COLLABORATION STRATEGIES

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Strategic Management of Technological Innovation
Melissa Schilling
Chapter 8 COLLABORATION STRATEGIES
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The XenoMouse

• 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)

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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.

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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.

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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 Hondas culture emphasized
  retaining complete control over the firms
  technology development and direction. Honda
  President Yoshino its 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 firms
  capabilities?)
• Boeing philosophy about development of the Sonic
  Cruiser

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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.
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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 firms alliance
strategy might emphasize combining complementary
capabilities or transferring capabilities. It
might also emphasize individual alliances or a
network of alliances.
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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
  anothers 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.

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Research Brief

• Using Alliances and Licensing to Establish a
  Standard

Charles Hill describes a range of strategies
designed to help a firms technology become
dominant.
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Choosing a Mode of Collaboration

• Firms should match the trade-offs of a
  collaboration mode to their needs.

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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 firms strengths?
  Overcome its weaknesses? Create a competitive
  advantage?
• Impact on Strategic Direction Would the
  collaboration help the firm achieve its strategic
  intent?

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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.