The Importance of Benchmarking

Why adherence to best practices can sustain your corporate innovation program

Scott Lenet
Jan 2, 2019 · 8 min read
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bench·mark: to evaluate or check by comparison with a standard.

/ˈben(t)SHmärk/

verb — gerund or present participle: benchmarking

example: “we are benchmarking our performance against external criteria”

The entrepreneurial community sometimes views the corporate fascination with benchmarking as a symptom of large company conservatism: when you don’t know what to do, check to see what your peers are doing instead of trying something new. Benchmarking is often dismissed as “paralysis by analysis” hated by fast-moving startup CEOs and institutional VCs.

But benchmarking against best practices occurs for good reason. Over time, best practices emerge based on the experience of what actions led to successful outcomes. This is especially important in a field where there is little to no formal education, no certifications, and relatively distant regulatory agencies. In real estate, law, or medicine, for example, there are licensing processes with required coursework, independently administered written examinations, continuing education, and active oversight. There is no such procedure to train professionals who work in corporate development or innovation. MBA classes in venture capital or corporate innovation, like the ones I teach at USC and UCLA, are few and far between. The collective wisdom of what worked previously is the best our industry currently offers.

For innovation professionals who do want to take action, benchmarking best practices can provide ammunition to break internal log jams and convince the c-suite that risk can potentially be mitigated when undertaking new initiatives. For those with existing programs who are struggling to communicate value, benchmarking is an opportunity to articulate strengths and address areas for improvement. No one likes to be audited or visit the doctor for an annual physical, but those practices exist for a reason, too.

Innovation programs aligning with industry standards may be more likely to build a positive reputation in the ecosystem, provide ongoing value to parent corporations, and avoid shut down.

A good benchmarking process begins with data collection to provide a comprehensive picture of your program. Whoever conducts the benchmarking exercise should compile information about your program’s strategy and practices, and conduct interviews with your corporation’s innovation team. A good benchmarking process can help your team keep the innovation program on track with specific recommendations for continuous improvement. This applies equally to all forms of innovation programs, including internal product development, business development with startups and established companies, minority investing, and mergers & acquisitions.

Here are five areas to consider when preparing to benchmark your corporate innovation program against best practices:

1. Set Clear Goals & Relevant Strategy

Setting and managing expectations should include:

  • Defining success, including realistic time-frames
  • Building an innovation strategy that delivers impact, because it is designed to support the company’s overall business needs
  • Regularly monitoring progress toward goals and adjusting based on performance, changes in the market, and changes in the corporation

Whether externally or internally focused, innovation programs can get off track by not setting a strategy for achieving concrete goals — professionals in programs without a strategy generally pursue whatever deals they personally like, which can magnify risk. Approved strategies can also act as metaphorical guard rails, streamlining internal decision-making processes.

Strategies should outline the general criteria for transactions without specifying individual products, partnership opportunities, investments, or target acquisitions. A strategy that specifies decision-making criteria guides the innovation team toward appropriate deals and helps negotiate terms consistent with the corporation’s objectives.

Reviewing the strategy annually against goals helps the innovation team make adjustments to maintain alignment with the needs of senior executives and shareholders. An articulated strategy also makes it easier for the innovation team to communicate accurately with external stakeholders, generating targeted deal flow.

2. Build Infrastructure, Because “Proper Preparation Prevents Poor Performance”

3. Be Selective & Structure Transactions According to Market Terms

Strong innovation programs match opportunities against objective criteria, and close transactions at a pace that matches internal capabilities to make sure each deal has reasonable chances to succeed. Prior to recommending a deal for approval, disciplined innovation teams diligence each opportunity to weigh risk against opportunity, so decisions are well-informed.

When transacting, it’s essential to use terms that are consistent with the market, so that the corporation develops a reputation for being fair and seeking mutually beneficial relationships. Ultimately, even the most powerful corporations may be shunned by the community of external innovators if viewed as unsophisticated or predatory, and reasonable terms send a powerful market signal in this regard.

4. Manage Your Innovation Portfolio & Exit When Appropriate

Exiting takes many forms. For incubated new products, exits could include spinning off the project as a separate company. For M&A deals, an exit may be a divestiture. For corporate venture investments, exits include trade sales and IPOs. For all of these activities, exits also include write-offs. It’s important to recognize when an innovation effort is over, and possess the relationships and processes to facilitate these transactions.

5. Focus on Internal & External Communications

“…never assume senior-level buy-in. Just because the CEO or a business unit leader allocates capital and people to a corporate entrepreneurship program does not mean that he or she will maintain that support or focus. It is up to the corporate entrepreneurship team to ensure that the right people in the company continue to see the value and maintain their support.”

Consistent communication between key stakeholders and the innovation team facilitates needed attention from internal champions, especially in business units. Keeping executives and operators informed about the progress of the program, and soliciting their changing needs, allows the innovation effort to remain top of mind. This communication also delivers learning, especially from external innovators, that can help transform the organization and drive culture change.

The same requirements pertain to communicating with external stakeholders, including startups, venture capitalists, and other large companies. Corporate reputations can be destroyed by setting expectations improperly, especially when decision-making processes are vague or indeterminate. However, with clear communication and consistent follow-up, external relationships and deal flow will likely strengthen over time.

If the corporation has decided not to publicize its innovation efforts, it is even more critical to establish guidelines for what can be shared about the program and to whom. It is impossible to work with external innovation partners without sharing something, so best practices require clear and objective rules that can be adopted by all internal participants in the program. Communicating consistently and avoiding misunderstandings can help corporations maintain positive reputations in the marketplace.

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A good benchmarking exercise will evaluate corporate innovation programs for best practices in the above areas. Some best practices may vary by activity: M&A due diligence is different than venture capital diligence, for example. For each of these considerations, benchmarking is a smart discipline to assess your program’s processes against what has worked for others before.

This article originally appeared on Forbes.

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Scott Lenet is President of Touchdown Ventures, a Registered Investment Adviser that provides “Venture Capital as a Service” to help corporations launch and manage their investment programs.

Unless otherwise indicated, commentary on this site reflects the personal opinions, viewpoints and analyses of the author and should not be regarded as a description of services provided by Touchdown or its affiliates. The opinions expressed here are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual on any security or advisory service. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice. While all information presented, including from independent sources, is believed to be accurate, we make no representation or warranty as to accuracy or completeness. We reserve the right to change any part of these materials without notice and assume no obligation to provide updates. Nothing on this site constitutes investment advice, performance data or a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Investing involves the risk of loss of some or all of an investment. Past performance is no guarantee of future results.

Risky Business

Thoughts on corporate VC from the team at Touchdown…

Scott Lenet

Written by

Venture capitalist founder of Touchdown Ventures & DFJ Frontier, USC & UCLA adjunct professor, father of twins, Philly sports Phan, Forbes contributor

Risky Business

Thoughts on corporate VC from the team at Touchdown Ventures, the leading provider of managed venture capital for corporations.

Scott Lenet

Written by

Venture capitalist founder of Touchdown Ventures & DFJ Frontier, USC & UCLA adjunct professor, father of twins, Philly sports Phan, Forbes contributor

Risky Business

Thoughts on corporate VC from the team at Touchdown Ventures, the leading provider of managed venture capital for corporations.

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