The impact of knowledge capabilities on corporate venturing

Transcription

1 282 Int. J. Entrepreneurship and Small Business, Vol. 18, No. 3, 2013 The impact of knowledge capabilities on corporate venturing Marianne van der Steen Antwerp Management School (AMS), Het Brantijser, Sint-Jacobsmarkt 9-13, 2000 Antwerp, Belgium Paula Danskin Englis* Campbell School of Business, Berry College, P.O. Box , Mount Berry, GA , USA and Dutch Institute for Knowledge Intensive Entrepreneurship, University of Twente, P.O. Box 217, 7500 AE Enschede, The Netherlands *Corresponding author Pedro Bernardo Meyer TerraPrana, Postbus 40207, 3542CE, Utrecht, The Netherlands Abstract: This study focuses on the role of knowledge capabilities across the startup and growth phases of corporate ventures. Specifically we focus on exploration, exploitation and transformation of (technological) knowledge capabilities as these facilitate birth and growth of corporate ventures. To examine the impact of knowledge capabilities in corporate ventures, in-depth case studies of three knowledge intensive corporate ventures were conducted using semi-structured interviews. Knowledge capabilities were mapped across the startup and growth stages of the ventures. Keywords: corporate venturing; knowledge capabilities; case studies. Reference to this paper should be made as follows: van der Steen, M., Englis, P.D. and Meyer, P.B. (2013) The impact of knowledge capabilities on corporate venturing, Int. J. Entrepreneurship and Small Business, Vol. 18, No. 3, pp Biographical notes: Marianne van der Steen is a Professor of Innovation and Entrepreneurship at Antwerp Management School and a Visiting Professor at the Biotechnology Institute (MIRA) at the University of Twente, The Netherlands. Her research focus is on biomedical entrepreneurship, specifically Copyright 2013 Inderscience Enterprises Ltd.

2 The impact of knowledge capabilities on corporate venturing 283 on the transformation of management teams in the evolution of ventures. She holds a PhD in Innovation Economics (1999). She is also an Entrepreneur, owning two companies. She has received grants and awards for among others the Dutch National Research Council, Best Research Paper Award of International Entrepreneurship Conference (IECER) and US International Leadership Fellowship of the US Government. Paula Danskin Englis is a Professor of Management at the Campbell School of Business, Berry College and is a Research Fellow at the Dutch Institute for Knowledge Intensive Entrepreneurship (Nikos) at the University of Twente, The Netherlands. She received her PhD degree from the University of Memphis (2000). Her research is focused on knowledge intensive entrepreneurship and she has published more than 50 articles in journals such as the Academy of Management Review, Business Horizons, Entrepreneurship Theory & Practice and Journal of Small Business Management. She leads the Entrepreneurship programme at Berry College and works with student entrepreneurs. Pedro Bernardo Meyer is an international-oriented Entrepreneur with two Masters in Innovation Management, Entrepreneurship and Economics at the University of Twente The Netherlands and at Aalborg University Denmark. His research thesis concentrated on corporate ventures explicitly the integration of new start-ups into corporate structures, with the accent on specific tasks at different stages of the S-curve. The study was completed at Philips Electronics Incubator. This research and the passion for entrepreneurship have led to his own startup under the name TerraPrana. The venture is focused on solutions aimed at energy savings for businesses and local governments. 1 Introduction Corporate venturing is important for large corporations to gain competitive advantage and to eventually achieve firm growth. Many studies on venture growth have focused only on why ventures grow, excluding the how and where the growth is occurring (Strehle et al., 2010). The main re-occurring question in past literature has been: Why do some ventures grow more or are more successful than others? Thus far, this question disregards the way by which growth in these ventures have been attained. This study focuses on the role of knowledge capabilities across the startup and growth phases of corporate ventures. Specifically we focus on exploration, exploitation and transformation of knowledge capabilities as these facilitate birth and growth of corporate ventures. Exploratory learning is the process of knowledge acquisition through recognising external knowledge and assimilating it (Lane et al., 2006). After obtaining new knowledge, firms integrate it into to their current knowledge portfolio. Exploratory learning can help firms create new products that meet the needs of the changing marketplace (Jansen et al., 2006). Exploring learning facilitates the identification of product or service opportunities. Transformative learning is the process of retaining knowledge over time (Lane et al., 2006). Maintaining assimilated knowledge and reactivating this knowledge are essential parts of transformative learning (Lane et al., 2006). Venture management must be capable of retaining information they have gathered

3 284 M. van der Steen et al. throughout the existence of the venture to use it for the future. Finally, exploitative learning goes beyond assimilating external knowledge (Lane et al., 2006). It focuses on knowledge in the context of a product or service and essentially matches knowledge and markets (Rothaermel and Deeds, 2004). In this paper, we first present a discussion of knowledge capabilities in corporate ventures. Next, we introduce our approach to analyse these capabilities over time in three corporate ventures. This section is followed by a discussion of the case study results and how this fits into the body of research in corporate venturing and knowledge capabilities. The paper closes with a section on the limitations of our approach, our conclusions and suggestions for future research. 2 Theoretical overview capabilities In the past 15 years most research on capabilities report that resources and capabilities are of great importance for the performance of firms as they gain competitive advantage (Keil, 2004) over their competitors. Most researchers agree that in order for firms to gain competitive advantage, the capabilities firms apply have to be valuable, rare, inimitable, and non-substitutable and that the organisation can effectively exploit them (Amit and Schoemaker, 1993; Barney, 1991, 1995). The question many ventures ask themselves (c.f., Helfat, 2000) is: What is the reason that, over time, some firms manage to become successful using their capabilities, while other firms do not? Many authors argue that capabilities are not part of a resource because of their dynamic nature, of their activity of doing something, they therefore see capabilities as a result of resource deployment, an organisational process (Amit and Schoemaker, 1993). However, capabilities use resources, and are therefore, more dynamic and complex entities and should be treated independent to resources (Amit and Schoemaker, 1993; Deeds et al., 2000; Eisenhardt and Martin, 2000; Teece et al., 1997). Hafeez et al. (2002) view capabilities as formed through the coordination and integration of activities and processes and as the product of collective learning of individual assets. They define capability as a person s ability to make use of resources to perform some task or activity. And, they define resource as anything tangible as well as intangible owned by a firm. While resources could exist on their own, capabilities are deeply embedded in the organisational routines, practices and business activities (Nanda, 1996). In a network organisation scenario, this definition would include all those assets which a firm could employ or have access to in order to achieve its corporate objectives. Such is the case with corporate ventures. From a strategic perspective, capabilities integrate knowledge in order to find a recombination that allows the organisation to meet its performance goals. The knowledge base of ventures is largely determined by organisational learning efforts such as through the acquisition of new people, learning done by current employees or using organisational memory (Simon, 1991) as well as the evolution of dynamic capabilities (Eisenhardt and Martin, 2000). Knowledge capabilities are firm specific and path-dependent because organisational learning is independently distinctive when ventures engage in new activities (Strehle et al., 2010; Helfat et al., 2007). In other words, knowledge capabilities focus on the ability of an organisation to create new resources, renew them or even alter its resource mix (Teece et al., 1997). It further recognises that the top management and its beliefs on the evolution of the organisation

4 The impact of knowledge capabilities on corporate venturing 285 play an important role in the development of knowledge capabilities (Ambrosini and Bowman, 2009). In short, knowledge capabilities are about learning, building and creating the most appropriate resource base for the next organisational phase of development. Organisations need to develop and build knowledge capabilities in order to survive and adapt to environmental change (Ambrosini and Bowman, 2009). Most research on resources, knowledge capabilities and firm performance report that well defined and correctly implemented knowledge capabilities within companies will help gain competitive advantage over their competitors and therefore drive firm performance. We believe that throughout the course of corporate venture development, there is a shift in the need of knowledge capabilities. These changes mainly consist in the objectives of the venture at the different phases of development. For example networking at the birth phase of a venture mainly consists of communication links with other entrepreneurs and scientists, in order to better define the business proposition. Once the venture progresses, the focus will lie more on developing networks with potential customers and suppliers. 2.1 Types of knowledge In this paper, we focus on three types of knowledge that are used in the exploration, transformation and exploitation phases of development for corporate ventures. Industry or market knowledge determines whether exploitable opportunities are discovered and where those are located (Shane, 2000). Market knowledge is the key of prior knowledge in transmuting and applying assimilated knowledge (Teece, 2007). Thus, competitive differences in exploitative learning are likely influenced by market knowledge differences (Lichtenthaler, 2009). In essence, exploitative learning converts industry knowledge into new products (Tsai, 2001). By means of gathering external knowledge, firms replenish and build their knowledge bases (Narasimhan et al., 2006). Based on prior market knowledge, exploitative learning rather determines to what degree assimilated knowledge is converted into new products (Zahra and George, 2002). Exploitation requires venture management team members to translate and use the gathered information from the past, to incorporate that in, for example, product development. The second type is technological knowledge which has two main dimensions: depth and breadth (Kauffman et al., 2000). Individuals with deep knowledge help organisations to understand the causal linkage of old components in an industry (March, 1991). Technological knowledge helps to make new combinations with old components, can provide expertise in solving problems and exploring new applications of the technology (Zhang and Baden-Fuller, 2010; George et al., 2008). The ability to find solutions and develop new products quick, is an important factor in helping a venture succeed, particularly for start-up firms in high technology (Rothaermel and Deeds, 2006). Breadth of technological knowledge refers to the range of areas that need to be explored, in develop new technologies. Teams that are familiar with many different industries on the technological knowledge landscape are capable of exploring more paths to find solutions (Kauffman et al., 2000). Research has shown that firms with broad technological knowledge seek to improve their position with continuous search for better solutions (Zhang and Baden-Fuller, 2010). For corporate ventures to achieve early growth, they need to be visible and offer products as soon as possible. The ability to find solutions and

5 286 M. van der Steen et al. develop new products quickly can be an important factor in venture success specifically those in high technology industries (Rothaermel and Deeds, 2006). Thus, high technology-based corporate ventures require both dimensions of technological knowledge to succeed on the market (Strehle et al., 2010; Grant, 1996). The final type is customer knowledge. It can defined as a process of developing an understanding of customer new product preferences that unfolds through the interaction of probing and learning activities (Lynn et al., 1996). Interaction with customers may bring new ideas to the firm including new product ideas, concepts, and prototypes for target customers. By gaining customer feedback, firms can come to understand the real preferences of customers. Customer knowledge allows firms to accomplish the following tasks in the startup process: validation of customers and markets, developing a value proposition with marketing insights, and gaining insights from customers for trials in the product development stages. For ventures it is important to learn about customer preferences at each and every phase of venture development to lower costs and lower strategic risk (Cooper, 1998). Through customer knowledge, corporate ventures can better anticipate and react to the changes in the market. In the next section we discuss the venture start up phases and the use of different knowledge capabilities. 2.2 Knowledge capabilities in corporate venturing startup and growth Exploratory learning refers to knowledge acquisition because it consists of recognising external knowledge and assimilating this knowledge (Lane et al., 2006). Firms are curious to what is happening around them; therefore, many have established scanning mechanisms to recognise external knowledge sources (Cohen and Levinthal, 1990). Once firms have obtained this new knowledge they assimilate it by integrating it to their current portfolio of knowledge. Szulanski (1996) denotes the importance of prior related knowledge. He notes that for firms to have successful acquisition of external knowledge, they need both components of prior knowledge, which are industry knowledge and technological knowledge. Firms usually have enough industry knowledge because they acquire knowledge for a particular application (Todorova and Durisin, 2007). Technological knowledge is critical, as it helps the firm recognise external knowledge sources and to assimilate knowledge (Zahra and George, 2002). Thus, a firm makes its competitive difference with other companies through their technological knowledge they have in store (Lichtenthaler, 2009). Exploration. Exploratory learning can help firms react to the changing environments that constantly alter by creating new products which meets the need of ever changing markets (Jansen et al., 2006). Firms actively acquire external knowledge because it is hard to cope and respond to all technological and market developments internally (Cassiman and Veugelers, 2006). Therefore, the task of recognising and assimilating knowledge becomes a success factor for the firm (Zahra and George, 2002). Exploring for information that allow a venture management team to identify and describe opportunities and product/service possibilities, search and validate customers and markets, and make a valuable proposition with marketing insights. Transformation. Having only exploratory and exploitative learning is not sufficient to sustain superior performance when cumulative knowledge is involved, time of entry is important, or when an environment is highly dynamic (Argote et al., 2003).

6 The impact of knowledge capabilities on corporate venturing 287 Transformative learning refers to retaining knowledge over time (Lane et al., 2006). Firms should avoid losing skills and routines that actively manage knowledge retention, in order to keep assimilated knowledge alive (Lane et al., 2006). Two essential stages of transformative learning are: maintaining assimilated knowledge and reactivating this knowledge (Lane et al., 2006). Teece (2007) states that in order to successfully retain knowledge firms need to have both sufficient prior market and technological knowledge. These two components of prior knowledge contribute to explaining path dependencies in transformative learning (Kogut and Zander, 1992). Firms that have more technological knowledge, find it easier to retain and reactivate additional knowledge that is of importance for a firm s success (Garud and Nayyar, 1994). Market knowledge, in combination with other knowledge, is important for deciding to maintain knowledge and for reactivating it (Marsh and Stock, 2003). Thus, a firm needs prior market and technological knowledge to maintain its knowledge and to make inter-firm differences. Firms with prior market and technological knowledge may easily and flexibly adapt to environmental changes and avoid core rigidities by maintaining a large knowledge base (Teece, 2007). This capability does not have specific tasks that it can help, though venture management team members must be capable of retaining information they have gathered throughout the existence of the venture, to maybe use it for future product roll-outs. Exploitation. Exploitative learning, focuses on knowledge in the context of a product or service, and goes beyond assimilating external knowledge (Lane et al., 2006), it is essentially matching knowledge and markets (Rothaermel and Deeds, 2004). After the firm determines potential applications, it then applies the knowledge, which in essence constitutes the actual exploitation step (Lichtenthaler, 2009). Thus, exploitative learning does not refer exclusively to final knowledge application. Two essential stages of exploitative learning are transmuting the assimilated knowledge and applying this knowledge (Lane et al., 2006). The next section describes our approach to analysing knowledge capabilities in three corporate ventures focusing on how knowledge is utilised in startup and in growth phases. 3 Methodology To investigate the differences and/or similarities in the impact of knowledge types and knowledge capabilities in corporate venturing, we used the case study approach with a combination of several methods to improve the validity by applying semi-structured interviews and questionnaires (Dul and Hak, 2008). Semi-structured interviews were used to collect information on the tasks of venture management teams in their growth phase. From this information the researchers were able to uncover the essence and contribution of each knowledge capability during the growth phase of ventures. Questionnaires and archival research were conducted to collect data to help triangulate the content of the case studies. All cases were part of Philips corporate venturing activities. Two were external (Shapeways and Civolution) and the other was internal (Digital Pathology). Case materials were developed from multiple interviews with each CEO spanning a four

7 288 M. van der Steen et al. month period and using the previously mentioned semi-structured interviews, questionnaires and archival research. Pretests were conducted on another sample of firms to check for problems with the survey. Minor adjustments were made to the survey instrument after the pretests. From each of the recorded interviews, a summary was made which highlighted the important elements. An open data analysis methodology was applied for the qualitative part of the study. A thematic methodology was used to uncover and integrate concepts embedded in the interviews (Rubin and Rubin, 1995). The data were thematically structured in accordance with the tasks and respective knowledge capabilities that the managers talked about during the interviews. The data analysis is a cross-case analysis. In-depth case analysis required that all ventures were defined to consecutively understand their growth phase situation. A cross-case analysis allows the understanding of differences and similarities between the cases. Eisenhardt (1995) argues that cross-case analysis should preferably be used to search for patterns. The whole idea is to structure diverse lenses for data observation gathered from the cases and to achieve an accurate and more reliable outcome. The brief summaries of each case are provided below. The first case was Digital Pathology, a corporate venture from Philips Electronics N.V. It started in 2006, when Bob van Gemen approached Philips with the idea, asking whether they would be interested in financing and supporting his concept. Philips was interested, because one year earlier Philips research started an investigation and research on this same subject. Therefore, this is qualified as a technology push, since Philips already was active in this field. Bob van Gemen said; starting a venture within Philips compared to independently is simple. It just required a good idea (at the right time) and an explanation about its sensibility for starting a business with it. The product s idea originated from Bob s prior experience via his network in the medical field. The feasibility studies started right after the venture was initiated at Philips, and took eight months. The initial idea changed completely after Bob and his team undertook several studies: a market research, a market analysis, collecting insight knowledge, looking at concepts, and investigating potential solutions. Eight months later a preliminary market business plan was ready and the first people were hired. Shapeways, the second case, came from an internal idea from Philips Design to become active with 3D printing, but it did not have the right person to lead this project forward. In 2007, current CEO, Peter Weijmarshuisen was recruited by the lifestyle incubator to run Shapeways, because of his experience in start-ups and in the internet domain. Shapeways, is the world s first 3D co-creation community, offering cost effective design via high quality 3D printing. Shapeways is redefining do-it-yourself by connecting consumers to the latest in personalised production methods with easy to use click-and-drag product customisation and advanced upload-to-print tools for seasoned 3D designers. Shapeways covers a diverse community of artists and enthusiasts engaged in everything from collaborative creation to selling their own 3D designs as end-product to end-users through the unique Shapeways shops. Its main goal is to create an international marketplace for consumer created 3D printed products. Shapeways was spun-out from Philips in August 2010, with the help of Venture Capital Union Square as their main investor and is now based in the USA. The third corporate venture, Civolution, was set-up in the late 1990s, when Philips was interested in the digital television market. The tasks of the start-up team were to acquire all the patents to keep the venture against potential competitors. Civolution was

8 The impact of knowledge capabilities on corporate venturing 289 pushed around through several departments within Philips, until it found a place within the Technology Incubator in At that period, Philips was undergoing a large organisational restructuring. One of their interests, digital television, faded away and gave space to their medical and lifestyle devices. In 2006 Alex Terpstra was hired as CEO of Civolution to give the venture acceleration, as it seemed likely that the venture would eventually have to spin-out from Philips. In 2008, Civolution became financed by Prime Technology Venture. Now, Civolution B.V. is independent and a trusted supplier to the entertainment industry to maintain control of their valuable copyrighted assets. It is the leading provider of technology and solutions for identifying, managing and monitoring media content. Civolution offers an extensive portfolio of cutting-edge applications for digital watermarking and fingerprinting, which enable forensic marking of media content in pre-release, digital cinema, PayTV and online. They also offer the most comprehensive broadcast monitoring and online content identification and monetisation solutions to manage and facilitate profitable content distribution. These technology applications and solutions contribute to strengthen and growing video/audio circulation. Table 1 Overview of Phillips corporate venturing firms Company Digital Pathology Shapeways Civolution Description Develops, manufactures and sells solutions that digitise the pathology lab. Solutions consist of ultrafast scanners for histology slides, PACS software and CAD/CDS software for analysis of histology images. World s first 3D co-creation community, offering cost effective design via high quality 3D printing. Shapeways is redefining do-it-yourself by connecting consumers to the latest in personalised production methods with easy to use click-and-drag product customisation and advanced upload-to-print tools for seasoned 3D designers. Leading provider of technology and solutions for identifying, managing and monitoring media content. Civolution offers an extensive portfolio of cutting-edge applications for digital watermarking and fingerprinting, which enable forensic marking of media content in pre-release, digital cinema, pay TV and online. They also offer the most comprehensive broadcast monitoring and online content identification and monetisation solutions to manage and facilitate profitable content distribution. These technology applications and solutions contribute to strengthen and growing video/audio circulation. 4 Case results and discussion The results show that in terms of knowledge types, industrial knowledge followed by technological knowledge (except Shapeways) was important for all firms across birth and growth stages. Tables 2 to 4 show the results of the case analysis of knowledge capabilities and specific tasks per venture. In Table 5, the X represents knowledge capabilities that were explicitly emphasised by each of the interviewed managers and Y represents the knowledge capabilities that have been implicitly emphasised. Table 6 shows the patterns of knowledge capabilities utilised to fulfill specific tasks over time by the case study firms through the birth and growth stages.

9 290 M. van der Steen et al. Table 2 Digital pathology overview of tasks and knowledge types and knowledge capabilities Tasks Increase sales Building support departments Clinical approval Stable product range Service organisation Applications Quality and regulatory Predictable production output Knowledge types and knowledge capabilities Industry knowledge Network People management Sales experience Entrepreneurial and business experience Inter-organisational network People management Industry knowledge Network Alliances Technical knowledge Operations Industry + technological knowledge Customer knowledge Exploration Network Inter-organisational network Exploration Operations Industry knowledge Prior knowledge People management Explanation Sales people with knowledge of the medical industry (and its users) Sales people who have a vast network in the medical industry Sales leaders must have experience in managing teams Know different sales mechanisms for new products Know which people will fit best in the organisation The departments within the organisation have to communicate Experience in managing small to large teams is a plus Have some knowledge of the clinical approval process Able to make contacts with key people to move forwards Constant communication with key partners, explaining processes and changes Use of technological knowledge find quick solutions Bringing standardised processes into place for manufacturing Have to know the ins and outs of the technology and of the industry in question (i.e., medical) People that have frequent contact with medical end-users Searching for new knowledge and information Build network within the pathology community Build good communication line with product manager and product development team Exploring strategic possibilities for getting a product approval as quick as possible Know how to make and put procedures into place to gain ISO certification Know the inside-outs of the regulatory laws and rules Prior production knowledge in a business environment helps implementing standardised processes Making people understand the need of standardised processes, to increase efficiency

10 The impact of knowledge capabilities on corporate venturing 291 Table 3 Shapeway s tasks and knowledge types and knowledge capabilities Tasks Growing community Reducing costs of goods sold Scaling production Knowledge types and knowledge capabilities Marketing and sales Entrepreneurial minded Alliances Operations Industry knowledge Network/alliances Explanation Have experience in marketing and selling products/services in new markets Find new ways of approaching potential customers Having strong alliances with the producers will help with negotiations of prices Experience in finding areas where costs can be reduced Knowing the industry/market will help find the right producers Using and scaling the network of producers is of importance (creating alliances) Table 4 Civolution s tasks and knowledge types and knowledge capabilities Tasks Capabilities Explanation Partnering Network Finding an entrusted network of sellers of your products and services Alliances/sales Create alliances with entrusted sales organisation that can add value to your products for the customers People Network Using the network of team members to hire the right person for a specific function Industry + technological knowledge People management Add value for the organisation, while avoiding wasting time Managing and motivating people to focus on their task Table 5 Knowledge types and knowledge capability mapping across cases Knowledge types and knowledge capabilities Digital Pathology Shapeways Civolution Industry knowledge X X X Technological knowledge X X Customer knowledge X Exploration Y Y Y Transformation Y Y Y Exploitation Y Y Y Industry knowledge. Across all firms, industry knowledge was identified as one of the most important capabilities, especially for managerial staff in sales, marketing and service. Those qualified managers allow the organisations to immediately apply expert knowledge, by instantly adding proficient value to the venture, without wasting much time. All interviewees mentioned that people with this capability are able to know and understand what customers requirements are, to communicate these back to the development team, to better fine-tune the product before its release. Sales people with a proactive approach engage easier with their customers, while service team members are able to quickly identify customer problems and needs. All of them mentioned to call for individuals who are familiar with an industry and able to look outwards beyond the usual

11 292 M. van der Steen et al. to identify the next standard and communicate these findings back to other department managers in the organisation, to stay ahead of the competition. Delmar and Shane (2006) support this venture managers statement in their study. In addition, industry knowledge in the birth phase was emphasised by managers as essential to quantify the opportunities the entrepreneur has in mind, to get a feeling about the need of his invention in the market place. Table 6 Knowledge types and knowledge capabilities and tasks: birth versus growth stage Knowledge types and knowledge capabilities Industrial knowledge Technological knowledge Customer knowledge Exploration Transformation Exploitation Birth phase Tasks Preliminary validation of potential customers and markets; making value proposition; product development/scaling production; creating and streamlining processes Defining functional and technical aspects; product development; creating and streamlining processes Preliminary validation of potential customers and markets; making value proposition; customer trials Identify and describe (product) opportunities; search and validate customers and markets; value propositions Retain gathered knowledge and information Translate and exploit gathered knowledge and information for future roll-outs Growth phase Tasks Increase sales; service organisation; quality and regulatory; scaling production; finding the right people; making the technology; market awareness Clinical approval; stable product range; service organisation; finding the right people; making the technology; market awareness Service organisation Applications; quality and regulatory Technological knowledge. All venture managers, except Shapeways, indicated the importance of technological knowledge. This was mainly due to product development or service oriented tasks people fulfil. Hiring people with prior technological knowledge implies that ventures do not have to train them, which translates into more available time for further development of their products, by applying fresh knowledge and ideas for future roll-outs. Those people offer an immediate contribution to the venture. Venture managers have a demand for technical people with knowledge of applicable technologies, being capable developing new technologies. Thus employees with technological knowledge can make the linkage with old and new technologies, and seek for better solutions (Kauffman et al., 2000; Zhang and Baden-Fuller, 2010). In addition, technological knowledge in the birth phase allows ventures to make their prototypes by applying existing technologies, or developing their own. Once a venture grows, this capability is used to fine-tune the current product range.

12 The impact of knowledge capabilities on corporate venturing 293 Customer knowledge. Digital Pathology was the only case firm to express the importance of customer acquaintance or knowledge. Most likely in their case expertise with highly specialised clients as, pathologists at hospitals and clinical centres, is not easily obtained by outsiders. From day one they maintained frequent contact with end-users to better understand their philosophy and product preferences, to better adapt the product to their needs. This is needed for an organisation to be innovative and eventually successful. This finding is in line with research on the voice of the customer showing that successive approximations with its end-users improve early versions of the product (Englis et al., 2010; Zahra et al., 2006). While the other ventures mentioned as important detailed knowledge about customers preferences. In fact they are more interested in their marketing and sales versus to become more informed about customers industrial and technological knowledge level. Feedback from customers is only made once the product is on the market. Shapeways for example gathers its customer s feedback through their forum while Civolution obtains their customer knowledge through their sales and service people, whom have both industrial and technological knowledge. Customer knowledge is needed throughout the whole life span of a venture s organisation. At the birth phase the venture will try to understand the latent problems and the potential for its solution at their prospective customers, so that their answers are integrated into their product or service. In the growth phase, customer knowledge is gathered on the basis of customers reactions towards the new product to better understand their preferences, and subsequently are integrated in later roll-outs. Knowledge capabilities and exploration is used in every phase of the venture. Ventures continuously search for information: markets, customers, technologies, competitors, etc., to better understand how and where their product or service may perform best, and to be different from eventual competitors. Transformation of accumulated knowledge and information evolves primarily at the stages of product development and market penetration. This take place when ventures integrate gathered information and knowledge. To better understand the use of a new product, once it is developed and implemented in the markets. Exploitation of accumulated knowledge and information take place in the product s production process and at the introduction of the product in the market. All useful knowledge and information that is obtained over the years, is integrated and applied in production process and used for the venture s (market) strategy. The use of these dynamic capabilities keep the other mentioned capabilities fresh, and helps firms avoid some of the traps related to pure efficiency seeking repetition (Zahra et al., 2006). Furthermore, the organisation will continue learning through the acquisition of new internal and external knowledge. Knowledge exploration was used in every phase of each venture. We found that corporate ventures continuously search for all kinds of information (markets, customers, technologies, competitors, etc.) in order to better understand how and where their product or service performs best, and how to differentiate from competitors. Knowledge transformation and knowledge exploitation were found only during the startup phases. Knowledge transformation happened primarily at the stages of product development and market penetration. We found that most of the ventures integrated newly discovered information to better understand the use of a new product, once it is developed and implemented in the markets. Knowledge exploitation was found to take place particularly when products were introduced in the market and during the product production process.

13 294 M. van der Steen et al. 5 Conclusions The results of our study show that corporate ventures do understand the importance of their growth phase to bridge the liability of newness with market reality. In terms of why some ventures grow more or are more successful than others, our study found that the development of knowledge capabilities is important across the startup and growth phases of corporate ventures. Technological and Industry knowledge and knowledge exploration occurred during birth and growth stages while exploitation and transformation of knowledge capabilities happened only in the birth stage. This is a very interesting finding. Given the literature (i.e., Ferreira et al., 2010), we expected that knowledge exploitation would be important in the growth stage. It may be that these firms were really focused on their current products and exploring opportunities for expansion. Knowledge exploration allows a venture management team to identify and describe opportunities and product/service possibilities, search and validate customers and markets, and make a valuable proposition with marketing insights. Exploitative knowledge could be very useful for these firms as it essentially matches knowledge and markets (Rothaermel and Deeds, 2004). This finding could be a direction for future research. We would like to see more longitudinal case studies on corporate ventures that map how they cross the chasm from birth to growth stages. Other comparative research could focus on understanding differences between corporate and independent ventures and how they develop and use exploration, exploitation and transformation of (technological) knowledge capabilities to facilitate birth and growth. There are many articles focused on university and independent start-ups and understanding why some fail and others do not. However, there is a need for comparative research. For instance, it is possible that industrial knowledge in particular is important for corporate ventures because of the structure of corporate venturing (with a venture or innovation board with shorter deadlines for success). On the other hand, it is generally assumed that commercial resources (in the form, e.g., of a CEO) become more important in later stages of spin-off development to attract seed and investor capital for further growth of the spin-off firm. Another direction for future research is a closer examination of the firm lifecycle. Is this different for corporate ventures than independent ventures? Is the strategy or structure different in corporate venturing (c.f., Ferreira et al., 2010; Hanks et al., 1993)? In the birth phase, the entrepreneur is certain that his/her idea for a service or product is wanted and needed in the market. Thereafter the entrepreneur and his team have to create a platform where his/her business can rest upon and be able to survive in the marketplace (Mason and Rohner, 2002). This is very important as nearly all new businesses tend to fail within their first five years of activity. Our cases demonstrate that this might be different in corporate ventures. As with all research projects, our results have some limitations. First, while we had access to the CEO of each venture, we only had one point of view. More research exploring the influence of capabilities from other views in more ventures is certainly of interest besides the CEO, to test whether the outcome of this study would be different if more and different kind of managers had participated. To counter this limitation, we did conduct archival research to triangulate some of the case study findings. Another limitation is that the corporate ventures all come from one firm, Philips. There may be some bias in terms of the structure, support systems or other facets of corporate venturing in Philips that cannot be generalised to other firms. The limitation of this study mainly

14 The impact of knowledge capabilities on corporate venturing 295 consists the lack of a greater number of cases. Three cases are too few to make substantial conclusion that spans the whole spectrum of venture types. At least more participants will better validate and strengthen the qualitative results to ascertain a persistent conclusion. In addition, this study only investigated successful ventures. It is likely that a better picture may be obtained if unsuccessful ventures are researched too. So another suggestion for future research is to include failed ventures as well to investigate the differences and similarities between successful and unsuccessful corporate ventures. In addition, further insights may be gained by extending this study to incorporate tasks and routines as well as capabilities (Winter, 2003) into the study. Even with these limitations, we hope that our research provides valuable insight in the specific knowledge capabilities a venture in its birth and growth phases needs to fulfil specific tasks. This research presents in detail the importance of capabilities that ventures need to successfully fulfil specific tasks in their birth and growth phases, valuably augmenting the literature on the subject venture growth and capabilities and opening the door to future research. References Ambrosini, V. and Bowman, C. (2009) What are dynamic capabilities and are they a useful construct in strategic management, International Journal of Management Reviews, Vol. 11, No. 1, pp Amit, R. and Schoemaker, P. (1993) Strategic assets and organizational rent, Strategic Management Journal, Vol. 14, No. 1, pp Argote, L., McEvily, B. and Reagans, R. (2003) Managing knowledge in organizations: an integrative framework and review of emerging themes, Management Science, Vol. 49, No. 4, pp Barney, J.B. (1991). Firm resources and sustained competitive advantage, Journal of Management, Vol. 17, No. 1, pp Barney, J.B. (1995) Looking inside for competitive advantage, Academy of Management Executive, Vol. 9, No. 4, pp Cassiman, B. and Veugelers, R. (2006) In search of complementarity in innovation strategy: internal R&D and external knowledge acquisition, Management Science, Vol. 52, No. 1, pp Cohen, W.M. and Levinthal, D.A. (1990) Absorptive capacity: a new perspective on learning and innovation, Administrative Science Quarterly, Vol. 35, No. 1, pp Cooper, R. (1998) Product Leadership: Creativity and Launching Superior New Products, Perseus Books, Reading, MA. Deeds, D.L., DeCarolis, D. and Coombs, J. (2000) Dynamic capabilities and new product development in high technology ventures: an empirical analysis of new biotechnology firms, Journal of Business Venturing, Vol. 15, No. 3, pp Delmar, F. and Shane, S. (2006) Does experience matter? The effect of founding team experience on the survival and sales of newly founded ventures, Strategic Organization, Vol. 4, No. 3, pp Dul, J. and Hak, T. (2008) Case Study Research Methodology in Business Research, Butterworth-Heinemann, Oxford. Eisenhardt, K. (1995) Building theories from case study research, Academy of Management Review, Vol. 14, No. 4, pp Eisenhardt, K.M. and Martin, J.A. (2000) Dynamic capabilities: what are they?, Strategic Management Journal, Vol. 21, Nos. 10/11, pp

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