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Organizational value creation and destruction in corporate venturing : in search of international competitive advantage

This dissertation focuses on one of the central themes in strategic management research: the creation and sustainability of competitive advantage. This theme is explored in the context of high-technology corporate ventures. In this context, the environment is unpredictable and competitive. The international dimension adds additional complexity. High innovativeness, organizational uncertainty and inter-organizational activity portray the organizations studied empirically in this research. The research question of the dissertation is: how do internal corporate ventures achieve and sustain international competitive advantage in a high-technology environment? The method used in this dissertation is theory-building multiple-case study. Four cases of Finnish internal corporate ventures are analyzed over a period of four years: from 1998 to 2001. The main data consists of 22 semi-structured interviews with key informants and insider observations in the venture organizations throughout the investigation period. In addition, public documents (press releases, announcements, annual reports, web pages, industry reports) and internal documentation (business plans, business support documentation, internal announcements, minutes of meetings) are analyzed to support and complement the main data. The theoretical starting point for the analysis is the relational view of competitive advantage, which describes how inter-organizational processes may lead to economic rents. As a result of the cross-case theory-building analysis, the explicit mechanisms how economic value is both gained and destroyed are presented. The developed model is a system, where the two categories, value creation and destruction are further divided into organizational and inter-organizational mechanisms. The data analysis also suggests that value creation and destruction are interrelated and interdependent in complex ways. The found value destruction mechanisms in corporate venturing include management failures, opportunism, politics, bureaucracy and collective blindness on the organizational level and on the inter-organizational level, power asymmetries, cultural complexity, conflicting interests and collective blindness. Examples of explicit value creation mechanisms are also given in the study, the findings support earlier research on competitive advantage of organizations. In internal corporate venturing, the relationship between the parent organization and the venture is identified to be as of crucial importance. The concept of parent-venture dependence is introduced to describe the level of reliance between the organizations. Based on the findings, it is proposed that growth may not be the best measure of performance for venture organizations, because high growth rate can be artificially created for example through parent-venture relationship. This kind of growth may also lead to value destruction. The main contribution of this study is to the debate on the competitiveness of organizations. The relations between value destruction mechanisms, growth and the creation of competitive advantage have not been widely addressed in previous research. The findings of this dissertation are applicable in a wider context, even though the data analysis is based on a case-study on internal corporate ventures. “Knowledge is replaced in most quarters by belief. All that can be known with certainty are our impressions. This knowledge cannot be articulated since it is immediate and irreducible. Except for this type of knowledge, we are committed to skepticism – if we accept the empirical analysis of scientific method.” -Churchman & Ackoff, 1950