Saab Venture Capital Council (VCC) is a unit within the Saab Corporation which is responsible for exploiting business ideas and innovations that fall outside the Saab core business concept. Saab VCC has its own staff and budget and is a profit centre in itself. The venture capital unit is placed close to the senior management and has a well-established position in the company. Since its launch in 2001, Saab VCC has made 11 exit transactions and generated a capital gain of €15 million.

Organisational background

The Saab Corporation has three business areas: defence and security solutions, systems and products, and aeronautics. The company was established in 1937 as a producer of military aircraft. Its main products have historically been aeroplanes and cars, but the car production was sold to General Motors (GM) in 1990. Saab is a high technology company and a world leader in several areas of aircraft and defence electronics.

In 2005, Saab had a turnover of €2 billion and around 12,000 employees. The company headquarters is located in the southern city of Linköping, Sweden. The nature of Saab production means that the company has a large research and development (R&D) department and maintains close relations with several universities and other research institutions. The company has an annual R&D budget of some €200 million.

Saab is a major employer in Linköping as well as in numerous other locations where it has offices and factories. The company possesses a clear ambition to play an active role in the local community and has written policies on that position, as well as in relation to equal opportunities, the environment and personnel. The company runs special programmes for competence development, internal mobility and recruitment of female managers.

Some 30% of the employees have an academic degree. A total of 80% of the staff are men, but the company actively tries to recruit more women.

The level of unionisation in Saab is high – ranging between 80% and 90% – among all categories of employees.

Description of the initiative

Since 2001, the Saab Venture Capital Council (VCC) has operated as a unit within the Saab organisation. Saab VCC has two full-time officers and the head of the unit reports to the finance director who is part of the corporate management team reporting to the chief executive officer (CEO). Saab VCC has an annual budget of €530,000 and operates a portfolio of some 15 venture projects. Since 2001, Saab VCC has made 11 exit transactions and generated a capital gain of €15 million.

Saab VCC has a well-established, proven and flexible process for identifying and screening project proposals. Any employee can bring a proposition before the council, but it is primarily the head of the business unit who decides if a project or idea is within or outside Saab’s core business. Only projects that are outside Saab’s core business model can be referred to Saab VCC. The VCC officers carry out the screening and development work with the help of internal and external experts on a consultancy basis.

The projects which Saab VCC accepts are supported through a four-step process: preparation, pre-study, business plan and business development. After each stage, the VCC steering committee decides if the project should be terminated, sold or continued in the VCC process. The criteria for assessing the projects are: prospect for realisation of value, substantial exit value, considerable market value, and risk versus reward – in other words, assessing the possible negative effect on the management burden or core business.

The process is oriented towards finding external partners that can assist in developing the project and possibly take over the responsibility. External partners can be business contacts or venture capital companies. In some cases, Saab VCC recruits external managers to take responsibility for new ventures.

The main rationale for starting Saab VCC was to exploit business opportunities outside Saab’s core business area. However, the arrangement is also seen as an element in the human resources and competence development policy. Saab is a knowledge-driven organisation and has high ambitions in human resource development. As noted, the company maintains close links with several research institutions, and employees who want to develop new products or business ventures outside of Saab are supported. In a couple of cases where the VCC has decided not to get involved in projects, Saab has still offered support to individuals who want to leave the company and exploit their business idea on their own. This has taken the form of selling instruments or equipment at cost price, or help with contacts, for example.

Although the services of Saab VCC are open to all employees, they are primarily designed for the professional ranks and high tech ventures. Some parts of the Saab organisation also run traditional ‘suggestion schemes’ based on agreements with the local trade unions. In these schemes, employees can submit suggestions to a committee who may award financial compensation according to an agreed price list.

There are no rules regarding the financial compensation for individuals who contribute projects to Saab VCC – rather, each case is handled individually. The entrepreneur may receive a result-based bonus, stock options, a royalty or some other form of compensation that may be negotiated; it depends on how the idea is exploited. The company has a policy of a standard compensation of €4,300 for each patented product.

Saab VCC is a management initiative and there is no formal trade union involvement in the VCC and its operation. Nevertheless, the unions have a positive view of the arrangement and consider it as a valuable instrument both for the company and for employees with entrepreneurial ambitions and talents.

Analysis

Saab VCC represents a systematic effort to capitalise on business ideas and inventions that do not fit into the company’s core business concept. It is widely known that large corporations are notoriously bad at supporting and exploiting innovative individuals and ideas that fall outside of the mainstream activity of the company. By creating a special unit in the company with a direct link to senior management and with its own budget and staff, Saab has developed a system for taking care of ideas and supporting entrepreneurs in the company. By introducing the VCC unit, the company has given a clear message to all employees that a dedicated facility is available if they do not get an adequate response from line management.

By giving the VCC its own budget and the possibility to hire outside experts, the company has built a system that does not depend on the line organisation and internal company culture. The four-step working method of the VCC is a good example of a systematic process that should provide a reasonable balance between the interests of the individuals who want to see their idea realised and the company’s concern not to waste money on impossible ventures.

The experience after the first five years shows that the VCC is a viable business idea. As noted, the trade unions have no formal role in the venture capital unit but regard it as an important element in the company.

Exemplary and contextual factors

Saab VCC is responsible for bringing non-core business ideas and R&D efforts to profitable fruition outside the Saab organisation. The VCC is exemplary in its systematic model for identifying and developing ideas. Saab VCC has its own budget and is a profit centre in the company. After five years of operation, Saab VCC has a proven record of 11 exit transactions and a capital gain of some €15 million.

Olle Hammarström, National Institute for Working Life, Stockholm