- Overview of Accessing External Technology / Open Innovation
- Distinction Between Partnering and Outsourcing
- Choosing External R&D Alternatives
- Background on External Innovation Channels/Sources
- Best Practices in Partnering
- IP Strategy in Shared Innovation Environments
- Overall Alliance Framework Elements
- Example External Technology Partnership SWOT Analysis from Six Perspectives
- Example Supplier Partnership MOU, Goals Survey, Partner Roles for Leadership and Operations
- Attributes and Measurements of Assessing External Technology Programs
- Sources, References and Selected Bibliographic Information
An increasing number of companies are practicing open innovation by relying on external sources of technology (note: in this Chapter the terms “Accessing External Technology” and “Open Innovation” or “OI” will be used interchangeably). The driver for this trend, as described in “The Reciprocity Advantage”, is the squeeze caused by ever-tightening margins and disruptive forces. Open Innovation offers the potential solution to these problems through nontraditional partnerships as a path to large-scale growth. This has been advocated and described by such authors as Henry Chesbrough in “Open Business Models”, Thomas Friedman in “The World is Flat”, and Govindarajan and Trimble in “Reverse Innovation”.
The concept of Open Innovation is not new. For example, P&G proudly touts its “Connect & Develop Heritage”, shown in the figure, as being over 150 years old.
As another example, IBM too has been on a decades old journey towards “Collaborative Innovation” as shown it the other figure.
Key Factors for Open Innovation / External Technology Acquisition Success
Unfortunately, inbound open innovation does not always lead to expected improvements in innovation performance. A key factor for success is quickly and reliably determining which technology or solution a company should source externally. The “Strategies for Technology Acquisition” figure shows the possible strategies for acquisition in relation to the sources of technology. The figure shows the relationship between R&D, licensing and IP. The strategies for technology acquisition are defined, and their implications for a company that are related to the cost of acquiring the technology, the risks and rewards, and IP issues are shown on the left-hand side of the figure. It is important to consider all these technology acquisition strategies as a project is started.
Benefits of Open Innovation / External Technology Acquisition
The benefits of Open Innovation/Licensing are summarized in the “R&D vs. Licensing” figure. Not everything is as rosy as the figure portrays however. The key barriers to Open Innovation were found in a 2019 IRI survey to be (1) the technology was not as mature as expected resulting in project delays or killed partnerships, (2) that Open Innovation was not driven by strategic intent, but rather as an objective in and of itself, (3) internal misalignment between functions (engineering, marketing, quality, etc.), and (4) the time to contract was too long (leaving internal teams and potential partners discouraged).
When assessing whether technology needs can be met through open innovation, it is important to first examine which types of innovation can create and sustain business growth. Corporations can conduct strategic planning based on a combination of three growth horizons: current generation growth; next generation growth; and long-term business growth. The first horizon is focused on slowly growing revenues coming from current generation market share growth and geographic expansion. Supporting current generation growth is typically based on incremental innovation. In this environment, most IP is commercially available to all industry participants. The company’s price/performance position is well known and understood by others, and because the technology is mature, intellectual property protection is often obtained from trademark and copyright protection. External technology is often supplied by individual customers or inventors.
To satisfy expectations of shareholders, growth from next generation offerings is also required. The technology for next generation products is not available today but will come from significant innovations; the objective is to create a competitive advantage that others cannot readily follow. The goal is to block competitors using all forms of intellectual property, in particular patents. The innovations that support this type of growth often come from internal R&D initiatives or company-to-company open innovation initiatives.
Long-term growth requires new business growth. This often involves the development of new business models. Because this work is often developmental, intellectual property protection is based on nondisclosure agreements and trade secrets. Open innovation activities in this timeframe are often joint development agreements between companies or collaborative research with universities or research labs.
Innovation Posture’s Effect on Open Innovation and External Technology Acquisition
Senior management teams thus need to look at technology needs that reflect the type of growth they want to stimulate. In doing so, they can identify the type of external partners most likely to supply the appropriate technology. Studies on OI continually highlight the need for organizations to be able to specifically state the problem they seek to solve. This point is critical for organizations with limited resources. Being able to articulate what exactly is the organization trying to address/solve is imperative for a good OI outcome. Once the problem is clearly stated, the market growth in the organization’s targeted market and the organization’s market share constrain the innovation options available to the organization. Utilizing a standard marketing position graph of the organization’s and competitors’ positions as shown in the “Innovation Postures Derived from Market Growth and Relative Share” figure, an organization can double check its search criteria for the newness and unfamiliarity required of a technology it seeks. In the “Innovation Postures Derived from Market Growth and Relative Share” figure, the innovation posture contours (maverick, offensive, defensive) are super-imposed on market growth rate and relative organization’s market share positions. Once an organization determines the appropriate innovation posture for its project, the innovation posture can be combined with patent landscape densities (described below) to arrive at the best OI approach.
Necessary Competencies for Internal R&D vs. Accessing External Technology
Another high level tool for determining which technology to source or divest externally comes from Cambridge Technology Partners and is shown in the “Necessary Competencies” figure. Where a company is competitively vulnerable it is best to partner via Open Innovation to build a defensible position quickly.
Innovation Posture and IP Landscape Sets the Open Innovation Approach
The “innovation posture” and “patent density” concepts are introduced in order to allow segmentation of R&D and business development initiatives into those which are best or ill-suited for an OI approach. A high level summary of such approaches is shown in the “Innovation Posture and IP Landscape Sets the Open Innovation Approach“ figure. Thus the identification of technology “needs” is a first step. The analysis of patent landscapes is the second step. When looking for technology, a company will typically find one of the following three scenarios. In the first scenario, there is little prior art. Such a situation is called a ‘patent desert’ and the only option for the company is to conduct internal research, or fund joint developments with another company or research organization. In the second scenario, labeled a ‘patent forest,’ there are hundreds of patent families already describing potentially interesting technologies. In such an environment, the company has the option to make, buy, or license art from other companies. Other options here include internal innovation or open innovation with another company. In the last scenario, it is possible to find tens of thousands of patent families in a particular technology area, a ‘patent jungle’. In this environment, it is imperative to buy or license the needed technology. Such technology often comes from research laboratories, universities, individuals or start-up organizations.
Upon combining the strategic posture with the patent landscape, we can develop a “Heat Map for Open Innovation Initiatives” as shown in the figure (the green area is the open innovation sweet spot).
Heat Map for Large and Small Company Open Innovation Initiatives
At this point it is important to make a distinction between the Open Innovation efforts of Large vs. Small Organizations/Enterprises (SMEs). Utilizing the recommended R&D approaches shown in the “Innovation Posture and IP Landscape Sets the Open Innovation Approach” figure, the OI sweet spot for SME’s is at the bottom left of the matrix shown in the “Heat Map for Open Innovation Initiatives“ figure. When SMEs try to work in the upper rows or right hand side of this matrix they often find their OI initiatives do not produce favorable business outcomes. This is in contrast to the recommended sweet spot for large companies who can utilize approaches on the diagonal from lower left upper right as shown in the “Heat Map for Large Company Open Innovation Initiatives” figure.
Rate of Investment Heat Map for Large and Small Company Open Innovation Initiatives
Another distinction between large and small companies when it comes to OI has to do with the rate at which all entities are investing in the SME’s technology of interest. In this context patent velocity is an excellent analogue for investment rate. The “Rate of Investment Heat Map for SMEs Open Innovation Initiatives” figure shows three typical patent velocity patterns that come from plotting patent family counts per year.
Looking first at the overall number of patent families in a field and using an approximation of $1 million invested by a company for each patent family published, the overall number of patent families shows the extent to which a field has attracted enough investment to make finding an OI opportunity likely. Returning now to the “Rate of Investment Heat Map for SMEs Open Innovation Initiatives” figure (showing the pattern by which the overall number of patent families have been created) only the left and right patterns offer OI promise for SME’s because of the time and financial constraints typical of SMEs. Larger organizations have the financial leverage to participate in all investment environments although the center area is by far still the most challenging.
Assuming that an organization has looked for the technology it wants and has found that the environment is in the sweet spot of both of the Heat Map figures, the next step is to begin evaluating and choosing technology solutions.
Success Rate of Open Innovation and Accessing External Technology
This brings us to the point of how successful are Open Innovation Initiatives? The metrics on the success rate have varied over the decades. Starting with OI results segmented by an organization’s familiarity with the technology and market fundamentals of a project, the “Project Partnership Success Rate” figure shows that this familiarity was helpful in obtaining project success.
By 2013, in a survey conducted by Henry Chesbrough, known as “the father of Open Innovation” and Sabine Brunswicker who is an OI researcher and advisor, of more than 2,840 large stock market listed Europe and US firms, it was found that (1) 78 % of firms report practicing open innovation (with 82 % report OI is practiced more intensively today than 3 years ago; no firms report abandoning their practice of open innovation; 71 % report that top management support for open innovation was increasing), (2) inbound open innovation is more common than outbound (project share with an inbound component is 35 % on average vs. only about 8 % of projects result in outbound activities), (3) leading inbound practices utilize customer co-creation, informal networking, and university grants. Crowdsourcing and open innovation intermediary services rated lowest in usage, (4) leading outbound practices utilize joint ventures, selling market-ready products and standardization. Donations to commons and spin-offs play a minor role. The survey also found that the three leading OI partners are customers, Universities and suppliers. The three leading reasons for using OI are: establishing new partnerships, exploring new technological trends, and identifying new business opportunities. The study concluded with the following overall observations: (1) “Evidence strongly suggests that open innovation is not a fad that is about to go away.” (2) “On the other hand, our survey shows plenty of dissatisfaction with the practice of open innovation in these large firms.” (3) “The level of importance assigned to many open innovation practices was reported to be rather low”.
By 2017, an IRI survey found that for surveyed companies, the contribution open innovation made to the company’s overall portfolio revenue was less than 1%. Most companies either had R&D manage the relationship or had a dedicated OI leader and budget. These companies typically had less than 5 partnerships initiated each year and which took on average 8 to 11 months to go from “intent to partner” to “partnership signature”. Unfortunately a majority, 60/40 split were not happy with the performance with their open innovation program. The major issues found with OI initiatives are shown in the “Issues with Open Innovation” figure. Clearly there is room for improvement with the utilization of best practices in this area.
In order to give Open Innovation the best chance for success, Cheryl Perkins of Kimberley Clark Open Innovation makes the following “Velcro Points” that any Open Innovation leader must remember and embrace.
1. Approach innovation holistically … strategy, process, structure, people and rewards.
2. Make innovation a true source of revenue … eliminate internal handcuffs.
3. Create a separate growth incubator and focus on the future.
4. Remember there is a large opportunity for innovation within existing consumer categories.
5. A personal source of innovation is curiosity. ”
In conferences on Open Innovation, the underlying theme has now become to carefully select projects that lend themselves too partnership leverage and success, and to manage those projects with the best-collaboration-practices. Another conference theme promoted by Henry Chesbrough is that when given a choice between looking for a better technology or a better business model, outsourcing and partnerships that are focused on the latter have much more impact when successfully completed.
As described in the Competitive Intelligence Chapter 20, the best ways to find the most promising technologies in today’s digital economy have been outlined and published by Jay Paap. Jay carefully outlines what makes an effective technology scout, and the means to find opportunities and places to look. He asserts that the role of the technology scout includes searching for opportunities and leads, evaluating leads, offering insight into leads, and making the link between a lead and company strategy. A high-performing tech scout will track current and emerging market trends and technologies. He/she will cultivate an extensive and varied network of contacts and resources and will know which outside sources will provide timely and reliable information. The best tech scouts are entrepreneurial and willing to take risks. Thus scouts understand that opportunities are not limited to technologies. While new and/or disruptive technologies can give a company a competitive advantage, other reasons to go outside include market access (customer base, distribution, brand, etc.), competencies (technical, marketing, business) and funding – as well as ideas related to serviceability, sustainability, and other attributes. Regardless, the most important driver is customer need. Ideally a scout will match a new technology or idea to a large, unmet and compelling need. Scouts thus (1) Seek problems, not solutions – identify the gap(s), don’t presume the answers, (2) Think generically, (3) Look everywhere, (4) Manage internal experts, and (5) Keep options open.
Working with other companies takes many forms. The figure on “Types of Partnerships” shows the extremes ranging from arm’s-length agreements where there is no interaction other than a purchasing department, up to mergers and acquisitions where an equity stake is taken in the other or newly formed joint venture entity. The types of partnerships are organized according to the time and effort required to obtain or develop a product and service. The types of partnerships are arranged as a hierarchy because from a business standpoint the best approach is to obtain the desired product or service at the lowest level on the hierarchy. The reason that organizations move up the hierarchy and engage in partnerships, all the way through risk reward sharing joint ventures, is that the product or service is not available to the company in a way that provides them an advantaged business position. Working together allows companies to find win-win advantaged business positions for each entity, but obviously understanding and selling these concepts within each entity requires higher levels of skill in partnership selection and management.
The simple model shown in the “Partnership Type Selection Criteria” is a high-level decision tool to decide what to keep inside your company and what should be done outside your organization. In short you outsource for tactical capability and co-develop for strategic capability. More detailed decision criteria were provided in the Overview section of this Chapter.
Having reviewed the high level selection criteria for determining whether internal or external R&D is best for a particular project or program, specific selection criteria are now provided. There are three classes of selection criteria the project team can use in picking the right partner. The first requires segmentation of alternatives by business need. The second is to segment the alternatives by the technology’s readiness. And lastly is to remember the constant need to evaluate potential providers.
The first selection criteria for selecting alternatives by business need has three components. The three business needs to choose from are incremental upgrades, next generation products or services, and lastly breakthrough new products or services. Incremental upgrades to a product can happen at any point in the product life cycle and are generally minor changes to the products’ color, design, or feature set. They may or may not be noticed by the end consumer. Next generation upgrades to a product or service require new and improved features. This can be a new feature set or more productive manufacturing, packaging, or delivery. Consumers will definitely notice these changes. The last category of breakthrough new products or services comprises a completely new feature set or business model. These may be obtained by a completely different or redesign manufacturing, packaging or delivery system.
How to segment project needs to determine which type of external R&D is most efficient and effective is shown in the figure “External R&D Based on Business Needs”. This graphic is provided because the best external R&D is done when based on business need. Note that the appropriate external R&D source depends on the specific product or service line. The source of external R&D is different when the needed technology already exists in the world versus when it needs be developed from scratch. For next generation products and services, finding technology that can be licensed is best done using contacts at professional societies such as the Licensing Executives Society and the Association of University Technology Managers. There also technology exchanges available on the Internet that are hosted by a variety of for-profit and not-for-profit organizations.
When the technology needs to be developed from scratch, contract R&D can often be done through government affiliated labs such as Battelle and Stanford Research Institute, or with a variety of for-profit research organizations. When the technology needs to be developed to upgrade an existing commercial product, government labs such as Sandia etc. can be helpful especially when modeling complicated processes. For breakthrough new products and concepts where the technology needs to be developed, independent labs such as IDEO and university associated labs such as MIT’s Media Lab are often excellent resources to use.
The second selection criteria used to select external resources for R&D projects is based on technology maturity curves. The generalized curve is shown in the “Business and Technology Maturity Curve” figure. This generalized figure shows that revenue profits and market capitalization grow over time in an S-curve fashion as products move from their introduction through to their maturity. To help understand how this looks for a company’s products and technologies portfolio, overlaid on this figure are the major Procter & Gamble products available in the early 2000’s. This figure shows how Next-generation new and improved products typically are needed at the beginning of the business and technology maturity curve. Breakthrough new product concepts are needed as the business starts to mature.
To help visualize the use of technology maturity to select the type of external R&D source to be used, the Procter & Gamble products available in the 2000’s that were early on the technology and business maturity curve were divided into those which could utilize existing technology and those that needed technology yet to be developed. For the projects that required existing technology, the technology was obtained externally from licensing, acquisition, and intellectual property exchanges. For the work that needed to be done from scratch, the project teams utilized contract R&D, joint ventures, and Consortium inputs as shown in the “Next Generation Products Use of External Technology Sources” figure.
The Procter & Gamble products available nearly 2000’s that were more mature and needed breakthrough innovation are shown in the “Breakthrough Products Use of External Technology Sources” figure. To really change these products, and switch them from ones that were maturing to ones that were growing, the technologies needed (that were deemed already in existence) were obtained from licenses, joint ventures, and acquisitions. Where the R&D teams needed more help creating breakthrough new product concepts, the external R&D was often obtained by contracting out concept and business model development work.
Strategic Complementarity of R&D Alliances
Another segmentation useful for determining partnership alignment can be derived from the patent portfolios that each participating entity owns. To help managers to determine whether a prospective partner has complementary technological resources and predict the prospect’s commitment level in allocating its resources, Yongrae Cho and Youngwoo Lee applied IP profiles to selecting and structuring R&D Alliances. Their method is a graphic with two axes as shown in the “Strategic Complementarity of R&D Alliances” figure. In this figure exemplary sample alliances were grouped wherein Strategic complementarity was defined as equal to 1/(1+tech. overlap)*(1+industry overlap). Tech. overlap is the overlap in IPCs between partner firms and Industry overlap is the weight of overlap in SICs between partner firms. The Status symmetry was defined as equal to 1/(Citation count gap + 1). The Citation-count gap is the absolute difference in patent citation counts between partner firms.
As shown in the “Four Types of R&D Alliances” figure, R&D alliances can be segmented into four generic types. This segment is useful because it provides a high-level probability of success and also attributes needed for successful partnerships.
There can be (1) Isolated Partners, in which there is a low level of strategic complementarity and a low degree of technological symmetry, (2) Demotivated Leaders, in which there is a high level of strategic complementarity but little technological symmetry, (3) Race to Learn, in which there is a low level of strategic complementarity and a high level of technological symmetry; and (4) Invented Anywhere, in which both complementarity and symmetry are high. Alliances in which both the complementarity and symmetry of technological resources are present have the best chance of being successful. Thus Examining the two dimensions of a prospective partner’s technological capabilities allows general predictions regarding the characteristics and likely outcomes of different alliances.
“Isolated Partners” are alliances in which participants have a low degree of Technology & Business Overlap and dissimilar levels of technological capability. Such partnerships face strong barriers to success. Incentivizing strong firms to share their knowledge is very difficult for low-status companies as the overlapping capabilities mean they have little to offer in return. Furthermore, strong firms may be inhibited from sharing by the belief that knowledge transfer to weak firms that have similar end products could lead to knowledge leakage to potential competitors. In these relationships, royalties obtained from licensing agreements are unlikely to motivate knowledge sharing in this alliance type because low-status partners are potential competitors with similar end products. The similarity in technologies combined with the very high asymmetry in technology status suggests that the low-status partner may be both highly capable and highly motivated to assimilate critical know-how from stronger firms, thus becoming a competitor. There are a number of illustrative cases, including RCA Corporation’s significant loss in market share to Japanese partners such as Panasonic and Sony, which used licensing to assimilate the company’s color TV technologies. As a result, we do not recommend that companies pursue these types of alliances.
“Demotivated Leaders” partnerships occur when potential partners have a high level of resource complementarity but dissimilarity in levels of technological capability, the alliance may have high synergistic potential, but the dissimilarity in technological status may discourage active knowledge transfer, as high-status firms perceive little potential reward from sharing. Nevertheless, partnerships in this quadrant can produce mutually beneficial relationships if alternative motivations for knowledge sharing can be provided, for instance through royalty payments to the higher-status firm via licensing agreements. Although it can be difficult to develop a strong partnership when there is a large gap in technological capabilities between potential partners, companies can develop a mutually beneficial relationship as long as there is an appropriate governance structure that offers incentives to encourage the high status firm to share its knowledge resources. Licensing residual technologies to low-status firms, for example, earns high-status firms additional royalty income. The extra income enables high-status firms to invest in promising technological fields where they are competitively superior or where they see value.
“Race to Learn” alliances occur when there is a low level of strategic complementarity but a high level of technological status symmetry, firms may be encouraged to collaborate by the high level of symmetry. However, the hazards of knowledge sharing are generally most salient when firms compete on similar products with overlapping technological capabilities. The low strategic complementarity may thus induce reluctance to share core knowledge, mainly due to the perception of an increased risk that opportunistic partner firms could easily become competitors. Race to Learn alliances, which entail collaboration between competitors, have become more common as technology has become more complex. However, firms that form alliances with their competitors should always remember that their erstwhile partners could expropriate core knowledge and use it to develop more advanced products and take away market share from the focal firm. Therefore, the appropriate strategy for this type of alliance is to absorb the partner firm’s technological knowledge as rapidly as possible while preventing leakage of proprietary technologies to the partner. The key is to devise measures to prevent unwanted knowledge spillover, for instance, by employing gatekeepers to monitor knowledge leakage. Defining technologies that are strictly off limits in the initial agreement also minimizes knowledge. This type of alliance should be structured by bilateral contracts, such as cross-licensing agreements, which allow firms to reduce opportunism by fostering a “mutual hostage” situation—breach of contract renders damage to both licensee and licensor.
In the “Invented Anywhere” alliance, both complementarity and symmetry are high, resulting in an alliance with a high potential for synergy and a strong commitment to interfirm collaboration. The diverse and complementary technologies owned by the partner firms induce knowledge exploration, thus encouraging both firms to expand their knowledge bases. The similarity in technological capabilities between firms increases the level of commitment to interfirm collaboration, further inducing active knowledge transfer. This type of alliance has the highest potential for synergy. Therefore, the collaboration structure should provide for the greatest amount of contact possible and encourage free communication between communications to ensure effective knowledge transfer. The recommended governance structure for this type of alliance is the equity-based joint venture, with a jointly managed research laboratory. The joint management of a research lab more effectively facilitates interfirm communication and knowledge transfer than do bilateral contracts. This structure enables managers to reduce opportunism and increase the synergistic potential of collaboration by allowing them to assign their best engineers to a joint laboratory.
For companies seeking to acquire complementary technologies, carefully selecting and assessing potential partner firms for R&D alliances is essential. The reality is, however, managers often must decide on partners under significant time pressure and with limited information. This framework has the advantage of speed by using publicly available IP data. Understanding the selection process and the possible alliance type enables managers to deploy appropriate strategies and collaboration structures to support a successful outcome for the proposed alliance.
Business Relationship Checklist
The final segmentation needed in selecting specific external technology providers is to carefully evaluate the technical subject matter expertise, and relationship management maturity level of the supplier. The following “Business Relationship Checklist” provides an outline to use during such evaluations. The checklist is designed for extensive evaluation of major external projects and partners. An abbreviated analysis is used for smaller entities and projects.
Business Relationship Checklist
It should be noted that the above discussion has focused on Open Innovation with products or technologies. However, when manufacturers develop a process innovation, they frequently seek to keep it under wraps. But that’s often not the best approach. The research of Georg von Krog showed that manufacturers can benefit substantially when they look for ideas beyond their own organization, especially when their operations are already advanced. The study specifically tested how research involving external knowledge sources (such as customers, suppliers, universities, research institutes, and competitors) and the use of information technology to boost internal knowledge absorption improved process innovation performance.
This section presents the various forms of sourcing project development work, concentrating on seven channels, or sources, of external concepts. These are shown in the “External Innovation Channels/Sources” figure. The sources of external innovation are listed according to the maturity of the idea or stage of product development the channel or source is strongest in.
The figure starts with universities or government laboratories where technology innovation is predominantly the discovery of a new material or scientific finding that requires further engineering work before a viable commercial product can be made. Access to such early work is important especially in areas where broad patent coverage can be obtained in nascent technologies.
Next comes venture capitalists and crowd sourced funding platforms whose specialty is early market development typically using agile methods to accelerate bringing the product concept to market for alpha and beta testing prior to full-blown commercialization.
The next channel utilizes external R&D talent to fill specific gaps in project teams. This approach is followed by research ecosystems which can fill specific project gaps, primarily facilities that come with access to specialized personnel and equipment.
Next are supplier partnerships to take advantage of existing industry channels and supply chains to rapidly supply components needed by the project teams.
At the bottom of this list are consumer portals were lead users come together as a community, either online or in facilitated conferences to rapidly design and evaluate new product concepts.
Each of these channels will now be discussed in more detail.
IBM is reported to have put in place a Global Technology Headlight Venture Network to more efficiently monitor emerging technologies around the world and establish relationships with promising startups. The company selects leading VC firms as partners in each of a dozen technology hotspots. IBM further enhances the ROI of its venture network through formalized knowledge sharing activities with market savvy VC executives.
This model is based on the premise that relationships with the best VC firms in any given region provide access to that region’s most promising startups. For a company the size of IBM it requires around 80 VC firms as preferred partners in more than 12 geographic regions around the world. The company then passively invests in projects with about half of those relationships while the remaining are non-equity-based idea sensing arrangements. A network such as this can expose a company to more than 8000 startups in priority technology areas.
From an operation standpoint a local business development officer is assigned each VC partnership. The VC firm, in turn, arranges leveraged introductions between the company and startups within its own fund. This enables the company to promote its own products and technology platforms to small companies that may become tomorrow’s superstars. For technologies that the company may be interested in licensing or acquiring, business development officers are chartered to recommend promising concepts to technology evaluators, senior scientist with appropriate technical expertise, that spend 40% of their time screening the technical merit such concepts. Technology evaluators forward the best ideas to business unit management for right of first refusal consideration.
IBM also utilizes the VC partner network to tap into market insights and business development expertise. At least twice a year, senior scientists from IBM’s central R&D organization present current projects to more than half of the VC firms to obtain feedback on the commercial viability of their own concepts. Additionally IBM executives, ranging from corporate vice presidents to business unit general managers, engage in one-on-one meetings with VC partners to discuss industry trends and learn about specific technology areas.
As a best practice the company maintains a database that tallies financial and strategic gains that encompasses direct revenues from product sales that came through the universe of VC introduced startups; future revenue opportunities for startups in the network based on design integration, adoption of the company’s standards, and intellectual-property licensing agreements; networking benefits measured by the number of executive level meetings with PC partners and VC reviews for assessing the market viability of IBM’s own R&D efforts. The databases is then mined on a variety of dimensions to enable IBM to identify the most or least impactful VC partnerships, regions, etc.
In order to leverage a world-wide community in problem solving, Open Innovation Competitions have been hosted by companies. It has been found that the types of problems that are best suited for such competitions are:
1. Big insurmountable challenges that really need out-of-the-box thinking.
2. Finding solutions which are assemblies of known technologies. How the solution is assembled can be breakthrough, but less successful when key elements do not exist.
3. Areas in which the company does not already have a depth of experience.
4. Areas at the extremes which are either (a) very well-defined needs or (b) generic problems which require less business or domain understanding.
5. Emerging areas where there is not deep industrial expertise.
The jury is still out in this area. Some organizations have had tremendous success in finding breakthrough ideas whereas others have struggled to both (a) find new ideas, as well as, (b) surmount internal barriers to implement the resulting concepts. One of the best reported outcomes is that it opens an organization’s eyes to different ways to do things. He challenges an organization to question the approaches typically used to generating ideas. There is also a side benefit that the Corporation shins image tends to benefit from the publicity around the contest.
The world of hackathons requires the art of balancing high-speed, creative autonomy and administrative control to blend in many interesting ways. Both the hacking and making cultures are centered on creative autonomy, curiosity-led problem solving, and freedom to independently build solutions. Managing hackathons requires bringing together myriad technologists, designers, and other professionals and supporting their free exploration while simultaneously helping them finish with working prototypes.
It has been found that there is a difference in the way hackathon organizers approach the act of managing. Instead of attempting to manage the innovation process when it happens, they focus on diligently setting the stage, and then they step back. The distinction from traditional management is akin to that between directing actors in film versus theater — in the former arena, directors are expected to control and intervene in the process to perfect the finished project, while in the latter, directors’ focus on preparation in advance as they accept the uncertainty and improvisation which is integral to the live performance. Like a theater director preparing her cast for opening night, hackathon organizers set the stage and conditions for innovative work, giving tools and guidance at times of need, but they minimize interventions to allow for creative exploration and experimentation. Three key strategies are needed to do so. They are: (1) Set the Stage for Filling Knowledge Gaps, but Don’t Manage Learning. Successful hackathon organizers set the stage before the hackathon to allow easy access to experts in relevant fields. (2) Set the Stage for Experimentation, but Don’t Manage Experiments. Many hackathon organizers create a “sandbox” — a space that attracts and allows for curiosity and experimentation even when located within a regular work environment. (3) Set the Stage for Early Feedback on New Ideas, but Do Not Supply Feedback Yourself. Hackathon organizers promote new ideas by removing themselves from providing feedback and creating a safe environment in which new ideas receive very early peer-to-peer feedback. This is done, in many hackathons, in the form of a first ideas kickoff session. A kickoff allows participants to be “on stage” presenting, articulating, and elaborating on the initial idea they have in mind to solve their challenge.
Crowdfunding on sites such as GoFundMe, Crowdcube, Kickstarter and Indiegogo can give a boost to financing small businesses. These sites allow businesses to pool small investments from several investors instead of seeking out a single investment source. As such, many non-traditional technologies and business models appear on these sites.
In years past, crowdfunding for businesses was a novelty, a rare exception to the traditional methods of bank loans, venture capital and borrowing money. Now, utilizing crowdfunding campaign is just as common as any of the other options. In 2016 crowdfunding was expected to surpass venture capital as a means of financing.
The easiest way to search for relevant business and technology opportunities on the crowdfunding platforms is to run specific searches aimed at the target concepts. I.e. autonomous car + site:kickstarter.com
Universities too are a good source of new technologies. In order to target improved absorption of research output from academic partnerships companies such as Intel situate their laboratories adjacent to preferred university campuses selected for their expertise in key technology disciplines. Each laboratory is staffed by Intel scientists and managed by a full-time by university professor responsible for building collaborative research relationships and facilitating technology transfer from the campus to Intel. Chemical companies such as Eastman and DuPont have employed similar approaches.
In the past large corporations have spent an impressive amount of money on University research but it had previously been dispersed across hundreds of small, often unrelated grants. Such a diffusion of funds by large companies made it difficult to monitor the projects and align them with its own R&D interests. Adsorption of these external projects was further complicated by the slow pace of the academic work and disputes over intellectual property rights. Thus many such university research relationships required high coordination costs and yielded limited benefits.
Seeking to more closely coordinate University research through more targeted relationships, companies such as Intel channel portion of its academic research spending towards the creation of dedicated research laboratories at up to eight universities. The institutions are chosen on the basis of their leadership in specific technology areas that Intel believes would generate heavy demand for processing power, and therefore future Intel products.
Each research laboratory situated adjacent to a University is staffed with several dozen Intel R&D researchers. Additionally each collaboration site requires an accomplished professor from the University to serve in a two-year, full-time position directing the lab’s research and acting as liaison between the lab and the University.
To further improve technology absorption from these collaborations, the companies create a central R&D-based group of up to several dozen program managers to facilitate technology transfer between the universities and the company. This group supplements the efforts of approximately 100 company researchers that are situated at the corporation’s university laboratories. From budget perspective Intel’s shift for example is toward targeted University research at a rate 30% higher than its traditional non-targeted research grants.
U.S. Government laboratories can be a good source of preliminarily developed technology. Most often the desired technology has been explored at an early scientific or engineering level. It’s rare that the technology has been fully developed for commercial application.
Of the United States national laboratories the most-active have been traditionally Argonne, Sandia, and Lawrence Livermore. Weaker have been Oak Ridge, Pacific Northwest, Brookhaven, and Los Alamos. Computer modeling and processes engineering have in the areas of historic focus of technology transfer offices. NASA is also engaged in active licensing of technology. The national technology transfer center is their agent.
Cooperative Research and Development Agreements (CRADAs) are utilized when development work in addition to unsupported technology licenses are desired. CRADAs have become much more user-friendly over the years and the modular CRADAs allow for selection of optional contract language that has already been approved by government agencies. This said, the process still takes too long in the eyes of most users. As such, work done with government laboratories is best when it is part of a company’s longer-term research needs.
To find specific art, government licensing professionals can be found in both AUTM and LES professional society meetings. Additionally the government technology databases are searchable.
The following are sample of international government technology transfer centers:
National Technology Transfer Center (NTTC) http://www.nttc.edu
The Technology Exchange http://www.uktech.net
The Japan Technomart Foundation http://www.jtm.or.jp
Intellectual Property Office of Singapore (IPOS) http://www.surfip.gov.sg
Asian Pacific Center for Transfer of Technology http://www.apctt.org
Seeking to expand access to a labor pool beyond its current R&D staff, Eli Lilly created Innocentive, an online marketplace for corporations to post scientific problems for external parties to solve. Successful problem solvers, which include university students, retirees, and scientists from other companies and universities, receive cash bonuses in exchange for the solution and accompanying intellectual property. In this model corporations pay only for winning solutions, not for the labor on unsuccessful efforts.
Scientists from across the world who register with sites like Innocentive sign a confidentiality agreement that provides access to full problem details and requires solvers to transfer IP rights in exchange for the reward payout should their solution win. Rewards range from $2000 for paper-based solutions to up to $100,000 for wet chemistry solutions requiring submission of samples. Companies posting problems price their solutions based on the cost of access to comparable labor, equipment, facilities, projected resource intensity, level of original research required and likelihood of success.
Posted problems that companies wish to out-source fall into two categories. Standard problems with an average ROI of $2 million involve internally solvable but labor-intensive tasks that the companies would prefer to outsource to lower cost external talent. Alternatively, roadblock problems, with an average ROI of $50 million or more, are complex challenges that internal staff may have spent months unsuccessfully trying to solve.
There are also confidential talent pools that companies choose to maintain. A 2019 IRI survey found that 58% of surveyed companies had a network of experts that they utilized as a confidential source of advice. These companies built their group of experts primarily through personal invitations to those experts. Knowledge that those experts existed came from (1) database of former employees, (2) an initial unsolicited contact by the expert, and (3) meeting experts at conferences. These groups of experts were typically not managed as a group, but rather used episodically as individuals or ad hoc working groups on a specific problem. The experts were compensated primarily with direct payments versus other informal forms of recognition or token payments such as dinners.
Seeking to increase exposure to external technology, and infuse a culture of innovation into their R&D staff, British Telecom, Becton Dickinson, in Eastman chemical are examples of companies which have co-located various types of external idea partners at R&D campus parks. The physical proximity of the research partners creates occasions for impromptu idea sharing that supplement the parties more formalized research interactions.
These efforts have been undertaken despite increasingly globalization of the R&D function and the emergence of IT-based virtual collaboration. Many companies continue to consider physical co-location a necessary component of any external innovation strategy. Seeking to build stronger relationships with external research partners and re-invigorate entrepreneurism in its own R&D group such companies have found co-located collaboration opportunities important.
The main difference between this model and the University research model is utilizing a research/business development park location next to a University campus allows interactions with five versus just one type of external idea partners. These include academic researchers, MBA students, other venture partners co-located at the site, startups, and value chain complementors. The physical proximity allows project teams to be formed that have a much broader set of technical and business backgrounds.
Supplier partnerships are in some ways most easy to initiate. This is because there is an ongoing relationship to be built upon. Difficulty when using this source of external innovation typically arises because the relationship ready has expected norms of behavior that oftentimes a new partnership relationship conflicts with.
One of the best ways to visualize the overlapping involvement between customers and suppliers is shown in the “Value Chain Map Showing Supplier and Customer Involvement” figure. This figure shows how raw materials are converted to commercial chemicals which are then converted to supplies via multiple processes which finally produce products that end up in a store or supermarket, and finally into customers’ hands. In each step along the way products are passed upward in this diagram coupled with information and money or resources passing both ways in each sub-step. It is at the sub-step level that conflicts typically arise between partnership entities.
Both companies would like to improve the effectiveness of each sub-step but often the resources needed to do so, as shown in the ”Driving Forces” figure, are not easily agreed upon with suppliers. Likewise the rewards to be derived for sub-step efficiencies can be a source of contention, and a hurdle to overcome in moving a partnership forward.
The best way to look at supplier partnerships (focused on sub-step improvement) is to consider 10 elements related to the manner in which information, finances, and people interact. This is shown in the “Expanding the Partnership Perspective” figure. In this figure ten elements are identified that should become part of the partnership discussions. By breaking the problem out in this way and expanding the perspective, the supplier partnership discussions have a better chance of finding a win-win solution. This expansion of the perspective is a common problem solving methodology used in creating win-win negotiation positions. Having both teams look at how each will be able to interact with customer partnerships downstream of the particular sub-process, as well as the logistics each will be involved therein, oftentimes breaks a negotiating logjam. Downstream suppliers often want to look through a sub-process to understand for themselves what’s really driving the performance needed of the sub-process. Taking a company’s word for it is often times not satisfying to a supplier. By allowing a supplier to look through, in joint synergistic teams with a company, can circumvent this issue. Likewise sharing the business information related to the operating efficiency of the process, including proprietary machinery performance enclosed in the process, can also be helpful to negotiations. Likewise the way the people will be developed and labor unions contracts honored during any improvement process is additionally an appropriate element to be included in synergistic partnership teams
A second useful tool in creating win-win solutions is to make sure both the company and the supplier agree on the product performance their partnership needs to create (as illustrated in the “Product Performance Matrix” figure). In this figure, the company’s cost per unit is plotted against the product’s performance created in the sub-step. By sharing this information, both of supplier and the company can understand which proposed elements of the partnership proposal will affect the cost and performance such that the company remains within its target area. Note that for the illustration in this figure the company is competing on product performance. For a company that competes on cost, the nonstrategic performance area would move from the lower left quadrant to the upper right quadrant and the target area would shift to include solutions that were above the average performance cost ratio line in the lower right section of this graphic. Solutions that the partnership may come up with that lead to nonstrategic performance, or below average performance compared to relevant competitors, are clearly not win-win solutions. Having supplier teams plot their solution options on such a matrix can provide an objective evaluation methodology.
Many times a company has more than one option with respect to the suppliers that it might choose to partner with. When this happens the company has to be very careful not to allow executive relationships to prejudice the partner selection. One way to highlight the strengths and weaknesses of the supplier options are to evaluate them as shown in the “Supplier Evaluation” figure.
To gain more insight on the quality of current supplier relationships, some companies have used surveys to compare the performance of multiple suppliers. Such surveys have the advantage of being built upon broader employee feedback. An example is shown in the “Supplier Survey” figure.
Finally, it should be noted that a source of contention between suppliers and companies can also arise with respect to intellectual property. This is particularly the case where new research will be done as part of the partnership activities. The question arises to who owns the new intellectual property and what rights does the other party have to it. Again one of the best ways to resolve such issues is to discuss them with respect to Product Performance Maps Over Time. Such maps can show which competitors will be allowed access to the newly developed intellectual property over what time period, and the impact on the company’s relative competitive position. The company often wants exclusivity forever and the supplier would like to share it with all its customers, including company competitors immediately. A typical a solution is to allow the company involved in the partnership access to the new technology for a 1 to 3 year lead-time. Another solution is to allow the company a royalty when the technology is used or licensed to its competitors. Putting the above guidelines into practice requires understanding of an overall Supplier Partnership Model. Such a model agreement is described as:
Supplier Partnership Model Agreement
To improve the role definition of individuals involved with our key partnership relationships a three layer organizational model is proposed. Although the model appears complex at first, the intercompany partnership relationship can best be managed by breaking the relationship into manageable pieces.
The proposed model defines conditions that must be present within a partnership. Components of the model are:
Purpose: Defines what the partnership is trying to achieve and why the partnership exists.
Direction: Defines how the partnership will get to the desired state.
Regulation: Defines how the partnership will stay on track
Capability: Defines the resources required to achieve the partnership purpose.
Values: Defines the underlying beliefs that must be common to both organizations before a partnership relationship can be developed.
These five conditions have to be present in all the work the partnership encompasses. To break the work up into pieces that best utilize the time of all levels of management involved, three groups are utilized: top management, steering, and project-specific teams.
The top management team creates the atmosphere in which the relationship can grow. It defines the increasing business purpose it shall achieve. These concepts and guidance are contained in written statements of vision, strategy, commitment, and growth.
A steering team focuses on creating and directing projects within the scope of the relationship as top management defines and changes it over time. This group communicates its intentions via mission, plans, conformance, and sustain statements which are consistent with top management’s statements. The steering committee is also accountable for ensuring mission, plan, conformance, and sustain statements are understood by both organizations.
The project-specific teams carry out projects of business interest to both corporations. Their behavior and business results are measured against the standards set by the written statements of the top management and steering teams. They measure their progress against written project plans and statements of project goals, methods, controls, and manning.
1. TOP MANAGEMENT TASKS
Top management must ensure that the values and beliefs of both organizations are so similar that a partnership relationship can be created, sustained, and grown. Three components to be checked are the corporation’s basic values, competitive performance/cost positioning, and ROI expectations. A partnership will fail if these three components are not matched in the partners.
To provide for partnership growth, Top Management must create a vision of the partnership. It defines a reason for being. It answers the following questions: What is the partnership trying to achieve? Where is the partnership going? Why does the partnership exist? What are the overall business aspects of the partnership? What is the desired communication behavior? How will conflict and its resolution be handled in the partnership environment? How shall the leaders motivate and energize partnership associates?
After creating the vision, Top Management shall create corresponding strategies. Each will define pathways to enhance the partnership’s relative competitive position. The strategies will be focused outward and be market related. They define how the partnership will get to the desired state. From the strategies Top Management will create corresponding statements of Commitment. These statements explain to others in each organization how Top Management will audit and keep the partnership on track. The question of how Top Management will ensure the partnership is moving in the desired direction will be answered here.
Finally, Top Management will address Growth of the partnership. They shall state how each organization will put forth the resources required to remain proactive in the business environment, and how a greater and. faster response than competition can be achieved.
II. STEERING TEAM TASKS
The Steering Team will go through much the same exercise as Top Management, but addressing Mission, Plans, Conformance, and Sustain issues consistent with Top Management’s Vision, Strategy, Commitment and Growth statements.
A Mission statement will be created by the Steering Team. It defines why the different elements of the partnership exist and who is served by the proper handling of these elements. The statements are focused on the business environment, especially customers, suppliers, and other stakeholders in the partnership.
The Steering Team will develop Plans to implement Top Management’s strategies. They will define how the things identified by Top Management will be done, and in what order. These plans will include steps and schedules. Similarly, the Steering Team will develop conformance ideas corresponding to Top Management statements of commitment. These statements define in more detail how specific projects will be audited.
The Steering Team will be the group responsible for ensuring that the partnership can sustain itself. They will define resources required for the partnership to thrive over time and keep the partnership on track.
III. PROJECT TEAM TASKS
The Project Teams will be carrying out programs and projects consistent with the partnership vision, mission, strategies, and plans. Each Project Team will define goals for itself that contain specific, measurable targets.
The Project Teams will also define the procedures and processes that identify deviations within the partnership programs and projects. These control statements are focused inward. The Project Teams would also define the resources required to effectively do the day-to-day tasks they are charged with.
Since not everyone is familiar with Vision and Mission statements the following examples might be helpful. They are examples and not accurate or true statement.
Example Vision: To create release systems for psa’s which are not thermally cured, offering performance/ cost advantages markedly improved over existing materials/ processes. All work will create value to be shared equally among the parties. People involved in the partnership will be of the highest integrity.
Example Strategy: The R&D units shall transfer personnel to enhance and speed evaluation of new technologies. Divisional trials will be conducted in secrecy and with a sense of urgency.
Example Commitment: The progress of the partnership will be followed explicitly by the number of programs initiated, terminated, ongoing, and commercialized each quarter. The ratio of success to unsuccessful programs will be tracked. The behavior of personnel involved in the partnership will be evaluated by means of a “questionnaire” audited by top management.
Example Growth: Each corporation will provide the R&D and divisional resources, manpower, capital and expense dollars necessary to support specific programs. The objectives of these programs will be clearly stated.
Example Mission: To create for SID a novel release system capable of providing a unique performance/ cost position in personal care and automotive markets.
Plans: To create two project teams. One focused on step function changes in UV and EB technology. One focused on gas phase release systems. Timing for both would include· feasibility in one year, and commercialization in three years.
Example Resources: The teams will be comprised of a senior level and a junior level scientist/engineer. Additional personnel requirements will be reviewed once/qtr. Expense funding will be at the rate of $100M/person/year. Capital will be determined as it is required. Project teams will provide timelines and project status reports.
To better illustrate a Supplier Company Technical Partnership aimed at breakthrough or advanced next-generation improvements, the following EXAMPLE SUPPLIER PARTNERSHIP AGREEMENT is provided.
COMPANY and SUPPLIER have elected to further build on our existing partnership relationship. To this end, SUPPLIER has placed a senior technical representative, part-time, into the COMPANY Research Center (CRC).
This increased technical support is expected to increase the breadth and depth of materials capability available to COMPANY. Development and commercialization of unique products for both companies are expected results. Another expectation is that product customization and technology commercialization project development time will decrease. This is an experimental pilot program. Every effort is being made to ensure its success. Nonetheless, it may be terminated at any time, without explanation, by either party. The confidentiality of COMPANY, its customers, and its other suppliers’ proprietary information is being maintained. Any breach of this confidence will be cause for termination of the employee(s) involved, regardless of employer.
The following list contains potential issues as well as solutions associated with the presence of a SUPPLIER technical employee at CRC:
I. Possible conflict with other COMPANY suppliers.
The following safeguards are designed to protect confidential work being done with other COMPANY suppliers:
A. SUPPLIER employee’s visit at CRC will be limited to approximately one week per month to allow CRC development time with other suppliers.
B. While at CRC the SUPPLIER employee will make every effort to not knowingly come in contact with other supplier’s information. Therefore: 1. No notes will be taken of Pilot Plant or Analytical samples on any competitive project. 2. If materials and samples from competitors are accidently observed, no conveyance of their existence back to SUPPLIER is permitted. 3. Letter of intent from SUPPLIER’s V.P. for Technology to the SUPPLIER employee stating under no circumstances does (a) SUPPLIER want to receive such competitive information from this source, and (b) conveyance of such information is grounds for termination of employment. 4. COMPANY personnel will make every effort to not knowingly discuss any information deemed proprietary.
C. To lessen the impact on COMPANY’s other win-win supplier relationships every effort will be made not to create an issue of this relationship. Therefore:
1. No permanent name tags will be issued, only the customary visitor’s tag.
2. Discussions of our special relationship will be limited to Technical Groups and Top Management.
3. The above “OVERVIEW” information will be used to clarify our relationship to others who inquire.
II. SUPPLIER’s relationship with customers other than COMPANY.
A. COMPANY is not to aggravate other SUPPLIER customer relationships.
B. COMPANY will limit discussion of our special relationship to COMPANY Technical Group and Top Management.
C. The above “OVERVIEW” information will be used to clarify our relationship to others who inquire.
III. Conflict with our own proprietary development work.
Some of our proprietary technology, as well as our development programs, need to be protected. Examples are our developing technology, marketing strategy, and customer contacts. Prior to discussion of these subjects with the SUPPLIER employee, a CRC director will approve the content and spirit of the information exchange. A CRC director will also be extended an invitation to attend all meetings where such information will be discussed. It is intended this requirement be relaxed as the experiment proceeds and the relationship grows. Relaxation of the standard requires a CRC director and the SUPPLIER employee’s agreement. While at CRC the SUPPLIER employee will make every effort to not come in contact with COMPANY confidential information. Therefore:
1. No notes will be taken of Pilot Plant or Analytical samples unless they relate to performance or evaluation of SUPPLIER materials.
2. If COMPANY confidential materials and samples are accidently observed no conveyance of their existence back to SUPPLIER is permitted.
3. Letter of intent from SUPPLIER’s V.P. for Technology to the SUPPLIER employee stating that under no circumstances does (a) SUPPLIER want to receive such COMPANY information, and (b) conveyance of such information is grounds for termination of employment:.
IV. Conflict with our customers.
We frequently work with our customers under restrictions of mutual confidentiality agreements, explicitly prohibiting the disclosure of confidential information to third parties. This information must be protected. The SUPPLIER employee will be asked to immediately leave any meeting where such information is being discussed.
While at CRC the SUPPLIER employee will make every effort to not come in contact with COMPANY customer’s confidential information. Therefore:
1. No notes will be taken of Pilot Plant or Analytical samples on any competitive projects.
2. If COMPANY customer’s confidential materials and samples are accidently observed, no conveyance of their existence back to SUPPLIER is permitted.
3. Letter of intent from SUPPLIER’s V.P. for Technology to the SUPPLIER employee stating under no circumstances does (a) SUPPLIER want to receive such COMPANY customer information, and (b) conveyance of such information is grounds for termination of employment.
4. SUPPLIER will sign non-disclosure agreements with COMPANY customers if required.
Our programs will inevitably call for the presence of COMPANY researchers at SUPPLIER facilities. The guidelines established above will also apply to the activities of a COMPANY employee at a SUPPLIER location.
VI. The scope of SUPPLIER’s involvement and related costs.
The SUPPLIER employee’s involvement should include an advisory role, an “identifier of SUPPLIER resources” role and an active researcher role. SUPPLIER will bear the costs associated with their employee and trials at SUPPLIER locations. COMPANY will bear the costs of trials at CRC and COMPANY plants (current practice).
VII. Reporting arrangements and accountability.
An CRC director or his designate will coordinate the SUPPLIER employee’s activities. A CRC director or his designate will also be responsible for adhering to the mutually agreed upon guidelines and maintaining confidentiality on both sides.
VIII. Assignment, ownership, and exclusivity related to intellectual property (“Mutual Rewards”).
Patentable inventions are the intellectual properties of those who can document their conception. Therefore, it will be important for both COMPANY and SUPPLIER people to keep accurate, dated, and properly witnessed notebooks. It is possible that some ideas will be jointly arrived at and become joint intellectual properties of co-inventors from both companies. Each party will keep the other informed as any intellectual property rights art pursued, be these joint or independent. Jointly developed ideas assigned to either party will be held for the exclusive use of each party for a period of five years from the first occurrence of either (1) a date agreed upon by COMPANY and SUPPLIER, or (2) the termination of this agreement. They will not be licensed to third parties without the consent of both parties for this same five year period. In the event one of the parties is unable or unwilling to support the other party’s potential business levels, after a one-year period, the parties will negotiate, in good faith, compensation to be received by the party not fully participating. This compensation shall, in no case, put one of the parties at a competitive disadvantage. Jointly developed ideas will be considered as those that a person would not have created without exposure to the information provided by the other party. The assignee is responsible for obtaining the patent and maintenance of the patent once issued. The assignee is also responsible for enforcing the patent against others. If one party elects not to file, cause to issue, maintain, or defend a patent, its rights are forfeited to the other party to pursue.
This arrangement t can be terminated at any time, without explanation, by either party. Renewal and changes will be formally discussed once per year.
Realizing that observations OF customers are often a better source of discontinuous innovation than observations FROM customers, IBM was one of the first of now many software companies that utilize an online channel to provide downloadable beta version software to registered users for tracking usage and gathering feedback, both explicit and implicit. Such companies are better able to gauge market potential and correspondingly accelerate or terminate development of projects. Other companies such as Engelhard also utilize online design portals. They do this in order to gain insights into customers technology strategies and reduce prototype development cycle times for physical devices such as automotive catalytic converters. In this case Engelhard’s engineers analyze OEM input rapidly and assemble development samples for OEM review.
The online simulators and tracking of potential customer behavior proves to be win-win for everyone. Customers benefit from an accelerated process of technology evaluation and development; users receive finished components closely matching their specifications. For the company providing the technology online they gain insight into customers’ technology strategies and cost performance trade-offs. The analysis of customer specifications also helps a company identify situations were breakthrough technologies may be needed, thus helping their customers comply with new government and consumer standards.
The most immediate and quantify quantifiable advantage cited by companies using this method is faster development. Online interaction and simulation has allowed companies to iterate more quickly and ship samples in one third the time formerly required for development.
Daniel Collado-Ruiz and his team reported that more than two thirds of the top 100 corporations are engaging startups one way or another. The problem in this trend is that collaboration is often not successful. It often stays at a superficial level, and does not make a lasting impact in the corporation. The lack of success is not particularly surprising, when considering the differences between corporations and startups. These differences are highlighted in the “Differences in Best-Practices” figure.
There are however three main reasons in favor of collaboration efforts. They are shown in the “Reasons for Corporations to Collaborate with Start-Ups” figure. As to how to move a Corporation towards collaboration, eight guidelines have been developed. They are (1) ENGAGE 10 TO 15 STARTUPS PER BATCH. The most effective Start-Up programs engage enough startups to have a noticeable impact in the organization, but not enough to overload or distract the organization. (2) YOU NEED 3 MONTHS TO GET DEALS DONE. Start-Up collaborations vary in length, somewhere between 2 and 6 months, with most of them falling in the range of 3 to 4 months. (3) BRING THE STARTUPS ON-SITE. The biggest difference between Start-Ups is where they take place. When there is focus on learning and preparing the corporation for the future, it is critical to have as many of the employees in the corporation exposed to the startups. (4) MAKE SURE THE STARTUPS LIVE LONG. One often cited concern of corporations when working with startups is whether the startup is a reliable partner for the long-term. One strategy often used to ensure the startups’ survival and focus during the Start-Up collaboration is making sure they receive investments as they enter the relationship. (5) THE ACCELERATOR IS THE TIP OF THE ICEBERG. For innovation to reach the market, and for employees to learn, most corporations must do homework in all functional areas (marketing, manufacturing, technology, IP), both before and after engaging with startups. (6) MAKE YOUR EMPLOYEES ENGAGE THE STARTUPS. To get the benefits and employee skills, employees need to be exposed to the startups. That way, they experience first-hand how startups work, which leads to skills development and identifying opportunities. (7) ENSURE THAT THE LEARNINGS STICK. For the Start-Up to make the organization learn, corporations need to put additional focus in engaging more employees, sharing internally, analyzing what can be improved and enabling change management in the organization. Such actions can be complex, but they are also needed to renew the organization. Corporations must define people responsible for managing change emerging from the Start-Up, and involve key players from different departments in the change. (8) FIND THE RIGHT PARTNER. Organizing a corporate Start-Up collaboration is a big and complex task. It involves very specific knowhow, and corporations rarely have it in-house. Most corporations who embark in this journey on their own end up failing to get much innovation, and Start-Ups end up not getting real value out of participating in it. Use of Collaboration Brokers is a recommended best practice.
Corporations can choose to collaborate with startups in many ways. Smaller scale initiatives like competitions or incubators give branding benefits, but tend to fall short on innovation and learning. Investment and acquisitions are positive from the innovation side. But corporations wanting to renew themselves generally should opt for a systematic Start-Up collaboration program.
Internationally, licensing is the most important method by which to source external technology between different international entities. U.S. companies tend to use suppliers as the most important source of external technology. In contrast foreign countries typically rank suppliers further down the list. Thus although US companies may be listening to their suppliers more effectively, foreign entities appear to be listening to their customers more closely as a source of technology. This contrast is especially true when comparing US and Japanese technology sources. Japanese firms seem to be using external technology to supplement, or extend, internal development, whereas the US approach seems to be directed more towards buying the capability to add to internal efforts. Illustrating this point, contract research is ranked highly by the Japanese firms, while acquiring a company out right is common for US firms. A counter explanation is that the US approach can be driven by a higher level strategy, such as short-term shareholder returns, rather than for technology sake.
The increasing use of offshore outsourcing is been enhanced over the past two decades with the advent of the Internet and online conferencing. This is fundamentally changed the economics of outsourcing and off-shoring. In typical IT scenario use of offshore software development groups can create savings often in excess of 50%.
Although communications technology has greatly improved the effectiveness of outsourcing internationally, some barriers in risks do remain. The most prominent risk is that of having the technology being developed leak into the hands of third parties. Thus companies in many tier 1 countries are careful not to source their breakthrough or next-generation innovation efforts internationally. The laws governing secrecy, employee obligations, and damages from inappropriate loss of confidentiality vary widely around the globe. As such most internationally sourced projects are focused on incremental technology and market development goals.
There been many best practices published over the last decade. These practices tend to fall into five qualitative best-practice areas. These are:
1. Having some form of a Partner Coordination Team/Council established which has a contractual authority to modify the project.
2. Utilizing some form of a Partner Selection Matrix of functions versus requirements at the partnership selection phase of the project.
3. Having a single, remotely accessible Repository for Project Data and communications to ensure a single version of the truth exists across the partnership entities.
4. Utilizing some form of a Project Progress Metrics Display to use as an objective gauge of current project progress vs. expectations.
5. Prior to partner selection utilize a Partner Design Review to fully understand potential partner’s capability and people.
One form of a Partnership Coordination Council is shown in the figure. It should be emphasized that in this form there is one each of a technical, management, project representative / manager and executive sponsor from each partner. The members of these teams are given broad powers to change specifications, direction, and allocate resources to the project. These broad powers are established by a contract between the two entities. This team is responsible for documenting all changes, progress, and interactions between the partners. In addition one executive is assigned as a sponsor. When partnership issues develop that are not resolvable by the Partner Coordination Team/Council, the issues are escalated to the executive sponsor as a path of last resort. The benefit of these teams is that they enhance the speed, consistency, and quality of everyday partnering decisions.
The Partner Selection Matrix of functions is a way to document a baseline of the initial requirements of the project. As such it is a cross functional document with inputs from each role that will ultimately be involved in bringing a product to market. It also sets the framework for measuring the performance of the partnership. The various roles are:
1. Project management: the cost, schedule, and tasks to be done are the requirements that this role provides.
2. Design engineering: whether or not the technology is sound and will provide a cost or performance advantage are the requirements set by this role.
3. Quality engineering: the testing and quality systems are the responsibility of this role.
4. Manufacturing: the capacity and delivery requirements are the responsibility of this role.
5. Purchasing: issues related to any past experiences as well as NDA considerations are the requirements that this role is responsible for.
6. Marketing: this role is responsible for the branding and competitive considerations requirements.
7. Business development: this role is responsible for setting the requirements related to potential customers’ needs wants and price sensitivity.
For project success all these requirements need to come together in an integrated manner. One way to achieve this is by having five teams work together is shown in the “Partnership Organization Model” figure. The Partner Coordination Team is key to the organization of the project and responsible for the Partnering Process Direction shown in the center of the figure. The project management role is responsible for the program management element in the upper left of the model. The design engineering and quality engineering teams are responsible for the upper right innovation elements of the project. Manufacturing and purchasing responsible for supply chain elements of the lower right quadrant. Marketing and business development or responsible for the lower left activities.
Roles and Responsibilities When Accessing External Technology
Thinking now of how organizations work together roles consist of four typical elements. These are Responsible, Approves, Consults, and Informed elements. The rules outlined in the “Partnership Organization Model” figure are now further described in the “Roles and Responsibilities” figure. Remember that Responsible, Approves, Consults, and Informed are very specific defined terms.
The roles described in the “Roles and Responsibilities” figure vary over time. A high-level view of this is shown in the “Functional Roles by Project Phase Matrix” figure. In this figure the project timeline is simplified to three timeframes. They are set up, execution, and maintenance. The advantage of using such time-based visual displays of information is that they allow team members to focus on what’s most important at any point in time. They speak to the who, what and when of partnering. They also have the added advantage of being used a visual scorecard for the Partner Coordination Team. This can be done in numeric form as shown in the “Partner Project Performance Matrix” figure. It allows especially rapid understanding by the Partner Coordination Team if the cells are colored in shades of red to green.
Note that in surveys associated with entities engaging in partnership activities, making sure the above requirements and roles are property laid out, and the project appropriately managed, creates a partnership tax on the project. On average, studies show that somewhere between 15% and 20% of a partner’s effort is required inside the other partner’s company just to manage the partnership. It should also be noted that issues adding to the cost of partnerships can also arise from the partners’ lower tier suppliers versus from the partner’s themselves.
Since Intellectual Property (IP) can represent a major source of value for new products, it’s necessary to protect it long before new partnership agreements have been finalized – and even from the very first meeting with potential partners. This is the approach advocated by James Markwith, formerly Corporate Counsel, Worldwide Products and Marketing, Adobe Systems Incorporated. When considering an outsourcing partnership or strategic relationship, it’s important, to make sure both parties have common objectives and that the initial meetings have clear goals. If it is determined, beforehand, that an NDA is appropriate, then use your firm’s standard, approved NDA to guard against hidden loopholes. From his experience, Markwith also strongly cautions all companies to be aware of what he terms “sandbaggers.” “There are companies out there whose core competency has changed from inventing, to suing people. These companies are intentionally tainting technology firms by sending them confidential information.” Such firms may send confidential information to another company it knows to be working on products similar to its own, perhaps using methods, processes, or techniques that are essentially the same, or related to its own. They then offer to be acquired or to license the subject technology to the target company, and when they are refused, they wait until the technology appears in the target company’s products, and sue the company, alleging theft of trade secrets
To highlight this problem further and to mitigate the problems, Brad Smith of Microsoft points out that every company today is becoming in part a software company. Whether it’s auto manufacturers, retailers, health care providers or financial services firms, companies are not only transforming their own business operations with software but collaborating with consultants and engineers to create new digital products and services that run on software platforms. Looking to the future, advancements and the adoption of cloud services, data analytics and artificial intelligence will only accelerate this phenomenon.
Because so much of business innovation today is based on software, principles designed to address co-created technology and intellectual property (IP) issues that give everyone clarity and confidence regarding their work with one another are important.
A good example of the digital transformation is the 365mc Hospital in South Korea, which improved the precision and safety of surgeries through a motion-tracking artificial intelligence (AI) application supplied by Microsoft. The hospital used sensors to collect data on more than 2 billion movements of surgeons’ hands during operations and used machine learning to identify patterns that could serve as a “GPS for surgeons.” This AI-powered system guides surgeons during operations and sends warnings and proposes countermeasures when it anticipates possible missteps, helping surgeons master skills while reducing patient risk. In addition to applying this technology to its own business, the hospital plans to now sell software and a training program to other hospitals, creating a new line of business and revenue stream.
As collaboration like this between tech companies and their customers increases, so will the questions regarding who owns the patents and resulting intellectual property. There is growing concern that without an approach that ensures customers’ own key patents to their new solutions, tech companies will use the knowledge to enter their customers’ market and compete against them – perhaps even using the IP that customers helped create.
To provide clarity around IP related to software, Microsoft’s Shared Innovation Principles covering seven areas provide a guide. They are:
1. Respect for ownership of existing technology. We each own the existing technology and IP that we bring to the table when we partner together. As we work with customers, we’ll ensure that we similarly will each own the improvements made to our respective technologies that result from our collaboration. Logic: The co-creation of new technology in the world today seldom starts from scratch. At Microsoft we bring our existing products, IP and expertise, and our customers do the same thing, often reflecting their world-leading expertise in their particular field. Our ability to co-create relies on both companies respecting each other’s IP.
2. Assuring customer ownership of new patents and design rights. As we work together to create new technology, our customers, rather than Microsoft, will own any patents and industrial design rights that result from our shared innovation work. Logic: Among other things, this means that Microsoft will cooperate in the filing of any patent applications resulting from the new invention work. This also means that Microsoft will assign to the customer all of the rights, titles and interest in the patents we create together.
3. Support for open source. If our shared innovation results in the creation of source code and our customers so choose, Microsoft will work with them to contribute to an open source project any code the customer is licensed to use. Logic: Microsoft is an active contributor to open source development, and we welcome the opportunity to work with our customers to contribute work that we co-create if our customers so choose. At Microsoft we’ve contributed code to the Linux kernel and we’ve helped advance R, the statistical programming language used by data science experts around the world. Over 40 percent of the virtual machines running on Azure today use Linux. Some of our existing platform technology is produced in part with open source code, and Microsoft is bringing many of its flagship technologies to Linux, including .NET, Visual Studio and SQL Server. We’re finding that our customers often want to release deliverables under an open source license on GitHub as part of our engagements, and we frequently work with them to do so.
4. Licensing back to Microsoft. Microsoft will receive a license back to any patents and design rights in the new technology that results from the shared innovation, but the license will be limited to improving our platform technologies. Logic: For this purpose our own platforms include existing and future versions of Azure, Azure Services (e.g., Cognitive Services), Office 365, Windows, Dynamics, Enterprise Mobility and Management, Cortana, Bing, Xbox, Xbox Live, HoloLens, Systems of Intelligence (e.g., Customer Care Intelligence, Market Intelligence, Sales Intelligence), and code and tools developed by or on behalf of Microsoft that are intended to provide technical assistance to customers in their respective businesses.
5. Portability. We won’t impose contractual restrictions that prevent customers from porting to other platforms the new, shared innovations they own. Logic: In the world today, customers want to retain the contractual freedom to move the work they co-create to an alternative platform in the future if they so choose. We respect their right to do so. We’re committed to retaining our customers’ business by offering better performance and value than anyone else, not by locking customers in to something they no longer want to use.
6. Transparency and clarity. We will work with customers to ensure transparency and clarity on all IP issues as the shared innovation project moves forward. Logic: IP issues can get complicated, and shared innovation works well only if there is transparency and clarity for customers throughout the process. We’re committed to well-organized and defined processes that ensure that our customers always have clear and complete information. We’ll also each appoint executive sponsors to help address quickly any questions or issues that may arise during shared innovation work.
7. Learning and improvement. We’ll continue to learn from this work and use this learning to improve further our shared innovation work. Logic: In important ways, shared innovation projects represent the next frontier in developing cutting-edge technology. While we’re confident that these principles represent an important step forward, it’s hard to believe that they represent the last step we’ll ever need to take. We look forward to listening to and learning with our customers as we do more of this important work. We look forward to using what we learn to make future improvements to these principles.
Such principles offer a path that helps ensure that the co-creation of digital technologies creates new economic value to companies throughout the economy and around the world, rather than for just a few select companies in the tech sector. In short, it strikes a balance where tech companies and their customers can each focus on what they do best, working together with trust and confidence that will help each other become more successful.
To have a successful partnership or alliance the following framework elements are critical to write out in defined in detail. This may seem like a lot of upfront work that is been shown over and over to this best practice saves time and money for all parties involved.
The typical elements are: business plan summary, objectives (ours, theirs), roles (ours, theirs, overall resources, boundaries, market model, exclusivity, intersections, detailed objectives and detailed resources, financial pie-split, intellectual property, working processing governance, term and termination.
When considering a strategic technology partnership many elements need to be thoughtfully considered if the partnership is to be a success. First and foremost to consider is the strategic fit between the two organizations. If these do not match the probability of success is very low. The next element to consider is the deal structure itself. Thinking about the strengths, weaknesses, opportunities, and threats of each deal element, for each party, is important pre-negotiation work. If done properly a fast win-win agreement can be reached. The next element of a good partnership is to be very clear which products and services are to be included and excluded from the agreement and work. Once the work to be done is agreed upon, the technical capabilities and management / personnel devoted to the partnership need to be defined. Finally once all else is determined, the financials for the partnership need to be developed consistent with the foregoing five partnership elements. As an example the Extended SWOT Analysis figure below provides an example of the elements that were considered for one technology development partnership initiative.
Example Extended Technology Development partnership SWOT Analysis
This section refers to close technical partnerships. Supplier partnerships for better pricing, or to secure supply, are addressed above in a previous section.
The company should only select partners for technologies needed by its large market segments and where it needs a high degree of technical help. The partner selected would be for technologies where the company lacks expertise, are not undergoing rapid change, or give the company manufacturing problems. Partnerships are not needed for old technologies where the company does not have problems.
The partner must have a good R&D staff and the companies contact with them must be through a technical person. A sales or marketing person should not be used as a go between.
The company should know after one to 1.5 years if the partnership is working.
Example of a Draft Memorandum of Understanding
OVERVIEW: The two companies have elected to further build upon their existing partnership relationship. To do this the supplier company has placed a senior technical representative, part-time, into the Company’s technical center. This increased technical support is expected to increase the breadth and depth of the materials capability available to the Company. Development and commercialization of unique products for both companies is one expected result. Another expectation is that the product customization, technology commercialization, and product development times will decrease.
This is an experimental, pilot program. Every effort is being made to ensure its success. Nonetheless, it may be terminated at any time, without explanation, by either party.
The confidentiality of the Company, its customers, and its other supplier’s proprietary information is being maintained. Any breach of this confidence will be cause for termination of the employees involved, regardless of employer.
The following is a list of potential issues, as well as solutions, associated with the presence of the supplier’s technical person at the Company’s technical center:
1. Possible conflict with other of the Company suppliers.
The following safeguards are designed to protect confidential work being done with other of the Company suppliers:
a. The supplier employee’s visit at the Company’s technical center will be limited to approximately one week per month to allow development time with other suppliers.
b. While at the Company’s technical Center the supplier’s employee will make every effort not to knowingly come in contact with other supplier’s information. Therefore: no notes will be taken of the pilot plant or analytical samples on any competitive project; if materials and samples from competitors are accidentally observed, no conveyance of their existence back to the supplier is permitted; there will be a letter of intent from the supplier’s chief technology officer to the supplier’s employee stating that under no circumstances does this plier want to receive any such competitive information from the source, and that sharing of such information is grounds for termination of employment; the Company’s personnel will make every effort to not knowingly discuss any information deemed proprietary.
c. To lessen the impact on the Company’s other win-win supplier relationships, every effort will be made not to create an issue of this relationship. Therefore: no permanent nametags will be issued, only the customary visitors tag; discussions of her special relationship will be limited to technical groups and top management; the above over your information will be used to clarify her relationship to others who inquire.
2. Supplier’s relationship with customers other than the Company.
a. The Company will not aggravate other supplier customer relationships
b. The Company will limit discussion of our special relationship to the Company’s technical group and top management.
c. The above overview information will be used to clarify the relationship to others who inquire.
3. Conflicts with the Company’s own proprietary development work.
Some of the Company’s proprietary technology, as well as the Company’s development programs, need to be protected. Examples are the Company’s manufacturing hardware, marketing strategy, and customer contacts. Whenever discussion of these subjects with the supplier person is necessary, the Company’s technical director will approve the content and spirit of the information exchange. The Company’s technical director will also be extended an invitation to attend all meetings were such information will be discussed. It is intended this requirement be relaxed as the experiment proceeds and the relationship grows. Relaxation of the standard requires both the Company’s technical director and the supplier person’s agreement. All at the Company’s technical Center the supplier employee will make every effort not to come in contact with the Company’s confidential information. Therefore: No notes will be taken of pilot plant or analytical samples unless they relate to the performance or evaluation of suppliers materials; if the Company’s confidential materials and samples are accidentally observed, no conveyance of their existence back to the supplier is permitted.; A letter of intent from the supplier CTO to the supplier employee stating under no circumstances does the supplier want to receive any such Company information, and that conveyance of such information is grounds for termination of employment.
4. Conflict with Company’s customers
The Company frequently works with other customers under restrictions of mutual confidentiality agreements, expressly prohibiting the disclosure of Company will information to third parties; this information must be protected. The supplier representative will be asked immediately leave any meeting were such information is being discussed.
While at the Company’s technical Center the supplier’s employee will make every effort to not come in contact with the Company’s customers’ confidential information. Therefore: No notes will be taken of pilot plant or analytical samples on any competitive projects; if the Company’s customers confidential materials and samples are accidentally observed, no conveyance of their existence back to the supplier is permitted; a letter of intent from the supplier CTO to the supplier’s employee stating that under no circumstances does the supplier want to receive any such Company customer information, and the conveyance of such information is grounds for termination of employment; supplier will sign nondisclosure agreements with the Company’s customers if required.
The Company’s programs will inevitably call for the presence of company’s researchers at supplier facilities. The guidelines established above should also apply to the activities of a Company’s person at a supplier’s location.
6. The scope of the supplier’s involvements and related costs.
The supplier’s person’s involvement should include an advisory role, an identifier of supplier’s resources role, and an active researcher role. Supplier will bear the costs associated with employee in the trials at supplier’s locations. The Company will bear the costs of trials at the Company’s technical center and the Company’s plants.
7. Reporting arrangements and accountability
The Company’s technical director is designated to coordinate the supplier’s person’s activities. The technical director or his designate will also be responsible for adhering to the mutually agreed-upon guidelines and maintaining confidentiality on both sides.
8. Assignment, ownership and exclusivity related intellectual property
Patentable inventions are the intellectual properties of those who can document their conception. Therefore, it is important for both the Company and supplier people to keep accurate, dated and properly witnessed notebooks. It is possible that some ideas will be jointly arrived at and become joint intellectual property of co-inventors from both companies. Each party will keep the other informed as any intellectual property rights are pursued, be these joint or independent.
Jointly developed ideas assigned either party, will be held for the exclusive use of each party for a period of five years from the filing date agreed-upon by the Company and supplier or the termination of this agreement. They will not be licensed to third parties without the consent of both parties for the same five year period. In the event one of the parties is unable or unwilling to support the other party’s potential business levels, after period of one year, the parties will negotiate, in good faith, compensation to be received by the party not fully participating. This competition shall, in no case, put one of the parties at a competitive disadvantage. Jointly developed ideas are those which a person would not have created without exposure to the information provided by the other party.
The assignee is responsible for obtaining patent and maintenance of the patent once issued. The assignee is also responsible for enforcing the patents against others.
If one party elects not to file, cause to issue, maintain, or defend a patent, its rights are forfeited to the other party to pursue.
This arrangement can be terminated at any time, without explanation, by either party. Renewal and changes will be formally discussed once per year.
Example Goals Survey
The supplier is conducting a survey to provide information which will be used to improve its products and services. We ask your help in supplying this information by filling out the following questionnaires honestly and accurately as possible. The scores you record on this questionnaire will be included with those of a number of other survey respondents reported in such a way that the responses of a particular individual cannot be identified. Your written comments weekly do with those made by others returned in a typewritten form to the above workgroup. Thank you for participating.
Example Partnership Roles Agreement
To improve the role definition of individuals involved with their key major accounts the Company’s leadership model was modified.
The PDRC model defines conditions that must be present within a partnership. Components of the model are:
Purpose: defines with the partnership is trying to achieve and why the partnership exists.
Direction: defines how the partnership will get to the desired state.
Regulation: defines how the partnership will stay on track.
Capability: defines the resources required to achieve the partnership purpose.
Values: defines the underlying beliefs which must be common to both organizations before partnership relationship can be developed.
Top management is accountable for creating and then ensuring that the vision, strategy, commitment, and growth statements are understood by both organizations. The steering committee is accountable for developing the mission, plans, conformance and sustain statements, consistent with top management’s vision, strategy, commitment, and growth statements. The steering committee is also accountable for ensuring that the mission, plans, conformance and sustain statements are understood by both organizations. The operating committees are accountable for developing goals, methods, control, and operate statements consistent with top management’s and the steering committee statements. They are also accountable for ensuring that their goals, methods, control, and operate statements are understood and carried out by both organizations.
1. Top management tasks
First, top management must ensure that the values and Lisa both organizations are so similar that a partnership relationship can be created, sustained and grown.
Second, top management must create a vision of the partnership. The vision is a picture of the desired state, requires nonlinear thinking, and may use metaphors, similes, symbols or analogies. It defines a reason for being. It answers the following questions: what is the partnership trying to achieve? Where’s the partnership going? Why does a partnership exist?
The PDRC model requires five sections to be present in the vision picture. The sections include: the overall business aspects of the partnership; the desired communication behavior; conflict and its resolution in the partnership environment; patterns of thought desired in the partnership; how the leaders show motivated and energized partnership Associates.
After creating the vision, top management shall create corresponding strategies. Each will define pathways to enhance the partnership’s relative competitive position. Strategies will be focused outward, and be market related. They define how the partnership will get to the desired state. They answer the question: how? There should be at least five strategies corresponding to the five dimensions of the vision detail outlined in the paragraph above.
From the strategies top management will create corresponding statements of commitment. The statements will explain to others in each organization how top management will conduct auditing to keep the partnership on track. The question of how top management will ensure the partnership is moving in the desired direction will be answered here.
Finally, top management will address growth of the partnership. Officially stated in terms corresponding to each of the five dimensions, how top management expects each organization to provide for the resources required to remain proactive to the business environment, and how greater and faster responses than the competition can be achieved.
2. Steering committee tasks
The steering committee will go through much the same exercises top management, but addressing mission, plans, conformance, and sustain questions consistent with top management’s vision, strategy, commitment, and growth statements.
The last five mission statements will be created by the steering committee. These mission statements define why the different elements of the partnership exist and who is served by the proper handling of these elements. The statements are focused on the business environment, especially customers, suppliers and other constituents of the partnership. The elements covered by the mission statements are: overall business purposes the partnership; communication behavior; partnership conflict and its resolution; patterns of thought; leadership motivation.
The steering committee will develop plans to implement top management strategies. They will define how the things identified by top management will be done, and in what order. These plans will include steps and schedules.
Similarly, the steering committee will develop conformance and specifications corresponding to top management statements of commitment. These specifications will be relative to the needs of the business environment, comparable to fitness for use.
The final task of the steering committee is to ensure that the partnership can sustain itself. They will create and implement statements corresponding to top management’s growth ideas. These statements will define resources required for the partnership to thrive over time.
3. Operating Committee’s tasks
The operating committees will carry out programs and projects consistent with the partnership vision, mission, strategies and plans. Each operating committee will define goals for itself which contain specific, measurable targets. A minimum five goals are needed, addressing each of the five areas found in the vision and mission statements.
The operating committees will also define the procedures and processes required to carry out each of the plans of the steering committee.
Likewise internal operating committee feedback systems that identify deviations within the partnership programs and projects will be developed. These control statements are focused inward.
The operating committees will also define the resources required to effectively do day-to-day tasks that they are charged with.
In a 2017 survey, the Innovation Research Interchange (formerly Industrial Research Institute) published a survey related to the use of external innovation sources. They found that most entities utilized standard R&D management practices and personnel in their projects.
They also found that the contribution from external innovation to the overall revenue returns from their innovation portfolio was modest, most had less than 1% impact, and over 75% of the projects had less than a 5% impact. This decrease is significant because results in the 2002 to 2005 timeframe from Procter & Gamble and Air Products were finding a significant return on external projects. These two companies reported that most of their internal projects saved hundreds of thousands of dollars of net research expenditures and up to two years of internal effort feature for each project done. Those exceptional returns have not been sustained, and most recent company efforts do not generally achieve such results.
When looking at the resources which the survey companies were applying to open innovation, the numbers indicate that small specialized staffs were doing most of the work. This is also borne out by the number of partnerships the companies were engaging in each year.
A key element in determining which type of program is suitable for a partnership, is the time it takes to get from the “intent to partner” to a “deal signature”. Thinking of the traditional phases of partnership from Want, Find, Get, and Manage, this is the duration of time in the Get phase. As most projects were taking over six months to get initiated, it stands to reason that most partnerships are formed around next-generation or breakthrough business and technology needs.
In contrast to these results obtained for mostly PRODUCT innovation research, open PROCESS innovation is more encouraging. Work collected by the KOF Swiss economic Institute in 2005, 2008, 2011 from over 1000 manufacturing entities, found that manufacturers can benefit substantially when they look for ideas beyond their factory gates, especially if their operations are already advanced.
Normally process innovation activities are held tightly under wraps. Many see their processes as sources of competitive advantage that should not be shared with anyone. Certainly in some cases, companies have good reasons for keeping process innovation concealed, for example, when a combination of process and product innovation often results in a competitive advantage. The research suggested however that for many manufacturers, such defensiveness deprives companies of a valuable source of ideas for productivity improvement. Walling off process improvement innovations from the outside world can be a losing strategy, because sooner or later, competitors usually catch up. Counterintuitive as this may seem, the research suggested that most operations managers can build greater advantage for their company by following a policy of open process innovation rather than secrecy.
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