Chapter 8 COLLABORATION STRATEGIES Strategic Management of Technological Innovation Melissa Schilling.

Chapter 8

COLLABORATION STRATEGIES

Strategic Management of Technological Innovation Melissa Schilling

2

• Abgenix spent seven years and $40 million to produce a genetically-engineered mouse that could produce antibodies that would treat human illnesses.

• One antibody, ABX-EGF showed great promise for treating several types of cancer. Abgenix had to decide whether to:– License ABX-EGF to a pharmaceutical company which

would do all further testing and commercialization (bear little risk and receive license royalties)

– Use a joint venture with a biotechnology company to complete the testing and commercialization (bear moderate risk and split profits)

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

The XenoMouse

3

Overview•Firms must often choose between performing

innovation activities alone or in collaboration.•Collaboration can enable firms to achieve

more, at a faster rate, and at less cost and risk.•However, collaboration also entails sharing

control and rewards, and may risk partner malfeasance.

•The advantages of going solo are compared with those of collaborating, and then different forms of collaboration are compared.

4

Reasons for Going Solo• Whether a firm chooses to engage in solo

development or collaboration will be influence by:– Availability of capabilities (does firm have

needed capabilities in house? Does a potential partner?)• In 1970s Monsanto developed powerful herbicide, but

killed plants unless applied very carefully. Needed to develop plants that could resist herbicide to make it easier to apply and use in larger quantities. Biotech industry still quite young and no appropriate partners who had this knowledge. Monsanto went solo.

– Protecting proprietary technologies (how important is it to keep exclusive control of the technology?)• Abgenix needed cash and access to development and

marketing capabilities it did not have but would have to give up exclusive control over the drugs developed.

5

Reasons for Going Solo– Controlling technology development and use

(how important is it for firm to direct development process and applications?)• Honda did not join the Alliance of Automobile

Manufacturers which was fighting against tougher fuel and emission standards – Pragmatic reasons: felt it would limit their discretion

over its development of environmentally friendly autos which Honda wanted to be a leader in

– Cultural reasons: Honda’s culture emphasized retaining complete control over the firm’s technology development and direction. Honda President Yoshino – “it’s better for a person to decide about his own life rather than having it decided by others.”

– Building and renewing capabilities (is the project key to renewing or developing the firm’s capabilities?)• Boeing philosophy about development of the Sonic Cruiser

6

Advantages of Collaborating• Collaborating can offer the following advantages:

• Obtaining needed skills or resources more quickly• Reducing asset commitment and increase flexibility• Learning from partner• Sharing costs and risks• Can build cooperation around a common standard

Worldwide formation of strategic technology alliances is rising.

7

Types of Collaborative Arrangements• There are numerous types of collaborative arrangements,

each with its own advantages or costs.– Strategic Alliances: formal or informal agreements

between two or more organizations (or other entities) to cooperate in some way.

Doz and Hamel note that a firm’s alliance strategy might emphasize combining complementary capabilities or transferring capabilities. It might also emphasize individual alliances or a network of alliances.

8

Types of Collaborative Arrangements

– 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 (or individual) the rights to use another’s intellectual property, typically in exchange for royalties.

– Outsourcing: When an organization (or individual) 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.

9

Using Alliances and Licensing to Establish a Standard

Charles Hill describes a range of strategies designed to help a firm’s technology become dominant.

Research Brief

10

Choosing a Mode of Collaboration•Firms should match the trade-offs of a

collaboration mode to their needs.

11

Choosing and Monitoring Partners• Partner Selection

– Resource fit: How well does the potential partner fit the resource needs of the project? Are resources complementary or supplementary?

– Strategic fit: Does the potential partner have compatible objectives and styles?

– Impact on Opportunities and Threats: How would collaboration impact bargaining power of customers and suppliers, degree of rivalry, threat of entry or substitutes?

– Impact on Internal Strengths and Weaknesses: Would collaboration enhance firm’s strengths? Overcome its weaknesses? Create a competitive advantage?

– Impact on Strategic Direction: Would the collaboration help the firm achieve its strategic intent?

12

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.

•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.