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Going for Growth

In the late 1980s and early 1990s, when many firms were mired in heavy losses, managers at AT&T (Lucent’s progenitor), IBM, General Motors and other technology-intensive firms slashed R&D funding as they struggled to manage resources more efficiently. Now, as indicated in TR’s Scorecard and government statistics that show U.S. R&D funding rising steadily since 1994, budgets are steaming to new highs. But that hardly means it’s business as usual inside the labs. Indeed, rapidly fusing fields such as computers and communications are bringing ever more competitors to the fore, putting an even greater premium on streamlining the R&D pipeline. To spur collaboration, reward game-changing ideas and, above all, get things to market more quickly and in better shape, a host of new programs, initiatives and interindustry collaborations have emerged.

New-ventures groups like Lucent’s exemplify the current climate, in the sense that they mark an attempt to go beyond existing product lines into areas where the parent firm may be weak. Indeed, although the vast bulk of corporate R&D resources still go toward protecting existing businesses and product lines, firms are increasingly looking for fresh ideas and sources of growth. Nurturing these efforts from within, however, can be tricky. Corporate annals are replete with stories of ideas that got away from the home company because they proved too revolutionary or too far outside main business lines: Think Xerox’s Palo Alto Research Center (PARC) and the litany of its 1970s personal-computing inventions-from the graphical user interface to WYSIWYG (what-you-see-is-what-you-get) word processing-that proved too much for the copier company to handle.

Xerox PARC may be the most famous, but every major firm has its own horror stories. That fact has led many to form a venture-capital-like entity to spin off promising ideas, in the hopes these upstarts will get a more friendly reception outside the company’s confines. Indeed, a recent study by Harvard Business School Assistant Professor Henry Chesbrough traces these efforts to the 1960s, when one-quarter of the Fortune 500 companies operated venture arms. Almost invariably, however, these endeavors ended in abject failure-for reasons as diverse as the means of compensating employees, cronyism and corporate competition for resources.

But that was then. What seems different about Lucent’s effort is the time spent studying past mistakes and instituting measures to avoid them, while maintaining an unusual willingness to change its approach if a better strategy appears. NVG has been used as a benchmark by some 30 firms considering similar ventures, including IBM, NEC, British Telecom and Motorola. It has also been the subject of a Harvard Business School study and a comprehensive report published by the Corporate Executive Board, a Washington, D.C.-based research organization. This last examination concluded: “After studying 16 companies attempting to do internal venturing…none have addressed all the critical success factors as thoroughly and effectively as Lucent.”

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