Innovation Management: Collaboration

Innovation Management

28 March 2013

Rotterdam Business School

Weekly overview

Week Instruction method Content/subjects Assignment

1 Lecture Introduction +

Business model

Innovation

Choose a company and specialization topic

Prepare pitch if signed up

2 Pitch arena

Lecture

IPR Read Sustainable innovation article

Solve the riddle

3 Pitch arena

Lecture

Collaboration Use relationship metaphor

Build ‘golden formula’ of collaboration

4 Pitch arena

Lecture

Sustainability TBD

5 Pitch arena

Lecture

Social media TBD

6 Final pitches Company case study Advise on IM

It is the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed.

- Charles Darwin

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Learning Outcomes of Lecture

• be able to define and differentiate collaboration

• identify some advantages (and disadvantages) of collaborating

• discuss the most common forms of collaborative arrangements

used in technological innovation

• outline approaches to choosing and monitoring partners

• discuss a) key success factors and b) common reasons for

failure

The XenoMouse

• Abgenix spent 7 years and $40 million to produce a

genetically-engineered mouse that could produce antibodies

with human protein sequences.

• One antibody, ABX-EGF showed great promise for treating

human illnesses like cancer, arthritis and organ transplant

rejection.

• Abgenix had to decide upon the further process of testing,

developing, regulatory and commercializing.

The XenoMouse

• Abgenix had to decide whether to:– License ABX-EGF to a pharmaceutical or biotechnological company

which would do all further testing, development of antibodies for

specific diseases, and commercialization (bear little risk and receive

license royalties).

– Use a 50/50 joint venture with a biotechnology company to complete

the testing and commercialization (bear moderate risk and split both

costs and profits).

Including upfront payments to compensate for earlier investments.

– Pursue the ABX-EGF project as a solo venture (bear all risks and keep

all profits)

The XenoMouse

• In 2001 as they were burning through their

cash rapidly and the stock market had soured,

they had to decide, taking into account:

–Their short term cash needs

–Their potential for long term growth

–The ability to commercialize rapidly as

competitors were developing the same type of

drugs

The XenoMouse

Discussion Questions:

1. What are the pros and cons of Abgenix

collaborating with a partner on ABX-EGF?

2. If Abgenix chooses collaboration, would it be better

off licensing ABX-EGF to the pharmaceutical

company, or forming a joint venture?

3. How does Abgenix’s decision about collaborating

for ABX-EGF impact its prospects for its other drug

development projects?

The XenoMouse

“The biggest winners in the 21st century will be those businesses that assemble a

global ecosystem of partners,

emphasising flexible access to products, talents, and expertise, not ownership.”

Prahalad and Krishnan (2008)

Overview

• Firms must often choose between performing innovation

activities alone or in collaboration.

• Collaboration has the potential to enable firms to achieve

more, at a faster rate, and at less cost and risk

(XenoMouse).

• However, collaboration also entails sharing control and

rewards, is time-consuming and may risk partner wrong-

doing.

• The advantages of going solo are compared with those of

collaborating, and then different forms of collaboration are

compared.

Philips & Douwe Egberts

Nespresso

Advantages of Collaborating

• Obtaining skills or resources more quickly

• Reducing asset commitment and increasing

flexibility

• Learning from partner

• Sharing costs and risks

• Building cooperation around a common

standard

Levels of ‘Collaboration’

limitedcommunication

More defined roles

Clear rolesSome shared decision making

Shared decision makingFrequent communication

One systemTrustConcensus

Adapted from Frey, Lohmeier et al, 2006. In Bauwen, 2011.

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Trends in Strategic Technology Alliances

Key Questions to Guide Decision

• Whether a firm chooses to engage in solo

development or collaboration will be

influenced by:– Availability of capabilities (does firm have needed capabilities in

house? Does a potential partner exist?)

– Protecting proprietary technologies (how important is it to keep

exclusive control of the technology?)

– Controlling technology development and use (how important is it to

direct development processes and applications?)

– Building and renewing capabilities (is the project key to these

capabilities?)

Types of Collaborative Arrangements I

– Strategic Alliances: formal or informal agreements

between two or more organizations (or other entities) to

cooperate in some way.

– Joint Ventures: a particular type of strategic alliance that

entails significant equity investment and often

establishes a new separate legal entity.

– Licensing: a contractual arrangement that gives an

organization the rights to use another’s intellectual

property, typically in exchange for royalties.

Brand licensing

Brand licensing II

• Brand licensing is the process of creating and

managing contracts between the owner of a

brand and a company or individual who wants

to use the brand in association with a product,

for an agreed period of time, within an agreed

territory. Licensing is used by brand owners to

extend a trademark or character onto products

of a completely different nature.[4]

Types of Collaborative Arrangements II

–Outsourcing: when an organization procures

services or products from another rather than

producing them in-house.

–Collective Research Organizations: organizations

formed to facilitate collaboration among a group

of firms.

Outsourcing

Outsourcing II

• 47% market share of the domestic footwear industry

• manufacturing throughout the Asian region for over twenty-five

years, using only subcontractors

• Output produced in factories in China, Indonesia, and Vietnam, but

they also have factories in Italy, the Philippines, Taiwan, and South

Korea.

• Nike does employ teams of four expatriates per each of the big three

countries (China, Indonesia, Vietnam), that focus on both quality of

product and quality of working conditions, visiting the factories

weekly.

• They also developed their code of conduct in 1992 and have

implemented it across the globe,

Outsourcing III

Bowing to pressure from critics who have tried to turn its famous shoe

brand into a synonym for exploitation, Nike Inc. promised today to root

out underage workers and require overseas manufacturers of its wares to

meet strict United States health and safety standards.

Philip H. Knight, Nike's chairman and chief executive, also agreed to a

demand that the company has long resisted, pledging to allow outsiders

from labor and human rights groups to join the independent auditors

who inspect the factories in Asia, interviewing workers and assessing

working conditions.

By JOHN H. CUSHMAN JrPublished: May 13, 1998

Nike Pledges to End Child Labor And Apply U.S. Rules Abroad

''We believe that these are practices which the conscientious, good

companies will follow in the 21st century,'' he said in a speech here at the

National Press Club. ''These moves do more than just set industry

standards. They reflect who we are as a company.''

Nike said it would raise the minimum age for hiring new workers at shoe

factories to 18 and the minimum for new workers at other plants to 16, in

countries where it is common for 14-year-olds to hold such jobs. It will

not require the dismissal of underage workers already in place.

By JOHN H. CUSHMAN JrPublished: May 13, 1998

Nike Pledges to End Child Labor And Apply U.S. Rules Abroad

Choosing and Monitoring Partners

• Partner Selection

–Resource fit

–Strategic fit

–Impact on Opportunities and Threats

–Impact on Internal Strengths and Weaknesses

–Impact on Strategic Direction

“Organizations do notcollaborate, people do!”

Maura Walsh (2013)

Honeymoon approach

Think of the last time you fell in love…

– How was the attaction established?

– What where key factors for the relationship

to work out?

In search of the ‘golden formula’

Trade offs: advantages

• Get instant market access, or at least speed your entry into a

new market.

• Increase sales.

• Gain new skills and technology.

• Develop new products at a profit.

• Share fixed costs and resources.

• Enlarge your distribution channels.

• Broaden your business and political contact base.

• Gain greater knowledge of international customs and culture.

Trade offs: disadvantages

• Weaker management involvement or less equity stake.

• Fear of market insulation due to local partner's presence.

• Less efficient communication.

• Poor resource allocation.

• Difficult to keep objectives on target over time.

• Loss of control over such important issues as product quality,

operating costs, employees, etc.

Choosing and Monitoring Partners

• Partner Monitoring and Governance

–Successful collaborations require clear yet flexible

monitoring and governance mechanisms

–May utilize legally binding contractual arrangements

- Helps ensure partners are aware of rights and obligations.

- Provides legal remedies for violations.\

Choosing and Monitoring Partners

• Partner Monitoring and Governance

–Contracts often include:

1. What each partner is obligated to contribute.2. How much control each partner has in arrangement.

3. When and how proceeds of collaboration will be distributed.

4. Review and reporting requirements.

5. Provisions for terminating relationship.

Key Failure Factors

• Lack of understanding of each other’s/joint goals

• Lack of understanding of each other’s roles and responsibilities

• Insufficient governance mechanisms

• Ineffective/incompatible structures

• Poor communication

• Conflicting chemistry

• Divergent expectations and interests

• Breakdown in trust