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![Page 1: Management of Technology & Innovation MKTG5603 ... · Financial Resources and Competencies of Firm Next step Can the SME raise the volume of resources necessary to settle durably](https://reader035.fdocuments.in/reader035/viewer/2022070616/5d1ae50888c9935d598cb6ec/html5/thumbnails/1.jpg)
©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
©Mazzarol 2015 all rights reserved
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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)
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Commercialisation pathways
©Mazzarol 2015 all rights reserved
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
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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
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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?
yes Strategic choiceNo choice:
partnership
no No choice: aloneDelegated
commercialisation
Can it have an access to them ?
Technological barriers to entry
Emergent sector
STOP, sell or delegate
Appropriable rent
Source: Santi and Reboud 2003
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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?
yes Strategic choiceNo choice:
partnership
no No choice: aloneDelegated
Commercialisation
Barriers to entry: volume of resources
Growing sector
STOP, sell or delegate
Appropriable rent
Source: Santi and Reboud 2003
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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
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©Mazzarol 2015 all rights reserved
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
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“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?
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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
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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)
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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.
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Strategic Alliances
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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.
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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.
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Source: Alvarez & Barney 2001
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.
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Source: Alvarez & Barney 2001
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.
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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
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Isolating Mechanisms and Rent Return
Sources: Hang Do, Mazzarol, Volery & Reboud (2014); Hang Do (2014); Avarez & Barney (2004)
Ricardian
Rent
Schumpeterian
Rent
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Resources & Isolating Mechanisms
©Mazzarol 2015 all rights reserved
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
Develop in partnership
(Hierarchical)
Knowledge is Tacit
No isolating mechanisms
Develop in partnership
(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.
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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)
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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)
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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)
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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
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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)
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End of Presentation