Most large technology firms have externally-focused venture capital arms to foster innovation, expand market segments and develop new technologies. Internal corporate venturing can also provide innovation, support strategic goals and positively impact gross-margins. Value engineering, using an internal corporate venture model, is an effective and efficient use of scarce capital and resources. An internal venture model creates a competitive marketplace, spurs innovation, moves the margin needle and builds value engineering into a firm’s culture.
The concept of internal corporate venturing is simple. Ringfence an annual budget to accomplish a specific task in a non-traditional way—in this case value engineering. The venture-capital aspect is the competition for funding. As business unit budgets are consistently cut, value engineering often loses to new product introduction. As value engineering projects can yield millions of dollars, margins inevitably suffer when VE is neglected. If the CFO cares about value engineering, everyone else will care. Executive buy-in is imperative.
In a venture model, projects compete in a “shark-tank type” business case presentation. Only the highest returning combination of projects are selected. A funding split with business units—specific project costs are shared by both entities—ensures all stakeholders have skin in the game. Once the tranche of capital is allocated, fund managers and executives track metrics, performance and measure margin impact.
Over time value engineering becomes baked into the firm’s strategy: engineers design for value and first customer ship dates are followed by a value engineering effort (tick-tock). As a portfolio of value engineering projects gains momentum (investments delivering returns), the impact to margins are amplified. At any given point, previous investments positively impact current margins. This raises the power of the investment exponentially. The results can be staggering—such as triple digit internal rates of return.
Internal corporate venturing and value engineering create internal alignment and provide a direct lever for margin management. What’s missing? A tool to maximize returns with limited resources. How does a small team manage a large portfolio? What’s the correct combination of projects to achieve targets? How do we minimize investment and still maximize returns? How do I measure the impact of a myriad of component, supplier and resource constraints? The answers are a few clicks away. #QuantaAI