management of technology & innovation mktg5603 ... · financial resources and competencies of...

©Mazzarol 2015 all rights reserved

Management of Technology & Innovation MKTG5603 &

Biotechnology Commercialisation MKGT5604

Workshop 4 Part A: Strategic

Partners & Isolating MechanismsProfessor Tim Mazzarol – UWA Business School

UWA Business School MBA Program

M Biotech Program

[email protected] MKTG5603

BC MKTG5604


Process and general model

1 – Innovation and its characteristics

Kind, size and characteristics of the innovation and their effects on the rent:Its volumeIts rate of profitIts length

3 – Insertion of innovation in a business

Analysis of risks and effects of abrasion on the rent of:Competitive situation 3.2

Reaction of competitors 3.3

Competitive situation of innovator 3.4

2 – Insertion of innovation in its environment

Analysis of risks and effects of abrasion on the rent of:Demand – customers (volume effect) 2.1

The value chain (rate of profit effect ) 2.2

Substitutes (length effect) 2.3

Complementing actors (global effect) 2.4

Regulation / lobbying 2.5

Explicative Variables Intermediates Variables : rent and configuration of rent

-- +

-- +

-- +

3 – appropriable rent possibly caught by the innovator

3

1

2

2 – residual rent, after abrasion effects due to economic context

3

1

2

1 – potential rent, generable by the innovation

1

2

3

Dependant Variables :Development and protection

strategies (4)

Process of analysis and

time

Autonomous

Development

Withdrawal

Delegate

Development

Develop in

partnership

Protection

Transferred

Development

Source: Santi & Reboud (2003)


Commercialisation pathways


Innovation (Product/Process)

Autonomous Development

Requires all resources to be

controlled by firm

Develop in partnership

Joint Venture

Delegate development

License Agreement

Transfer development

Trade Sale

WithdrawAbandon the

project

Ris

k &

Retu

rn

High

Low

Marketing Resources and Competencies of Firm

Next step

Does the SME have the “Marketing” resources and competencies needed to

commercialise the innovation?

yesno

Can it buy them or develop them

inside the firm?

yes no

Is a partnership with business

complementors possible?

yes Strategic choiceNo choice:

partnership

no No choice: aloneDelegated

commercialisation

Economic barrier to entry and to survival

Starting sector

STOP, sell or delegate

Appropriable rent

Source: Santi and Reboud 2003

Technical Resources and Competencies of Firm

Next step

Does the SME have technologicalresources and competencies to commercialise the innovation?

yesnoIt has not

It has but they are not sufficient to sustain innovation

Can it buy them or develop them inside

the firm?

yes no

Is a partnership with

technological complementors

possible?


partnership


commercialisation

Can it have an access to them ?

Technological barriers to entry

Emergent sector


Appropriable rent


Financial Resources and Competencies of Firm

Next step

Can the SME raise the volume of resources necessary to settle durably on the market ?

yes no

Can it find any venture capital?

yes no

Is a partnership with

competitors possible?


partnership


Commercialisation

Barriers to entry: volume of resources

Growing sector


Appropriable rent



Advantages of partnering Disadvantages of partnering

Access to partners resources

Risks are shared by partner

Access to technology

Access to R&D expertise

Access to manufacturing facilities

Access to market knowledge

Access to distribution networks

Access to brand image of partner

Loss of independence

Beware if strategic objectives are not

aligned (or go out of alignment over

time)

Give up part of value created

Beware of overlapping resources

(wounded prince/princess)

Danger of loosing (new) intellectual

property to partner

Reliance on a partnership “champion”

Strategic Partnering


Strategic Partnering

University/

Research

Institute

Research+ Research &

DevelopmentDevelopment Manufacturing Marketing

MarketingManufacturing

Outward

Technology

Licensing

Inward

Technology

Licensing

Client-

sponsored

R&D

Collaborative

R&D

Commercially

= Successful

Innovation

Strengths of firms or partner

Weakness of firm or partner

Source: Forrest 1990


“Angels”

Financial Partnering in

Commercialisation

Source: van Leen & Lubben (2013)

High High

Low Low

Emerging

technologyProof of concept Commercialisation Expansion

Time

Financing

Gap

Risk

Investment

amounts

Sales

Grants

Venture Capital

Public /

Private

Equity

Corporate

Venturing

Key issues for corporate venturing:

should the project investment

achieve primarily strategic goals,

financial goals or both?


Partnering Process

Identification

Defining

Strategy and

Objectives

Screening

for Partners

Defining

Opportunity

Assessing

Tradables

& Leverage

Assessing

Impact on

Stakeholders

Assessing

Bargaining

Power

Planning

IntegrationImplementing

Valuation

Negotiation

Implementation

Source: Harbison & Pekar 1998


The Venturing Process for Large

Corporates

Source: van Leen & Lubben (2013)

Sourcing

•Networking & Conferences

•Deal flow & investors

•Contacts & markets

•Balance between business and venture driven opportunities

Screening 1: Strategic Relevance

• Is SME’s project aligned with corporate strategy?

• Is SME’s competence base a logical fit?

•Does it fit the innovation agenda?

Screening 2: Business Viability

• Is it a viable business idea?

• Is there attractive financial return?

•Can the company CEO deliver?

•Are there exit opportunities?

•Are other investors available?

Investment process

• Due Diligence

• Can management strategy boost success of SME?

• How much money is needed to exit?

• How strong are the IP rights?

• How strong is the technology base?

• How realistic is the business plan?

Investment Management

•Continuous dialogue with SME partner

•Win-Win outlook

•Focus on maximum value creation via a diligent board

•Working towards an exit (e.g. trade sale, spin-in or IPO)


Partnering Process

Source: Harbison & Pekar 1998

• Clearly defined and compatible business strategies?

• Mutual understanding of strengths and weaknesses?

• Define IP ownership.

• What is your alternative to partnering? If you don’t have one, your negotiation position is very weak!

• Highly people oriented, staff buy-in must be achieved up-front.

• Include mutually fair exit clauses right at the start.


Strategic Alliances


Source: Lasagni 2012

SMEs Alliances and Innovation

Antecedents•SME characteristics

•Relationship characteristics

•Environmental characteristics

Processes•Strategy planning

•Relationship management

Outcomes•Organization development

•Competitive advantage

•Performance & innovation

A

B

D

C

Innovation performance is higher for

SMEs that have strong alliances with

suppliers, users & customers.

Innovation

performance is

higher for SMEs

that have strong

alliances with

R&D centres &

universities.

Patents and Trademarks

registration also important to

innovation performance.

Plus access to new geographic

markets.


Source: Alvarez & Barney 2001

How Entrepreneurial Firms Benefit from

Alliances with Large Partners

• Large firms get benefits from partnering

with SMEs via new technology, but SMEs

often suffer from alliances with large firms.

• SMEs are most vulnerable if all they bring to

the relationship is new technology.

• Large firms typically can absorb technology

faster than SMEs can imitate the large firm’s

organisational resources & capabilities.

• The first partner to learn what it needs to

learn from its partner can withdraw at low

cost.



Options for Commercialisation of New

Technologies by Small Firms

Alternatives Firm Execution Advantages Disadvantages

Go it alone. Acquire and build internal

resources & capabilities.

Retains value and benefits of

R&D and commercialisation.

Costly and time consuming.

Slow down the large firm’s

rate of learning.

Limit large firm’s access to

the small firm’s technology.

Only selected parts

disclosed.

Keeps the large firm from

appropriating the SME’s

technology & IP.

Slows down the rate of

commercialisation and flow

of cash to SME.

Use detailed & elaborate

legal contracts to define

alliance relationship.

Engage lawyers with alliance

or JV expertise to set up

contract. Perform due

diligence.

Provides milestone timeline

and specific terms and goals.

Contracts cannot address all

likely contingencies and can

be costly to enforce.

Build a relationship of

trust.

Keep lines of communication

open with partners. Do not

promise to deliver more than

what can be delivered.

Enhances the value of the

alliance by not having to

depend on legal contracts.

May provide incentive for

large firm to invest in

relationship.

Relies heavily on trust and

might expose SME to future

exploitation by larger firm.

Bring other resources to

the alliance besides a

single technology.

Maintain the ability to be

inventive and produce a

stream of new technologies.

Provides strong incentive for

large firm to keep investing in

relationship.

Provides large investments

in basic R&D.



How Large Firms and SMEs can Benefit

from Alliances

Firm Type Entrepreneurial SME Large Firm

Manage technology

carefully.

Bring a string of technologies to the

alliance or have the potential to

generate a string of technologies.

Choose entrepreneurial partners

capable of generating several

technology streams.

Recognise the different

rates of learning

between firms.

Slow down the large firm’s rate of

learning about the technology. Do not

over expose the firm’s technological

capabilities too early in the

partnership.

Select entrepreneurial firms that

have sufficient management skills

to learn large-firm organisational

capabilities.

Understand the need

each firm is trying to

fill via the alliance.

Large firms often need the

inventiveness of SMEs. Once the

large firm has the new technology it

can usually exploit it.

Does the entrepreneurial firm

want to remain independent or be

acquired? Does it want to remain

small or grow?

Reduce risk. Perform due diligence on the large

firm, be cautious to prevent excessive

appropriation of alliance benefits by

the larger firm.

Form alliances with SMEs that

have managers capable of

understanding what is required to

make an alliance successful.


Strategic Assets and Organizational Rent

Source: Amit & Schoemaker (1993)

Resources

• Externally available &

transferable.

• Owned or controlled

by the firm.

• Convertible.

Capabilities

• Information based

organisational

processes.

• Firm specific.

• Tangible or intangible.

• Intermediate goods.

Strategic Assets

• A subset of the firm’s R&C subject to market failure.

• Overlap with strategic industry factors.

• Uncertain ex-ante.

• Form the basis of the firm’s competitive strategy.

• Determine organisational rents.

• Non-tradable, complementary, scarce, appropriate, firm

specific.

Strategic

Industry

Factors

• Industry specific.

• R&C subject to market

failure.

• Affect industry

profitability.

• Change & subject to

ex-ante uncertainty.

Firm IndustryRivals Customers

Substitutes

Entrants

Environmental

Factors

(Technology & Regulation)

Suppliers


Isolating Mechanisms and Rent Return

Sources: Hang Do, Mazzarol, Volery & Reboud (2014); Hang Do (2014); Avarez & Barney (2004)

Ricardian

Rent

Schumpeterian

Rent


Resources & Isolating Mechanisms


Innovation (Product/Process)

Control all required

resources

Autonomous Development

Arbitrage value

Do not control all required

resources

Knowledge is Explicit

Effective isolating mechanisms

Develop in partnership (Non-

Hierarchical)

Ineffective isolating

mechanisms


(Hierarchical)

Knowledge is Tacit

No isolating mechanisms


(Hierarchical)

Projects that can be pursued alone should be undertaken without outside

involvement, but strong “isolating mechanisms” (e.g. IP rights protection) are

essential to securing any equality in bargaining power with third parties.


Causal Ambiguity

• Ambiguity as to what factors are responsible for superior (or inferior) performance acts as a powerful block on … imitation.

• Advantages derived from causally ambiguous competencies offer the potential to avert imitation by competitors.

• Sources of Causal Ambiguity:– Tacitness – the implicit and non-codifiable

accumulation of skills that results from learning by doing.

– Complexity – possession of a large number of interdependent skills and assets

– Specificity – the transaction-specific skills and assets that are utilized in the production processes and service delivery for particular customers.

Source: Reed and De Fillippi (1990);Lippman and Rumelt, (1982)


Barriers to Imitation

• Barrier = the restraining or obstructing of imitation by competitors.

• Interaction effects of tacitness, complexity and specificity serve to heighten ambiguity effects and barriers to imitation.

• Barrier Height is a function of the level of competition.

– Highly competitive markets require greater levels of ambiguity.

• Barriers to imitation are dependent on:

– Ambiguity in firm’s competency-based advantage.

– Potential for the firm’s value added to moderate barrier height.

Source: Reed and De Fillippi (1990)


Decay and Sustainability

• Sustainability is dependent on the rate of decay of the barriers to imitation

– Decay can be precipitated by product or process innovation

– Without innovation decay will continue to erode the barrier

• Decay can be resisted through reinvestment in causally ambiguous core competencies

• Sustainability should focus on the planning horizonrelevant to the firm

• Reinvestment should be focused on:

– People with valuable ‘tacit knowledge’

– Security of complex procedures

– Increasing levels of human, site, physical asset specificity

Source: Reed and De Fillippi (1990)


Desired Characteristics of the Firm’s

Resources & Capabilities

Source: Amit & Schoemaker (1993)

Rents due to

Firm’s

Resources &

Capabilities(Strategic Assets)

Complementarity Scarcity Low Tradability

Overlap with

Strategic

Industry

Factors

Durability

Inimitability

Limited

SubstitutabilityAppropriability

Complement

existing assets

Not readily available

in the marketNot easily traded

outside the firm

Difficult to copy by

competitors

Difficult to find

substitutes

Can be appropriated

by the firm

Have long life cycle


Group Discussion

Working in teams

• Review the firm’s need for strategic

partners.

• Identify what type of partnering is

required and what goals the firm has.

• Make a list of the likely partners:

• Are there strong “isolating mechanisms”

in place and if so what are they?

• What are the options?– Withdraw

– Autonomous development

• (go it alone)

– Develop in partnership

• (joint venture)

– Delegate development

• (license)

– Transfer development

• (Trade sale)

End of Presentation

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