L4: Partnering

1
L4 Partnering

• EC10 Innovation Commercialisation
• Acquiring and managing relationships
• within a technology based business.
• Marcus Thompson
• wmt1_at_stir.ac.uk

2
Partnering Outline

• Screening the Idea
• Licensing Joint Ventures
• Technology Transfer
• Exit Routes

3
1. Screening The Idea

• Finding the Idea

4
Opportunities Ideas

• "An opportunity has the qualities of being
  attractive, durable, and timely and is anchored
  in a product or service which creates or adds
  value for a buyer or and user" (Timmons 1999).
• "Those situations in which new goods, services,
  raw materials and organising methods can he
  introduced and sold at greater than their cost of
  production " (Casson 1982).
• An idea which may be a "Plan formed in the mind
  by thinking" (Oxford dictionary 1981)

5
Entrepreneurs Inventors

• Finding or spotting a viable business ideas is as
  much an art, or matter of luck, as the use of
  systematic techniques.
• the starting point for developing new business
  ideas lies inside the prospective entrepreneur
  rather than in the marketplace, laboratory,
  business plan
• inventors and innovators do not necessarily make
  good business people.

6
Idea generation

• Most of the worlds most successful entrepreneurs
  do not have a EUREKA moment.
• They grasp concepts and deliver them to customers
  in a more profitable way than others.
• They find customers who are unfulfilled.
• Cheaper ways of making or selling existing
  products.
• Delivering an existing product in a new way.
• Identifying an unfulfilled market niche, or local
  market.
• Inventing a new product that people need.

7
Idea generation

• Observations
• Necessity is the mother of invention.
• Learn how businesses operate work in them
  first.
• Learn from other successful people or experts.
• Learn about products from all over the world.
• Consider markets where products do not exist.
• Very few will invent and patent dont be
  precious.
• Always challenge assumptions and status quo.

8
Putting A different Light on Things

• The idea of a lighted flower pot may strike us as
  pretty humorous, but it was the answer to a
  lifelong struggle for a Russian immigrant named
  Conrad Hubert. Hubert came to the United States
  in 1890 when he was about 35 years old.  He was
  flat broke. He did what he could to earn a
  living.  He worked in a cigar store, ran a
  restaurant for a while and managed a boarding
  house. He even tried fanning and repairing
  watches. Whatever he did, however, he never made
  much money.  All he wanted was to stop worrying
  about making ends meet. Now Hubert had a friend
  named Joshua Lionel Cowen who was very interested
  in electricity. Joshua had invented a flower pot
  with a battery in it.  Electricity from the
  battery made the flower "light up" when a button
  was pressed.  Hubert decided he would try to sell
  these flower pots.  Meanwhile, Joshua became
  interested in something new, electric trains and
  he sold his friend the flower pot idea for almost
  nothing.  
• Fortunately, Hubert never went ahead with the
  flower pots because he had had an idea for a
  modification.  He took the battery, the bulb and
  the paper tube from the pot and remade it into
  what he called "an electric hand torch."  Hubert
  sold his invention at first as a novelty, but the
  usefulness of the flashlight soon became
  apparent.  When he died in 1928 it must have
  seemed to Hubert a long time ago that he was
  poor.  He was worth 8,000,000.

9
Six Stages to Evaluating an Idea

• The Audit
• The strategic audit addresses where are you are
  now and where are you going. It deals with ways
  to build on your (internal) strengths while
  minimising your weaknesses and also identifies
  the opportunities and converts threats that your
  business faces. From the audit a set of
  objectives is defined which guides the growth and
  direction that the business is to take. An Audit
  may raise uncomfortable issues but it will also
  address how to overcome barriers to growth of
  which you may not (yet) be aware!
• Customer Survey
• The next stage is a Customers Survey to find out
  what potential customers really think of your
  idea and what else they would like. It is always
  a mistake to assume they you already know about
  your customer wants and needs. If questions are
  asked, interesting opportunities arise!
• The trick is to know how to choose and how to ask
  customers the right questions. Ask the wrong
  question you get the wrong answer and this leads
  to the wrong conclusion!

10
The Six Stages

• Repositioning
• Once information has been gathered it is analysed
  and the results are used to reposition the
  business in terms of its customers and the
  competition. Our approach, which can include
  existing and potential customers, will allow you
  to segment customers into groups. Care is
  taken to develop a method to record, on an
  on-going basis, customers needs and wants.
• Targeting
• The fourth stage is to use all this information
  to target the different groups of customers with
  the messages that they want to hear. This means
  mixing and matching different types of media
  whilst making sure that a coherent and consistent
  approach is adopted. Our approach means that
  there is less wastage because information is
  targeted and also because there are a number of
  ways the promotions industry uses to keep costs
  down. The Promotions Strategy will aim to take
  account of existing promotional material and it
  will include direct marketing.

11
Six Stages

• Delivery
• The next session concentrates on maximising your
  resources. Particular attention is made to
  ensuring that your company develops multi-channel
  methods to deliver and monitor its services.
• Market Plan
• Finally the information is gathered together into
  a working Marketing Plan. The Plan combines the
  findings from the audit, customer survey and
  promotions strategy into a single source for
  growing the customer base profitably.

12
Creativity Conflict

• One common way managers kill creativity is by
  assembling homogeneous teams. The lure to do so
  is great. Homogeneous teams often reach
  solutions more quickly and with less friction
  along the way. These teams often report high
  morale, too. But homogeneous teams do little to
  enhance expertise and creative thinking.
  Everyone comes to the table with a similar
  mind-set. They leave with the same.
• Amabile, T, How to Kill Creativity, HBR, Sept
  - Oct 1998, pp 77 - 85,

13
Creative Thinking

• But the truth is that the winning strategies are
  smart, innovative and original, and break the
  rules, and most times there is someone somewhere
  who has seen through conventions and traditional
  assumptions to create a new business idea"
  Piercy 2002, p 269

14
2. Licensing Joint Ventures

• Building an International Network

15
Uncertainty in Technology Environments
Selection process for standards and dominant
designs emerge is complex and difficult to
predict, e.g. future of 3G
Technological uncertainty
Sources of Uncertainty
Market uncertainty
Customer acceptance and adoption rates of
innovations notoriously difficult to predict,
e.g. centrino, i-pod, Wi-fi, video conferencing
16
Risk in Technology Environments

• Cooperating with lead users
• early identification of customer requirements
• assistance in new product development

Strategies For Managing Risk
Limiting risk exposure avoid major capital
commitments (e.g. lease dont
buy) outsource alliances to access other firms
resources capabilities keep debt low
Flexibility use speed of response to adapt
quickly to new information learn from mistakes
17
To Lead or to Follow

• Is innovation appropriable and protectable
  against imitation?
• If so, advantages in leadership.
• Is owning/ controlling industry standard critical
  to competitive advantage?
• If so, advantage in being a leader.
• The role of complementary resources.
• Followers may be able to avoid investing in
  complementary resources due to better-
  established industry infrastructure.
• Firms possessing portfolio/resources have the
  luxury of waiting.

18
The Profitability of Innovation
Legal protection/IPR. Organisational
resources. Imitability of the technology. Turbulen
ce/Churn. Global Drivers. Window of
Opportunity. Time to Market. Endorsements.

Value set against cost structure
Expected Return on Investment
Ability to communicate the value of the
innovation to target customers.
19
Assessing Emerging Opportunities
Information Market Characteristics Product
Characteristics Buyer Characteristics
Process is interactive each cycle refines the
opportunity
Analysis Critical relationships Key Success
Factors
Synthesis Refine Critical relationships
New Opportunity
Wickham, Strategic Marketing, Pitman, p158, 1998
20
Uppusala Model

• A sequential process of functional migration
  based on a firms.. Gradual acquisition,
  integration use of knowledge about foreign
  markets operations, and on its successively
  increasing commitment to foreign
  markets.... Its about learning .. To
  overcome psychic distance .. Over time, firms
  enter foreign markets with greater psychic
  distance

21
Networks Collaborations

• Firms not seen as bounded legal entities
• Instead as a complex set of exchange
  relationshipswithin outwith the firm

22
Networks Collaborations

• Existing relationships are resources used to
• develop exchange relationships with actors in
  new networks
• to make the firms own resources interdependent
  with resources of firms in other networks or
  areas
• Internationalization develops from the
  co-operative development of new exchange
  relationships

23
Drivers for Internationalisation
Product Scope
NARROW
BROAD
Restricted National Market
Narrow Niche Strategy
National Broad-based Strategy
Geographic Scope
International Broad-based Strategy
Internat-ional
International Niche Strategy
24
Bartlett GoshalsIdentification of Needs model
Need for National Responsiveness in Selling
HIGH
LOW
Globalization Strategy
Mixed Strategythink global act local
HIGH
Need for Globalization in Production
National ResponsivenessStrategy
Mixed StrategyInternational Standardization
LOW
25
Foreign Direct Investment (FDI)

• Greatest Control (supposedly)
• Greatest Direct Investment Cost
• Massive local knowledge requirement
• Greenfield Acquisition alternatives

26
Contractual Agreements

• Some Control retained, according to contract
• Low or negative cost possible
• Can avoid local knowledge need
• Many alternatives of structure/ organization
  possible

27
Exporting through Distributors / Agents

• Little Control retained
• Low cost, low reward
• Explicitly avoids local knowledge need

28
Joint Ventures

• Control achieved through joint ownership
  (supposedly)
• Variable Direct Investment Cost
• Local knowledge requirement can be lessened
  (depending on partner)
• Many alternatives of structure/ organization
  possible

29
Licensing / Franchising

• Some Control retained, according to contract
• Low or negative cost possible
• Can avoid local knowledge need
• Many alternatives of structure/ organization
  possible

30
Alliances

• A strategic alliance describes any relationship
  between companies involving a sharing of common
  destinies.
• It is an agreement between two or more partners
  to share knowledge or resources that could be
  beneficial to all involved.

31
Types of Alliance

• Intra-industry alliances
• used to 'protect the home turf.' eg US carmakers
  entered into an alliance to develop a new battery
  for an electric car. If successful, the battery
  alliance could help fight off foreign
  competition.
• Inter-industry alliances
• used to pool expertise and create synergy.
• Eg the alliance between chemical giant DuPont and
  pharmaceutical giant Merck existed to combine
  DuPont's RD ability with Merck's capital and
  market rights.

32
Why are alliances formed

• To avoid barriers to entry
• To create synergy by pooling resources and
  sharing expertise
• To reduce/share risk
• To gain access to new markets
• To source raw materials

33
Influencing Factor

• The state of technology is a major influencing
  factor in selecting partners for alliances.
• Firms seeking immediate competitive advantage
  will seek alliances in new but readily available
  technologies.
• The fusion of technology, whereby one partner is
  used to contribute the specific knowledge of a
  process that is critical to gain competitive
  advantage.

34
Critical Issues

• Goal compatibility
• Without this, alliance partners may pull in
  different directions
• Synergy
• One is strong where the other is weak. This is
  the major reason for and the advantage of the
  alliance. The partnership must be more efficient
  and effective than if each alliance partner was
  performing the similar tasks individually
• Value chain
• There must be a clear understanding of the value
  each partner will bring to the alliance.
• Balancing contributions
• This is ne34eded in order to avoid one partner
  dominating the alliance.

Vya, N, Sleburn W, 2001
35
3. Technology Transfer

• Sources of Innovation and their diffusion from
  pure science to commercial product

36
Technology Perspectives

• Technology Innovations
• exploitation of new ideas incorporating new
  technologies, design and best practice is the key
  business.
• Commercial Innovation
• Venture management strategies and structures that
  bring these new technologies to market.

37
Commercial Innovation

• Commercial Innovation is about doing things new
  or different (from your competitors).
• It is a management process that centres on being
  creative visionary.
• It presents itself as the ability to filter and
  then commercialise.
• It applies to
• new products
• new business practices
• new market applications
• These are the skills of the entrepreneur. Are
  they the skills of the scientist?

38
Innovation Triggers

• Push Innovation. 
• Where an organisation is already active in a
  market and needs to maintain competitive
  advantage.  Here the innovator can be a prisoner
  to their own RD Success.  Ideally this form
  should be continuous.  Downside - can be
  product-centred organisation. Upside is that it
  is sustainable model.
• Pull innovation.
• Where an emerging technology allows innovations
  to exceed what a customer thought was possible. 
  These are quantum scientific leaps.  These are
  the real scientific innovations. These are
  disruptive innovations.
• Downside - the pull innovation is discontinuous
  and extremely risky.  Discontinuous innovation
  can also be a one product wonder. SMEs or
  Corporates??
• This is where the venture management skills comes
  in.

39
Measuring Innovations

• Distinctiveness
• A distinctive innovation rewrites the rules.
• How is this innovation distinct from other ideas
  that have historically emerged?
• Is it the first of its kind in any form?
• Is it the first successful implementation?
• Companies should also ask questions that help us
  understand if the rules of the game really have
  been rewritten
• Does your innovation make others react to what
  you have created and now offer?
• Are others forced to make changes based on your
  actions?
• Does this innovation change the basis of
  competition?

Chen, E, Kai-ling Ho, 2001
40
Measuring Innovation

• Impact
• Impact differentiates the innovations from the
  mere inventions.
• Is a company only dealing with primary impact? Or
  is it also valuing the effects of the innovation
  beyond the scope of its primary customers and
  achieving secondary impact?
• Is a company evaluating measurable impact today
  as well as the future potential impact?

41
Technology Transfer

• Tech transfer is the flavour of the decade
• EU White Paper on Growth Competitiveness and
  Employment
• EU Green Paper on Innovation
• DTI Competitiveness White Paper
• HEFCE Reviews of University-Industry Linkages
• Lambert Review
• Regional initiatives PoC, RSE Fellowships
• Entrepreneurship initiatives EHE, Science
  Enterprise Challenge
• The third income stream debate

42
Non Conformity

• New and small firms are not a homogeneous group
  with equal enthusiasm, ability, resources or
  inclination to grow.
• Whilst new and small firm sector in aggregate
  continues to make a significant contribution to
  the total employment pool, the aggregate data
  masks a highly skewed distribution.
• Whilst most firms employ a few people, only a few
  provide significant employment.

43
Industry Collaboration

• All focus on closer links (both actual and
  desired) between universities, industry and
  government, and all essentially predicated on a
  view that increased UIC is a good thing

44
UNIVERSITIES Technology?

• Calls to reinterpret the role of the university
  as a
• Hotbed of entrepreneurship
• Locus of economic development
• Agent of regional transformation

45
SEN Policy Towards Academics

• If you are an academic, or academic researcher,
  working in one of Scotland's higher education
  institutions, NHS trusts or research
  establishments, Scottish Enterprise can help you
  to bring your work to the marketplace.
• Proof of Concept Programme funding to early-stage
  ideas that have typically reached patent level,
  and could lead to the creation of new businesses,
  or the licensing of innovative technologies.
• Enterprise Fellowship programme, funded by
  Scottish Enterprise and delivered by the Royal
  Society of Edinburgh, helps individual academic
  researchers to develop spin-out companies.
• The University of Edinburgh Stanford University
  link aims to help establish Scotland as a global
  leader in the commercial development of language
  technology.
• Kelvin Institute aims to transform the
  ground-breaking research taking place in
  participating universities today into high-value,
  commercial, innovative solutions, delivering
  substantial benefits to everyone involved.
• These initiatives are a part of Scottish
  Enterprise's commitment to increase the flow of
  good ideas from the research base into Scottish
  industry and commerce.
• We also part fund Technology Ventures Scotland
  which was set up to provide a strategic and
  overarching role in encouraging the
  commercialisation of Scotland's Science and
  Technology base.

http//www.scottish-enterprise.com/sedotcom_home/s
ig/academics.htm
46
University Technology Issues

• Three issues
• The technology transfer process
• What is it and what drives it?
• The spin-out company process
• Organising early stage technology development
• The entrepreneurial curriculum
• Rethinking the basis for learning in universities?

47
Technology transfer agenda

• Focus on commercialisation of scientific and
  technical knowledge
• Instrumental tax dollars have paid for this
• Principled we ought to make an economic
  contribution (or, save the planet)
• Utilitarian we need a return on expenditure on
  research

48
FORMS OF COMMERCIALISATION

• Commercialisation and technology transfer takes
  many forms
• Licensing technology
• Spinout company formation
• Collaborative research and TT projects
• Faculty/student/industry exchange and internship
  programs
• Consultancy/applied research
• Teaching, education and outreach programs

49
WHY TECH TRANSFER?

• Funding (especially to replace reduced government
  core funding)
• access to new ideas and techniques
• improved contribution to economic needs of region
• broaden researchers experience
• improve quality of research firms as efficient
  testing instruments

50
THE BARRIERS TO TT

• Lack of internal resources - individual staff
• Lack of internal resources - institutional
• RAE and the publish or perish culture
• Lack of academic recognition for collaborative
  activities
• Culture gap researchers vs industrialists
• Priority conflict publish vs protect IPR
• Attitude of business (SMEs especially) - ivory
  tower stereotype

51
INDUSTRIAL PARTNERS

• Lack of commercial awareness (markets,
  timescales) by academics
• Short-term problem solving emphasis by industry
  (tech transfer is not always leading edge)
• Culture shock in terms of university timescales
  and project management
• Mismatch between absorptive capacity of local
  industry and the knowledge/technology available
  for transfer

52
IMPLICATIONS

• Most effective forms of technology transfer are
  consulting and contract research - improved
  efficiency of collaboration
• Need for improved marketing of tech transfer
  activities and support internally and externally
• Review reward and recognition for involvement
  in tech transfer

53
4. Exit Routes
54
Conflicts Power within a Channel

• Traditional Channel Management is about
  dominance.
• Stern and E1 Ansary (1988)
• Power is the ability of one channel member to get
  another channel member to do what the latter
  would not otherwise have done. Power is the
  inverse of dependence the more highly dependent
  one channel member is on another, the more power
  the latter has relative to the former.
• New paradigm Trade Marketing win-win
• Partnering

55

• TM as a common effort by suppliers and retailers
  to optimize relations and harmonize resources so
  as to better serve the consumer and/or try and
  achieve mutual economies of scale... It is a
  question of the supplier considering the retailer
  as a customer, with all that that involves. The
  retailer is no longer a mere subcontractor, he
  has become a partner and more than a partner,
  he has become a customer and should be treated as
  such.

Marc Dupuis and Elisabeth Tissier-Desbordes,
(1996) Trade marketing and retailing a European
approach,, ESCP, Paris Graduate School of
Management, 79 av. de la Rpublique, 75011 Paris,
France.
56
Supply Chain Management

• an emphasis on joint reduction in channel
  inventories
• a focus on channel-wide cost efficiencies
• a long-term horizon
• a information sharing as required for planning
  and monitoring processes
• an emphasis on speed of inventory operations and
  information

57
Alternatives for Exploiting Innovation
Outsourcing certain functions
Strategic Alliance
Joint Venture
Internal Commercialisation
Licensing
Biggest investment requirement and corresponding
risks. Benefits of control
small investment risk, but small returns also
limited (unless patent position strong) Some
legal risks
Limits capital investment, but may create
dependence on supplies/partners
Shares investment and risk. Risk of partner
disagreement and culture clash
Benefits of flexibility, risks of informal
structure
Risk Return
Permits accessing of outside resources and
capabilities
Substantial requirements in terms of finance,
production capability, marketing capability,
distribution, etc.
Few
Permits pooling of the resources and
capabilities of more than one firm
Competing Resources
Konica licensing its digital camera to Hewlett
Packard
Pixars computer animated movies (e.g. Toy
Story) marketed and distributed by Disney Co.
Apple and Sharp build the Newton PDA
Microsoft and NBC formed MSNBC
TI divestment of its Digital Signal Processing
Chips
Examples
58
Route Adopted
Directorship Form a management team, raise
finance and launch.
Licensing Commercial arrangement through which
licensor of IPR allows licensee to develop sell
or use in return for a royalty payment.
Level of Control
Assignation Sell rights and transfer the
ownership of the invention and IPR to third party
for lump sum.
Joint Venture Partnerships Collaboration with
one or more organisations to exploit IPR.
Includes sharing of costs and revenues.
59
To Lead or to Follow

• Is innovation appropriable and protectable
  against imitation?
• If so, advantages in leadership.
• Is owning/ controlling industry standard critical
  to competitive advantage?
• If so, advantage in being a leader.
• The role of complementary resources.
• Followers may be able to avoid investing in
  complementary resources due to better-
  established industry infrastructure.
• Firms possessing portfolio/resources have the
  luxury of waiting.

60
Assessing Emerging Opportunities
Information Market Characteristics Product
Characteristics Buyer Characteristics
Process is interactive each cycle refines the
opportunity
Analysis Critical relationships Key Success
Factors
Synthesis Refine Critical relationships
New Opportunity
Wickham, Strategic Marketing, Pitman, p158, 1998
61
Going to Market
Value Definition
Value Development
Value Delivery
Analytical
Logistics/ Supply Chain Attitudes Behaviour
Reinvention
Information Interpreting Understanding Learning

Operations Motivation Responsiveness
Behavioural
Organisational
Process of Going to Market
Customer Value