This is a crucial question in new product and service development.Form an expert team to evaluate new ideas. The team members are knowledgable people from business, science and engendering depending on the nature of the product or service proposed.

The team can evaluate marketing channel, operational cost, technological advantage etc. It can be like putting pieces of puzzle together. Even the team overlook the importance of new ideas. Therefore, put those new ideas in the internal source so that good ideas do not go out from the organization. There are many examples that the original inventing organization did not commercialize its invention. IBM did not use its invention and Oracle was born to use it. Kodak's digital technology is also known as another example. These examples illustrate the importance of the evaluation of new ideas.

Take it to a higher abstraction level, where innovations come from inside an organization in the first place? it is from the people and their interactions. In reality, innovations emerged within groups of people. Evident of innovations could be found in the pantry, in the cafeteria and even in the toilet!

The question Kompella asked is essentially how an organization is institutionalized to channel those innovations to business development.

No matter in what forms which are, the basics should be the same:

- Objectives of the organization should be clearly understood by everyone

- Motivation for innovation is encouraged

- Processes from proposal, evaluation, approval and piloting should be defined

especially the evaluation criteria has to be transparent

With those simple rules, an innovative organization structure will emerged. The structure can be in different forms depends on the context of the organization within.

Two issues are raised in Kompell's question: ordination of new ideas and which ideas those firms pick for funding. Innovative firms have structures to elicit tacit knowledge.

Employees experience by performing tasks or customer's request. Employees interact with each other, customers and suppliers. They gain tacit knowledge through their experiences. The organization need a structure to elicit tacit knowledge for new products. Yes, new ideas can come from many different sources. When there is a structure in the organization employees become conscious on their experiences and thinking about innovative ideas. There many innovative ideas in the organization and the organization need to pick and choose. The organization has evaluation system in selecting projects that the organization will make investment. The evaluation structure may differ from one firm to another. One way is to form an evaluation team and I discussed the evaluation team in my previous answer.

Organizational culture for innovative organization is known for respecting all ideas. R&D employees have more flexible work schedule and are allowed to engage in their own interests.

Edward, I am interested to know more about the organizational aspects of Innovation department and the control of new business projects especially from budget point of view. For example Google has a culture of starting many new projects in different fields like robotics, automation etc. , I want to know how such teams are formed in first place and the reporting style and control aspects of those projects.

Hong, We know it in theory the best practices and general process of ideation and call for proposals to drive innovation , but my interest is to know what the top innovative firms do differently, not in technology innovation but business model innovation which enables creating entirely new business divisions easily. In this context I want to know what top firms do.

The top innovative firm that I know has an idea central. Idea central is a data bank.

An employee or a group of employees send proposals to the idea central and a team evaluate those proposals and reach a decision to fund it or not. I have written a paper and I am scheduled to present it in June. I can send you a copy of my paper in June.

In this respect I recommend to look at Corporate Venturing in companies. Many business development initiatives are affiliated with corporate venturing, e.g. investment in external companies (new or established ones) which might be incorporated in the company at some stage. Second there are numerous Innovation Councils in companies which allocate "play money" to innovation and R&D units with the intention to develop new business units. Sometimes trhese units are called "incubators" or the like - however these approaches are seldomly communicated outside.

Dirk, In the direction of Corporate Venturing could you give me examples of firms that were failures and firms that were successful with thier strategy.

Novartis is extremly successful with their strategy, also Microsoft and Intel. Alcan is another example. There is little reporting about failures, therefore I'm not sure which examples to quote.

Dirk, could you please give me some metrics measuring success of these funds?

New ventures are producing future goods and there are no markets for future goods.

Not all ventures are successful. Rates of success in new ventures may differ. Innovative firms embark on over 100 projects and I was told that the success rate is about 20 percent.

Dear Kashyap

My feeling is that you ask for a summary of the whole discipline of Innovation Management. Any introductory textbook on Innovation Management will answer your question, including not just the solutions of Google and Apple, but from many more firms. If you want a very detailed book with many tools, you could choose Pervaiz K. Ahmed & Charlie Shepherd. Innovation Management: Context, Strategies, Systems and Processes. To prevent misunderstanding, I don't have any interest in the book, and I do not know the authors or publisher personally.

Jan van den Ende

Thanks Jan

My experience shows that new business should be sheltered from the normal day-to-day business. There are different drivers in place and delivering to a business plan can be very hard and negative as the growth will not be 1/12 per month of the annual plan! Set clear objectives and milestones which can instead be used to stop or accelerate the growth of the next business.

Ensure that you start fast and don't try to save money by going slow! Seams obvious BUT corporates can starve the start-up of funds meaning that you are slow and then become late - reducing the NPV (or IRR) of the startup.

Always identify how close the business is to the exist business - this will help you work out who in management should oversee the new business. Some people can be very conservative where as others many be more constructive to new businesses. This is really important when considering risk management (an emotional issue at best).

Drop me an email if you want to speak directly.

Thanks

Shaun

Shaun, I wish to know how firms raise funds for their corporate venture capital.

Do they manage it internally or they approach banks etc.

Established firms use their retained earnings. If they need to use outside funding, they issue stocks or bonds. Newly starting entrepreneurs may use their own money internally. External funding sources are venture capital, angel fund and crowd fund.

These funds in the U. S. are strictly regulated because they can be abused easily.

Dr. Hong can I get some papers where this sources of funding is available.

I want to find examples in some specific corporate venture capital firms and their fund sources.

Dear Kashyap,

Example given by you, google, apple, themselves may explain how innovative organizations are organized. Resource based view may provide the theoretical framework to answer the question ' why these organizations remained innovative': Their resources particularly knowledge base may be tacit and organizations is structured managed to this knowledge base remain, valuable, rare, inimitable, and non-substitutable.

Upananda

Dear Kashyap,

Thank you for request.

There are numerous studies on venture capital, angel funding, crowd funding.

I can offer a couple of studies on angel funding. Scott Shane, "The importance of angel investing in financing the growth of entrepreneurial growth ventures." You may get this working paper by google it. How to book: Dr. Tom McKaskill, Raising Angel & Venture Capital Finance. You can google this publication. I will add more later on.

As the only business owner (a successful business) on this string, I would remark that all text books are reactive: they build on success stories. All innovative approaches are proactive and eat up the risk and pay by failures. Successful models are as different as people who invent and implement those, and the is no approach that would fit all, or even two. Read success stories disguised as text books since someone cared to analyze those and bear in mind that business is like opera singing - you need to be born with talent, learn and practice and grab opportunities hoping for luck.

BTW: Apple and probably Google are now under a lawsuit for their "innovative" business development. The class action law suit alleges mutual agreement between major competitors to non-hire of professionals who had worked for either of the colluding parties. The size of the lawsuit is over $36B, so the innovation in business development would eat up its own risk.

Tanya's point on entrepreneurship is real and make sense. Tanya has good insight on entrepreneurship as a practicing entrepreneur. My paper, Knowledge, Entrepreneurship and Innovation in Products and Services deals with the issue. An entrepreneur is alert and grab opportunities (Kurtznerian entrepreneur). Schumpeterian entrepreneurs are creative and respond creatively to changes in economic environment or economic data. Knightian entrepreneurship is about taking risk. Entrepreneurs captures qualitative changes in the air and translate them into new products and services.

Tanya, appreciate your realistic input. I am an entrepreneur when the word entrepreneurship was not popular in my country, year 2000. For me in innovation money is not the first factor. Innovation's first investment is knowledge, followed by creativity, next is diversified/multidisciplinary exposure, risk taking, time investment, ... and finally finance. A clearly stated innovative proposal will automatically attract potential funding agencies or venture capitalist. The very first investment in innovative business is knowledge and creativity crunching by being sensitive to current lifestyle needs and being environment friendly. It may come from a single person or from a group.

Both Tanya and Kalaivani offer good insight on entrepreneurship. I appreciate their participation on entrepreneurship discussions.

Kashyap, executive level in monstrous corporations, like those mentioned, does not deal with innovation or stir projects. In case of internal funding, the decision is based on the availability of seed proposals and the volume of internal funding required, the matter is then decided at the level authorized to handle the funds at that level. Some organizations have fixed-size increments to fund seed proposals which they solicit from the employees. In small businesses, the decision is made by operations officers who control a certain portion of internal resources. Say, instead of hiring a weekly janitor and paying for the trash removal, I will mop myself and dump trash on the way home which will allow me buying mice and analytical kits for the in-house research. Maybe, I will pay a university for a task that I have devised very carefully. If that effort seems promising, I will present the proposal to the board and ask for more internal funds etc. In this chain, venture capitalist is nowhere near since I am operating in the "death valley". The venture may come on board (if the BOD decides so) at a much later stage, at the level of the prototype. Hope this helps.

Innovative organizations have interesting features. As they have a strong differential offer, in the form of a product or service, they not have a past to load in the form of a structure. In other words, they are in prime condition to build a company from scratch. This enables greater speed - which is crucial in order to spread its technology. Thus, consolidate and grow at high pace.

So, Microsoft, Apple and Amazon fit the pattern described above.

However, any of them can deal with a heavy structure and therefore can be less able to monitor the reaction to new technologies. Microsoft was the case when the Internet emerged.

Roberto is being practical in his statement, innovation is an excellent strategy for new start-up but it may take a long process in an established organization due to factors like, perception, resistance, attention, trust towards new ideas, why change and many others.

I have always share this quote with my trainees:

"Innovation and Entrepreneurship is an excellent approach in losing organizations rather than winning organization"

Are you willing to be part of losing team to make it win?

Bare in mind that its easier to be a winner in a losing team rather than be one in a winning team.

There are two types of entrepreneurs:newly starting business and innovation in products and services in established firms. Today's successful new businesses are Microsoft, Facebook, Amazon and Apple. Those firms continue to innovate to make the above average profits and the above average profits are normally stemming entrepreneurial actions. Newly starting firms produce new goods and services. Entrepreneurs take risk and face uncertainty. Only a fraction new ventures are successful. However, entrepreneurial actions are necessary for us to enjoy new and better products and services. The profit is the main driver of entrepreneurship. Entrepreneurs bear risk and uncertainty. Knowledge is the sources of entrepreneurship. Knowledge is tacit and a structure is necessary to bring it out from

Individuals.

Tanya, I am still looking for how the funds are sourced for internal projects in big firms?

Kasyap, I am not familiar with the sector you are focusing on (e-retail and software). I have been involved with energy and chemical/energy and now with small pharma and only with privately-owned or non-profits. The rules may be different. The first move would be to source funds from the government to offset the risk. Until the current administration, that was possible for all industries. This administration has cut it off and suffocated several nascent industries, like renewable energy production, by diverting funding intended for business innovation to other sectors. In the absence of the government help with the seed innovation (up to prototype demo), industries are naturally looking into the private sector where and, in the first place, to major philanthropies in R&D, which is still better than borrowing from the capitalist. Please note that there is a difference between unregulated products and services ( the ones you are looking into) and regulated (drugs, medical devices etc.) and public vs. private firms.

For any business, you would start with trying to get funding which does not require a seloff of your equity shares. Then, you sell your shares to the public or private investors depending on the need and situation. In public companies, you may release additional shares or pull a trick by trumpeting forward looking statements to increase price of the existing shares but the latter one may get you in jail.

Hi Tanya, I am in the space sector in Europe, (in the rockets and satellites business)

I want to know, if we have a corporate venture capital , how should we start raising funds and what are the best sources for money.

For the modest seat on your Board, I will be happy to chime :-). I knew only two satellite/space businesses, one US and one Russian. Since you guys are well endowed by your own military, you may keep on digging there which is government funding or large telecom funding. I was always mystified why your sector is so focused on its internal competition so that you disregard other markets, especially consumer products in health and beauty and toys. Perhaps because it is a male-dominated industry. I would set up a subsidiary to get funds from India or China who also can do mass production or fund internally a targeted development of consumer products based on your already patented technologies. Just my two cents.

Tanya, I would like to know how to look for sources of funding that corporate ventures look for. The corporate ventures I have in mind are, BASF Venture Capital,Comcast Ventures, GE Ventures, GM Ventures, Google Ventures, Intel Capital, J&J Development corporation, Lilly Ventures, Pfizer Venture Investments, Samsung Ventures.

I am able to find their approximate fund sizes but I want to find the fund sources.

Hope you can help me with it.

Venture capital firms have their own funds to invest, but they seek funds when they get application from new firm. Venture capital firms are intermediary between savers and new in esters. They form capital from a group of people to fund a new project.

Those established company that you mentioned have options to fund their projects: retained earnings, issuing new stocks or bonds, banks for relatively short term borrowing. Some of them may have venture capital which may be a business unit.

The venture capital business unit is matching new entrepreneurial fund needs and capital owners. The venture capital firms have a group of capital owners or they can form a new capital for a project. They have a vast network of savers (capital owners).

Hong , What you say is true.

Can we specifically find the sources of funds that the corporate ventures have raised,

I would be really interested to find some papers in this direction.

Buy stocks of those companies. Bingo- you are a shareholder. Now, you can get reports. If something is not on the report, request the info as a shareholder, if they disregard, request again with a copy of the request to SEC.

Kashyap, There are numerous venture capital funds. They tend to specialize in a field such as bio venture capital and high tech venture capital. Sources of funds can be rich individuals and pension funds etc. They need experts to evaluate new projects for funding. They take equity position for new venture.As they build reputation obtaining funds becomes easier.

You can google for papers and I will find good papers for you when I go to my office tomorrow.

La creatividad no tiene edad, la diferencia entre jovenes y viejos es la disciplina por investigar actividad de donde vienen nuevos conocimientos, el parendizaje tiene dos dimensiones: una es a través del estudio y la investigación documental cuyos productos son nuevos conceptos y nuevas teorías; la otra forma de aprendizaje es haciendo, es decir en la identificación de problemas y huecos, para generar nuevas alternativas para solucionarlos, ambas formas de aprender convergen en la suma sinergica de investigación básica e investigación aplicada, el propósito de todo conocimiento es entender como opera la realidad para transformarla sustentablemente en beneficio de todos de manera equitativa.

Las empresas innovadoras son las que han desarrollado sus capacidades tecnológicas y sus capacidades organizacionales, para aplicar una cultura innovadora requieren una forma de organizacional en red y no vertical, las estructuras organizacionales de Apple y Google se asemejan a las redes sinapticas como se comunican las neuronas , nunca verticales siempre en red.

I am working for a mining company with the prestige of being the biggest gold producer in the world. Every process such as accepting and approving innovative ideas is documented. Levels of approval is linked to the volume of funds required for a new project and suggestions are welcome from all levels within the organization. For instance project proposals worth $1 million can only be approved by the CEO.

With gold prices hovering around $1300 sources of funds from shareholders and banks has never been a problem.

Thanks, Aikins, for validating my response about internal funding. With gold being both a commodity and specialty and performing in all markets, including consumers, your firm can always expect support . Kashyap is in a funny industry that is self-centered and looks down on expansion into consumers markets (satellite development). I know of very few people who own real satellites or care for navigation software. Raising outside private funding for his industry may be a problem. For an honest foreign investor it may be a rightout taboo since at some point military who funds the main development may announce them meddling into secrets.

I would be glad if somone could explain how VCs use pension funds and also comment on the below link

http://knowledge.wharton.upenn.edu/article/intel-capitals-keith-larson-venture-capital-and-the-impending-pension-crisis/

Dear Prof Park, you mentioned that VC funds and pension funds need experts to evaluate funding proposals. What type of expert role it is? I would be interested to develop required skill sets for that role.

I completely agree with Hong. Sources of funds can be rich individuals and pension funds etc.

Dear Kasyap,

Your question is mulch-faceted.

You are asking organizational structure in innovative organizations; business innovation; funds allocation; controlling; role and extent of executive level involvement; initiative and sources of initiatives.

It is difficult to answer all these but I would suggest, according to some research, that there are no prototypes for innovative organizations it is only an outcome of interactions among key entrepreneurs of the organization and customers to combine resources in novel ways which would replace obsolete combinations.

Upananda, Sri Lanka

Thanks Upananda

They may tend to implement agile management rules, which are iterative and incremental practices/strategy.

read more about scrum management, agile management,

the book: management 3.0 (by Jurgen Appelo)

The success of an innovation - be it a product, a service or a process - not based solely on the knowledge and experience of those working in the business, but rather in the ability to find the right mix between a number of factors fundamental - individual and collective - such as motivation, commitment, nonconformity, or professional capacity called innovative spirit - understood as the desire, interest and curiosity to experiment, take on new challenges, explore ways to decision previously not explored that allow us to find new answers and solutions steadily

For a review on this question, you can read this article :http://www.sciencedirect.com/science/article/pii/S0883902607000419

Kashyap, It had never made sense to me that pension fund should invest in something risky, i.e. innovation, except for a bridge loan that promise VERY high return; and even that, the amount invested should be a small amount of the portfolio. Pension fund, by definition, is for old people, and for retirement. Why would anyone want to risk their life savings over a probability statement of a high return?

Pension funds might invest a portion in higher risk investments as part of a portfolio of investments. Keep in mind that the fund is for future retirees - 40 years hence - as well as those currently retired. They would invest in a venture capital fund, not in individual projects (typically). Over time, the best returns are from equities - and as one gets closer to needing the funds will move into safer investments. 

Tanya - earlier you suggested that by buying stock in a company one would have access to some reports that would identify the source of venture funds. What reports are you referring to? Stockholders do not have open access to all internal documents. The interested person would do well by searching the SEC website for public filings.

Peter--the issue is this: would a pension fund manager invest in a venture capital fund (not a project) when the only criterion for investment is the expected rate of return? The pension fund manager knows nothing about managing a portfolio of start ups. What information he has that makes him a more knowledgeable investor of a venture captital fund. So....if he is investing purely on the basis of some expected high return, why not put a small portolio of their fund in buying lottery, or gambling in Las Vegas?

Creative ideas exist in all levels of an organization.and is very personal; ie emerges out of a personal frame of reference (knowledge, expertise, experience, skill, networks, abilities etc)

Innovation requires social engagement across multiple actors and players, to move ideation forward to an implementable outcome that enjoys market acceptance.

These papers may help:

https://www.researchgate.net/publication/299747565_Towards_a_talent-driven_outward-oriented_globally-competitive_SME_framework_Discussion_Paper

https://www.researchgate.net/publication/305687139_Priority_policy_recommendations_for_transforming_individual_productivity_and_SME_competitiveness_in_Jamaica

Technical Report Towards a talent-driven outward-oriented globally-competitiv...

Technical Report Priority policy recommendations for transforming individual ...