Companies are increasingly searching for corporate development officers to assist with business growth and new ventures. With all the attention paid to this role, let's take a look at what corporate development is, what it can accomplish, and best practices to note.
What Is Corporate Development?
Corporate development refers to actions that grow or add value to the company. Oftentimes, the phrase is abbreviated as corp dev.
A few forms that corporate development may take include:
- Partnerships
- Joint ventures
- Mergers and acquisitions (M&A)
Let's briefly outline some of the activities that fall under the purview of corporate development.
Corp dev teams concern themselves with the growth of the business and the reduction of risks, which streamlines the way for growth. Corporate development teams perform due diligence associated with deals like M&As, negotiate deals and address subsequent steps, such as integration.
Corporate Development vs. Business Development
Both corporate development and business development add value to the business. However, they go about the mission in different ways.
Business development focuses on external, consumer-facing activities, such as customer acquisition, marketing, and sales. As discussed, corporate development emphasizes company-facing or internal activities such as partnerships and deals.
Therefore, it's not a question of corporate development versus business development, but of how both strategies are leveraged to advantage the company.
Phases of Corporate Development
Corporate development is a series of stages. The typical corp dev life cycle looks like the following:
- Creation: This is where the corporate development team brainstorms ideas, selects a direction and does the ideation or development work to flesh it out. Activities that typically take place during this stage include market research, analysis and financing for the venture.
- Startup: Next, the company takes the ideas developed in the creative stage and begins to refine them. Activities that typically take place during this stage are ironing out the product or the service model, finding the ideal fit for the product or service with the market, and figuring out the right customer base to target.
- Growth: In the growth phase, companies are selling their product or service and generating revenue. As operations shift from okay to good, the focus will naturally turn to how to expand awareness, attract more customers and become profitable.
- Expansion: Corporate development naturally shifts to the expansion phase, which continues the growth from the previous phase.
- Maturity: The last stage of development is maturity, when the company is an established competitor in the market, widely known for providing a particular product or service.
These phases are circular. As a company moves into maturity, thought naturally turns to the next innovation and a fresh creative phase begins anew.
Corporate Development Modeling
Corporate development falls into one of three models:
- Centralized model
- Hybrid model
- Decentralized model
Most of the time, corporate development takes a centralized model. The corporate development team is an established team that is a core part of the organization. Not siloed from other teams, the corporate development team works in concert with other teams within the organization. A corporate development team usually consists of stakeholders such as VPs, directors, and analysts. In many cases, these corporate development professionals report to the organization’s CFO, Chief Strategy Officer, or Corporate Development Director if those positions exist within the company.
In this case, the corporate development team uses its internal knowledge of the landscape to formulate a strategic plan, identifying the strengths, opportunities, weaknesses and threats that affect the initiative. Armed with this knowledge, it can then structure deals that address weaknesses, capitalize on strengths and take advantage of opportunities.
The decentralized model takes the opposite approach. In this model, the company has no set corporate development team. Just as it might hire a contractor to fill a short-term need, the company will put together a corporate development team for a short-term need. It will usually draw players from established internal teams; however, consultants may be brought in from the outside, as well.
This approach allows the company to pull from management teams based on the deal's needs. For example, it can draw heavily on the legal team for contract review and compliance, if that is a big concern.
Without a dedicated team of corporate development executives in place, the company has to start from scratch by assembling a team before each new deal. As a result, the company is unable to move quickly and can lose some of that fast mover advantage that more nimble companies with in-house, dedicated corporate development teams naturally have.
While hybrid models are variable, one approach is to keep a lean corporate development team in-house with a skeleton staff that is versed in processes and best practices. The company can then bring in experts (in-house or consultants) as needed, without starting from scratch every time, as with the decentralized model.
Corporate Development Transaction Strategies
Certain corporate transactions may be essential for business health or revenue growth. Corporate development strategy includes understanding when to choose a particular business strategy. Here are the most common corporate development types pertaining to strategy:
M&A
Both large and small companies may find M&A solutions the best corporate strategy for their needs. A smaller company may wish to join forces with a competitor through a merger or acquisition. By joining forces, the two can challenge a market leader. In other times, a larger company may want to buy out a smaller target company that disrupts the market, if that smaller player has a unique skill set, knowledge base or audience that can benefit the bigger player.
Regardless of the size of the company seeking an M&A deal, corporate development teams will want to focus on business valuation, risk management, corporate finances, strategy, negotiation and integrating the two businesses when the deal concludes.
Long-Term Partnerships
Partnerships offer a way to leverage other businesses' audiences to grow a company's customer base and revenue. Partnerships give a company access to a third party's audience without having to independently market. These types of deals are win-win for both parties, and are strategic for large and small players alike.
Partnerships are a cost-effective way to grow a business because companies do not need to invest significant resources in competition. All they need to do is line up partners who act as sales liaisons or leads. For example, a technology company may line up IT partners who then install the technology in their clients' companies.
Joint Ventures
Joint ventures refer to new companies established by two or more companies. These are usually for a specific purpose, such as coming together to enter a new market. Joint ventures are similar to partnerships, only more involved because the players usually form another company for the new venture.
Divestitures & Carve-Outs
Divestitures refer to selling off a portion of the business, such as a subsidiary or product line. Carve-outs refer to a partial divestment, such as selling off a portion of the business while maintaining majority ownership.
These strategies come into play when companies face financial pressure, internally or externally. Letting go of a part of the business frees up resources to focus on strengths and can bring in income to offset market volatility.
Strategic Alliances
Similar to partnerships, strategic alliances unite parties around assets for mutual gain. Companies may form an alliance to enter a new market, speed up R&D or manage risk in an uncertain market. Strategic alliances have the benefit of lowering costs for all players, because all alliance members contribute assets and share risk.
Licensing
In a licensing arrangement, a company licenses its products or services to a third party. The company makes revenue from the goods created with its licensed property. For example, a company licenses its logo to an apparel maker to create branded merchandise and earns a share of the profit when merchandise is sold. Licensing is a low-stakes, low-cost approach to corporate development that benefits businesses of all sizes.
Corporate Development Best Practices
Best practices for corp dev focus on streamlining phases, staying organized and building relationships before you need them. Let's break down what that looks like in practice.
Corp dev teams should keep internal processes and playbooks to turn to each time they identify a new development avenue. Having a playbook to draw from allows the company to build on past strengths. It also makes sure that team members use language consistently to refer to strategies, avoiding miscommunications.
This internal playbook helps with the next phase of the deal, including ironing out partnership agreements or implementing M&A solutions.
One last note on playbooks: teams should integrate experiences from previous deals into their playbooks. Continually updating strategies allows teams to learn from past experiences, replicate what worked and become more efficient.
Successful corporate development depends on strong relationships and disciplined deal management. As teams pursue growth opportunities, keeping due diligence, documentation and other critical deal activities organized can help reduce friction throughout the transaction process. DFIN provides intelligent software solutions that help corporate development teams manage complex deals from due diligence through closing.
