in underdeveloped countries important to
multinational corporations (MNC)
13
. However, establishing CVC as an instrument
to improve innovation efforts is still widely unknown. Although it prevails in
industrialized economies
14
, CVC also seems to make sense for developing
countries (DC). Thus, the research question to be addressed in this thesis is:
Is CVC a reasonable instrument to foster innovation in
Brazil from a corporate perspective?
The thesis is structured in five parts. After this introductory section, the
thesis starts in section two with the concept of innovation from a corporate
perspective. It begins with a delimitation of innovation, and then innovation goals
are illustrated. Next, innovation-influencing factors are explained and an overview
of innovation instruments closes this part.
Section three depicts CVC from a corporate view. Starting with an overview
of the underlying VC concept and a history of CVC, the process and possible
organization forms will be presented. Then, the reasons for providing and using
CVC will be explained in detail, underlining the differences to VC. Finally,
innovation-influencing factors are discussed.
Section four presents the empirical part of the thesis. Starting with an
analysis of Brazil's macro environment, a VC market overview is presented. For an
internal perspective, a case study on Votorantim Ventures, a self-managed CVC
fund in Brazil, is incorporated into the paper. The case shows how Votorantim
Ventures adapted its CVC strategy to mitigate the imbalances in the innovation
environment.
13
See Niederkofler (1989), p. 57.
14
Votorantim Ventures (2002a) estimated that 92% of worldwide VC was allocated either in the
US or Europe in 1999. From a total of US$ 134 billion, only 1.3% (US$ 1.8 billion) was spent in
Latin America.
- 4 -
Finally, in section five a summary of the results is presented. Concluding
from the theoretical findings in the previous sections, a judgment is made of
whether or not CVC is appropriate to drive innovation in Brazil. An outlook on
further developments closes this section and the thesis. Figure 1 depicts an
overview of the structure.
Figure 1: Structure of the Thesis
Introduction
Conclusion and Further Developments
Innovation and Corporate Venture Capital in Brazil
Innovation in Corporations
Corporate Venture Capital from a Corporate View
Theoretical Part
Empirical Part
Source: Own Illustration.
Several limitations are made in this thesis. Written from a corporate
viewpoint, CVC from the perspective of new firms is intentionally disregarded.
Throughout this thesis CVC is analyzed by its impact on innovation fostering and
the financial motivation is not further contemplated. Since CVC is based upon VC,
it is important to introduce the basics of VC. However, this concept can only be
addressed briefly. Similarly, other financing sources for new firms besides CVC,
such as business angels and independent VC firms, are not depicted.
- 5 -
Various innovation instruments are possible
15
. This thesis gives an
overview on internal and external instruments, but focuses on the role of CVC to
illustrate how to generate radical innovation. Although internal corporate
venturing
16
is another approach to accomplish innovation goals, the focus
excluded this aspect.
The results of the empirical part of this thesis cannot be easily carried over
into another economy. The case study on Votorantim Ventures provides an
overview of how a CVC program is deployed in Brazil, but cannot analyze all
influencing factors in-depth, especially due to formal restrictions and confidentiality
issues.
15
The innovation instruments are presented in section 2.5.
16
Internal corporate venturing refers to the collaboration between an established corporation and
a new firm. In contrast to CVC, ideas are developed within the boundaries of the corporation.
- 6 -
2. Innovation in Corporations
Innovation implies dramatic consequences for corporations' existence as
IBM as an example illustrates. In a survey amongst top managers, IBM was voted
as the world's best-managed company in 1982. In 1992, only 10 years later, IBM
dismissed more than 200,000 employees and reported a loss of US$ 8.1 billion,
not even ranking in the top 20. The essential reason for IBM's economical
problems was that it disregarded technological change and held onto existing
products, rather than to develop new technologies
17
.
This section discusses the concept of innovation in corporations. Starting
with innovation delimitations and the innovation process, then the innovation
objectives are expounded. Next, innovation-influencing factors are depicted. In the
last part, the different innovation instruments are illustrated and classified into a
framework.
2.1. Delimitation of Innovation
For Schumpeter, entrepreneurship is a critical force in generating
innovation that is able to make complete industries superfluous or create new
ones
18
. Schumpeter recognized the value of the underlying parts of diverse
systems and understood that these parts could be combined or recombined in new
ways. While Schumpeter refers to the creation of new firms, this thinking can be
applied to corporations as well. "Innovations are ideas that spark new sources of
revenue based on changing technology, demographics, and consumer habits"
19
.
However, innovation must not be confused with invention. Invention means to
identify a new way of doing something, or to develop a new artifact, for the first
time
20
. The key difference in innovation lies in the exploitation or commercialization
of the new idea.
17
See Gerpott (1999), p. 2.
18
See Schumpeter (1934).
19
Hamel / Skaryznski (2001), p. 65.
20
See Meyer-Stamer (2001), p. 2.
- 7 -
In extant literature various delimitations of innovation are common
21
.
Innovation is typically distinguished either by the target object or the degree of
novelty it involves. Delimiting by the target object separates what innovation
improves: process, product or society. Organizational or process innovation is
producing a given good in a more efficient way by means of better organization of
the workflow. Product or technological innovation is better usage of products or
services, whereas societal innovation refers to a better way of defining the
development priorities of a society.
A second significant way to delimit innovation is whether the innovation
follows established patterns (continuous or incremental innovation) or presents a
discontinuity to existing paradigms (radical, discontinuous or disruptive
innovation). An improvement of an existing product is the final goal in incremental
innovation. In fact, most innovation is incremental
22
. Small changes of existing
products can be considered as incremental innovation. In contrast, radical
innovation refers to a new combination of resources, something fundamentally
new, which has not existed before. Radical innovation implies a higher inherent
uncertainty due to its novel character. However, from a technological point of view,
radical innovation usually possesses a different package of performance
attributes, which is not yet valued by existing customers
23
.
2.2. Innovation Process
Besides the discussed views of innovation, which contemplated the result,
innovation can also be seen as a process. Innovation thrives, in most cases, in a
logical and a chronological order of activities and decisions. A process describes a
dynamic course of events, thus segmentation into various phases is idealistic. In
21
See, for instance, Boehme (1986), pp. 15 20; Gerpott (1999), pp. 39 49.
22
See Bower / Christensen (1995), pp. 45 47.
23
See Bower / Christensen (1995), p. 44.
- 8 -
extant literature divergent models exist
24
. A three-stage model consists of R&D
activities, new technologies and product/process introduction activities
25
.
In the first stage, R&D activities are employed. R&D activities are defined
as a systematic method to employ R&D knowledge, which ultimately result in
inventions
26
. Next, the new technologies are assessed, whether they can be
aligned with corporate goals or not. Positively evaluated technologies result in
product or process activities. Lastly, product activities are refined to enter sales
markets. In the case of process activities, an introduction into the organization is
planned.
Technological innovation follows selective, finalized and cumulative
patterns, which Dosi termed a "technological paradigm"
27
. He argued that these
characteristics are responsible for the relatively ordered patterns and eventually
are one reason for the rejection of discontinuities in innovation building
28
. The
aircraft industry serves as an example for technological progress with different
technological trajectories. Two precise trajectories evolved, namely the civilian and
the military aircraft industry, characterized by log-linear improvements in the trade-
offs between horsepower, gross takeoff weight, cruise speed, wing loading, and
cruise range.
This example illustrates that innovation follows an ongoing process. Due to
its significance, innovation is part of top-management's strategic decision-making
to accomplish corporate goals, rather than a static and independent tool. The
different innovation goals corporations pursue are contemplated in the next
section.
24
For a detailed overview of innovation processes see Dietz (1989), p. 102. Innovation
processes range between one and eight phases.
25
See Gerpott (1999), pp. 50 51.
26
See Gerpott (1999), p. 49.
27
See Dosi (1998), p. 1128.
28
The scope of this thesis prevented an extended discussion at this point. For further
understanding, please refer to Dosi (1988), pp. 1120 1171.
- 9 -
2.3. Innovation Goals in Corporations
Besides the structural and economical consequences of innovation, its
impact is much more profound. Corporations have multiple means of acquiring
knowledge, which eventually result in innovation. In his framework, Hungenberg,
which is depicted in figure 2, classified different innovation goals in corporations
29
.
Figure 2: Innovation Goals of Corporations
Direct
Indirect
Revenue
Increase
Cost
Reduction
Innovation
goals
Learning
Influence on
Competition
Influence on
Society
·New Products
·New Applications
·Customer-related
adaptations
·Process Optimization
·Overhead Reduction
·Complexity Reduction
Product Innovation
Process Innovation
Source: Hungenberg (2001), p. 5.
A differentiation between direct and indirect goals is made. Direct
innovation goals are revenue increases or cost reductions. Revenue increases can
be realized through new products or applications as well as customer related
adaptations. Cost reductions appear by making processes more effective,
reducing overhead costs or by decreasing the complexity of processes. Examples
29
See Hungenberg (2001), p. 5.
- 10 -
for indirect motivation to pursue innovation are learning by innovation, exertion of
influence on competition as well as on society. The problem is that indirect goals
are hard to measure due to their qualitative character.
As a result of direct innovation goals, product and process innovation is
most relevant for corporations. Although both types can transform industries,
product innovation is more likely to occur in early phases, whereas process
innovation gains significance throughout mature development stages, because
processes gain importance in more complex organizations
30
. Since corporate
innovation efforts commonly target product innovation, process innovation is
disregarded.
2.4. Innovation-Influencing Factors
A wide range of external and internal factors influences innovation
31
.
Surprisingly, no uniform framework to structure innovation-influencing factors has
been found
32
. For the scope of the thesis a separation of internal factors using
strategic management concepts seems appropriate
33
. Especially the resource-
based view (RBV) and the knowledge-based view as an extension refer to internal
factors. The relation of internal and external factors to innovation in corporations is
illustrated in figure 3.
30
See Utterback (1994), p. 91; Gerpott (1999), p. 41; Lackner (2002), p. 210.
31
See Lackner (2002), p. 45.
32
See Ehrenreich / Schmidt (1999), pp. 3 5.
33
Operational and normative approaches are not included. For further reading see Bleicher
(1999), p. 82.
- 11 -
Figure 3: Innovation-Influencing Factors
Innovation as Corporate Goal
Internal Factors
External Factors
Political & Legal Environment
Economical Environment
Technical Environment
Societal Environment
Ecological Environment
Organizational Processes and
Structures
Resources and Capabilities
Innovation Instruments
Goal
Instruments
Influences
Source: Own Illustration.
2.4.1. Internal Factors
Internal factors mean innovation-influencing factors in corporations, such as
organizational structure and corporate culture, management systems and resource
fittings
34
. After a general discussion of corporations' characteristics, two relevant
management theories are illustrated to highlight important aspects for the scope of
the thesis.
Resources and capabilities in corporations are either tangible or intangible.
Tangible resources refer to physical goods, such as products, supplies or
equipment. Intangible corporate assets are market, manufacturing and
management expertise, which grow as corporations mature. Often, corporations
34
See Lackner (2002), pp. 68 75.
- 12 -
enjoy cost advantages through economies of scale and scope, advantages of size,
important customers as well as developed distribution channels. Moreover, their
size allows diversification of risks
35
.
Corporations developed spacious organizational structures to cope with
growing size and tasks
36
. Fixed organizational structures tend to limit employees'
creativity thereby reducing motivation. New ideas are increasingly perceived as
disruptive and many supporters have found that implementation is difficult to
achieve. Managerial skills, not entrepreneurial skills, are demanded in
corporations. Especially, new ideas for existing products compete on personal,
material and financial resources, and generate conflicts. With decreased
productivity and long development cycles in R&D departments, managers are
urged to profits to justify corporate overhead costs, thus causing risk aversion and
reducing even further the potential for innovation
37
. It is not surprising that
corporations spend R&D money with quarter the efficiency than that of new
firms
38
.
While all these characteristics influence innovation efforts, more recent
literature sees resource and knowledge transfer as the major influencing factors.
In the following, the RBV of a firm and the knowledge-based view of a firm are
discussed.
2.4.1.1. Resource-Based View of a Firm
In her book on firm growth, Penrose defined resources as "physical things a
firm buys, leases, or produces for its own use, and the people hired on terms that
make effectively part of the firm"
39
. Building on Penrose's finding, in the RBV
heterogeneity of resources rather than industry structure
40
is responsible for
35
See Nathusius (1979), pp. 121 134.
36
See Hardenberg (1989), pp. 109 122.
37
See Nathusius (1979), pp. 121 134; Schween (1996), pp. 71 72.
38
See Bleicher / Paul (1987), p. 64.
39
Penrose (1959), p. 67.
40
See Porter (1980), pp. 4 9. This approach emphasized the actions a firm can take to create
defensible positions against competitive forces. Porter defined competitiveness as
- 13 -
differential firm performance with the firm as the primary unit of analysis. Firms
that are able to accumulate resources and capabilities that are rare, valuable,
nonsubstitutable, and difficult to imitate will achieve a competitive advantage over
competing firms
41
. It aims at strategies for exploiting existing firm-specific assets
42
.
"It is an inside-out perspective on organizations that seeks to identify the
characteristics of firms with superior performance"
43
. From an inter-organizational
viewpoint, the RBV presents a method to acquire or share resources. It follows
that collaboration between companies increases their competitiveness. Most
important for this thesis, the RBV justifies the development of new capabilities
through collaboration
44
. Complementing resources by joint ventures, strategic
alliances and CVC becomes a fundamental strategic issue.
Although insightful, RBV is also rather static and neglects firms' transaction
and co-ordinations costs
45
, which can sometimes overwhelm the resource-based
advantages, such as access to new technologies, in organizational decisions.
Furthermore, it emphasizes firms' existing value-adding capabilities and
production costs rather than their innovation capabilities and needs. The
organizational determinants of innovation have been the focus of the more recent
knowledge-based view
46
.
characteristics of firms or industries believed to lead to a strategic market advantage. For
example, a firm might be considered to be competitive if it is the low cost leader in its industry,
if it has focused on a market niche, or if it has a superior technology, or some other
sustainable advantage.
41
See Collis / Montgomery (1995), pp. 118 128.
42
See Teece et. al (1999), p. 514.
43
Rouse / Daellenbach (2002), p. 966.
44
See Wernerfelt (1984), pp. 171 180.
45
See Hardenberg (1989), pp. 109 122. For instance, coordination costs increase with the size
of corporations, since increase in size requires tasks to be delegated.
46
See Grant (1996), pp. 109 122.
- 14 -
2.4.1.2. Knowledge-Based View of a Firm
"Whilst competitive advantage can come from size, or
possession of assets, etc. the pattern is increasingly
coming to favor those organizations which can mobilize
knowledge and technological skills and experience to
create new products, processes and services"
47
.
By seeing knowledge as a source of sustainable competitive advantage,
Grant extended the concept of the RBV. According to his view, profitable firms are
those with superior capability in creating and transferring knowledge. "Knowledge
is particularly important for technology-based firms, since generating and
exploiting knowledge in high-technology
48
sectors demands that knowledge is
continually replenished"
49
. In this context, social capital facilitates knowledge
acquisition and exploitation
50
and can be seen as an underlying concept of the
knowledge-based view. As an integrated part of the knowledge-based view, social
capital has been determined as valuable. Social capital resides in relationships,
and relationships in turn are created through exchange
51
. For example, when
parties trust each other, they are more willing to engage in corporate activity
through which further trust may be generated
52
.
Both approaches focus on the exchange of resources and capabilities as
innovation critical factors. It follows that inter-firm collaboration contributes to reach
a more innovative situation, which helps to improve the corporations'
competitiveness.
47
Tidd et al. (1999), p. 4.
48
No uniform definition for high technology exists. Confusingly, either products or production
processes, business segments of companies, companies or entire industries are subject to the
term high technology. See Gerpott (1999), pp. 20 25.
49
Yli-Renko et al. (2001), p. 587.
50
See Yli-Renko et al. (2001), p. 589.
51
See Nahapiet / Ghosal (1998), p. 250.
52
See Maula et al. (2001), p. 1.
Details
- Seiten
- Erscheinungsform
- Originalausgabe
- Jahr
- 2002
- ISBN (eBook)
- 9783832468330
- ISBN (Paperback)
- 9783838668338
- DOI
- 10.3239/9783832468330
- Dateigröße
- 1017 KB
- Sprache
- Englisch
- Institution / Hochschule
- Friedrich-Alexander-Universität Erlangen-Nürnberg – Wirtschafts- und Sozialwissenschaftliche Fakultät
- Erscheinungsdatum
- 2003 (Mai)
- Note
- 2,0
- Schlagworte
- innovationsmanagement corporate venturing venture capital brasilien brazil developing countries entwicklungsländer
