After a veritable boom in corporate venture activity in the financial sector through 2019, things have been quieter in recent years. A study takes a look at how companies are faring.
In a new study, consulting firm TTE Strategy looked at the corporate venture activities of Swiss financial firms, among 20 banks including universal, private, and cantonal banks, as well as 15 insurance companies.
Since 2012, Swiss financial services companies have provided venture capital to 292 startups for innovation, the Corporate Venture Monitor says. Of these, 14 companies have established their own innovation units and 20 have provided capital for external ventures. The thematic focus was on financial platforms, artificial intelligence, mobility, and health care.
According to the data, 65 percent of banks and 67 percent of insurance companies use corporate venturing. The approach can be roughly divided into three types: External promotion of start-ups, the establishment of in-house innovation units, or the formation of internal innovation teams.
Innovation Pressure
The pressure in the financial sector to innovate and change has been high compared to other sectors due to the advance of fintechs and alternative providers. Companies have realized that the necessary rapid innovation will not work within their own organizations, which have grown over decades.
A positive effect in almost all cases, he said, has been that companies' ability to learn and innovate has increased. In addition, the companies were able to become more attractive to technology- and digitally-savvy employees and target groups. Successes could be found in all areas, but especially in the development and market launch of new products. However, expectations were often not met, particularly in terms of efficiency gains and growth.
Unrealistic Targets and Expectations
«Expectations for increased efficiency, new products and increased profit have not yet been met by many of those we have spoken to,» said Michael Boppel of TTE Strategy. «No one felt that the steps taken were wrong. But the potential output has been assessed differently in most cases. More had been expected here.»
The study also identifies problems that often play a role in implementation. These often lie in the design of structure and processes, an objective that is too narrow or too broad, an unrealistic assessment of possible results in relation to the capital and time invested, incorrect business models or the lack of necessary expertise. Insufficient personal commitment on the part of those involved or cultural incompatibility could also be factors.
Peak is Over
Even before the Corona pandemic, the first companies closed their innovation labs. «We probably saw the peak of corporate venturing in sheer numbers between 2015 and 2019,» says Niklaus Wildberger, managing director of the Swiss TTE office. Now it will be a matter of reassessing the internal as well as external investments made and setting adjusted targets.
The characteristic of agile units, he says, is to constantly realign themselves and to continuously review the goals and the way to get there.
