Sectoral Innovation System Part II –
Special Focus on Cooperation for innovation
Key source:
• Chapter Eight, Collaboration Strategies, 151-175
•
https://jerosystems.com/2016/strat1.pdf
“COOPERATION” AS A STRATEGY FOR
INNOVATION (“networks” and “institutions”)
• Partnerships or standing alone?
• The SANGAMO Case
• See: Schilling, M.A., Izzo, F. (2017), Gestione dell’Innovazione, Mc.Graw Hill Education, IV Ed., pp.293301
• 1995 – Zinc Finger Nucleases (ZNF) – technical solution to modify (“repair”) the genetic code
(specifically single “wrong” chromosomes) of a person, which is potentially useful to face heavy
diseases as Hemophilia, HIV, etc.
• Problem: developing a marketable “pharmaceutical” solution (very costly,
long and risky process)
• High costs for clinical trials
• Potential “competitive” technologies (e.g. TALEN, based on a similar concept, but
“easier” to be developed although with less specificity compared to ZFN; CRISP,
different approach; based on “natural defenses” developed by bacteria able to
eliminate wrong DNA)
“COOPERATION” AS A STRATEGY FOR
INNOVATION (“networks” and “institutions”)
• 2015: Sangamo employs 84 people (mainly R&D)
• No selling activity
• It hasn’t got sufficient resources to develop the required trials
• Heavy financial looses
• Biogen Idec – Large Biotech Firm (UK); Shire AG (UK)
• Partnership Sangamo-Biogen to develop trials on ZFN
• Upfront-fees to develop research
• royalties in case of future commercialization
• Solutions for HIV? Sangamo decided for a stand-alone strategy based on his
ZFN Technology!
• In the long term, Sangamo’s target was getting a firm able to operate all
“rings” of the chain (trials, etc.) and HIV was the sector selected to start
this way…
• The IBM-YOOX partnership case
• 2015 – Yoox develops YNAP, a “Newco” (yoox+Net-A-Porter; ecommerce)
• Yoox (launched in 2000): heavily financed by VCs; 800 people
employed;
• YNAP: Development of a technological platform with IBM, unique for
all “online stores” (Retail; Luxury Fashion Online)
• Speeding integration between systems
• Addressing innovation efforts towards the “innovation frontiers” linked to the
customer experience and personal devices (smartphone, etc.) – customer
insight and analytics, social media marketing, etc. – “Omnichannel”
• Cooperating …(INTER FIRM NETWORKS)
• “Networks” as a key driver for innovation: cooperation allows better results
in principle…
More knowledge and capability (in case of “lack”…);
Accelerating and enriching the “learning” process and Knowledg Transfer
Strategic Alliances (e.g. Apple/Canon in the laser printing segment)
• …or to reduce financial burdens (avoiding “fixed costs”) and improving flexibility,
focusing on “specialization areas” and bridging other partners
• E.g. Colnago and Ferrari (Carbon Fiber Components Production outsourced to Ferrari)
• Mixes between “sectors” – e.g. IBM and Yoox (virtual shop)
• Sharing costs and risks (heavy investment and high uncertainty)
• …also to accelerate development in very “fast” and competitive markets where a
dominant design has not developed yet (e.g. FIAT-Chrysler/Google)
• Cooperation during development phases paves the way to cooperation in
commercialization too.
• Cooperation allows to further enlarge contact networks (more information,
etc.)
Cooperation forms
STRATEGIC ALLIANCES (SA)
• Categorization of SA through different “dimensions”
• Capability of realizing:
• A) integration (complementary competences) – avoiding to absorb partner technology
• B) transfer between partners (e.g. knowledge transfer oriented) – not complementary
competences
• 1. Dyadic alliances (two partners – high attention to the partner profile – e.g. sensitive
industries; reducing risks to “loos technology control” )
• 2. Networks (with partners having “complementary” capabilities)
• Firm as a network of firms providing complementary “inputs” (knowledge, etc.):
paying attention to the “competitive” risk (e.g. what are partners’ markets? ) and to
“information dispersion”
• Pretty high share of AS who fail! (egoistic behavior, etc.).
JOINT VENTURES
• AS requiring formal structure (contractual agreement)
LICENSING
• Contractual agreement to exchange utilization rights.
• Less expensive than in-house development
• Higher risks of competition from other “licensed” (but strategies are possible to acquire “rough”
licenses and to “develop around it” final innovative products – e.g. Connect and development
Program by Procter and Gamble
• E.g. “Vibram” case (both “licensing in” and “licensing out”)
• (shoe soles, 1937; 1954 “K2 mission”)
• Many innovations licensed;
• energy production trough walking, allowed by (passive) licensing from InStep Nano Power (USA) and
cooperation.
OUTSOURCING
E.g. Contract Manufacturing
It avoids sunk costs (production plants); allows more flexibility (demand risk) and focus on core
(innovative) business
But…
• it implies renouncing to “learning” opportunities (long term negative effect: “hollow corporation” risk)
• Can induce high transaction costs and giving partner high opportunity of manufacturing economies (= market
power).
Strategic alliances and licensing to promote
“standards”
• Technology race in “winner takes all” markets
• Strategic Solutions (Hill, 1997)
• Drivers:
• Barriers against imitation
• Competitors with distinctive capabilities and knowledge
• Options
1.
2.
3.
4.
Aggressive sole provider
Selecting Partnering
Passive Multiple Licensing
Aggressive Multiple Licensing
1) Aggressive Sole provider (going it alone)
• The firm tries to propose itself as the unique provider capable to offer
market standard technology
• It avoids looking for partners and licensing-out (aggressive market
orientation)
• Wide distribution networks
• Aggressive pricing
• Diversification/controlling complementary goods/services (providers of
complementary goods should exist, if the firm cannot produce them)
• If successful, the firm will keep all profits
• Risk: high investment and expenditure (financial resources required)
• It makes sense just if barriers against imitation are actually effective
(competitors are not highly competitive in developing alternative
technologies).
2) Selective Partnering
• Barriers are high, but the firm lack key capabilities/knowledge or
resources to going alone
• SA with few partners, to aggressively diffuse the technology as a
standard jointly.
• It is useful when the “partner” is a potentially aggressive competitor.
E.g. Sony and Philips (compact disk technology)
3) Passive Multiple Licensing
• The “market building” activity is let to other firms through licensing-out,
because of:
• Low barriers against imitation (numerous potential competitors)
• Lack of in-house capabilities/resources and of control on complementary goods
Licensing out is a pretty cheap way to:
• develop the “installed base” of a technology
• and fostering production of complementary goods
• Convincing potential competitors to adopt/ commercializing the technology
• Es. “Dolby system” (few cents for any appliance and audio, but massive
selled volumes without any cost)
4) Aggressive Multiple Licensing
• This strategy couples:
• heavy licensing-out activity to support technology diffusion
• Producing and commercializing the technology directly
• The firm owns capabilities/resources (the complementary ones
included), but barriers are low in the market;
• Twofold target:
• promoting technology as standard keeping away competitors from developing
alternative technologies
• ..and preserve a “dominant provider” role
R&D organizations
• They represent collaborative agreement between subject to develop R&D
activity
• 2002 – six large Japanese firms (electronics) found a Joint Research
Organization (Aspla) to develop more advanced microprocessors
• Low returns on ordinary chips
• Research consortia (collaborative platforms): they are affordable and
effective for SMEs
• (e.g. Heat4u; Home Lab)
This strategy is usually a long term strategy; It can have different forms and
deepness (reinforcing own competences; acquiring external ones)
It fits complex technologies that require heavy R&D investment
It includes collaboration between University and Industry
What type of collaboration?
Quickness
Cost
Control
Valorization
of existing
capabilities
New
capabilities
development
Access to
other firms’
capabilities/k
nowledge
Internal
autonomous
development
LOW
HIGH
HIGH
YES
YES
NO
SA
Variable
Variable
LOW
YES
YES
Sometime
JV
LOW
Shared
Shared
YES
YES
YES
Licensing-in
HIGH
MEDIUM
LOW
Sometime
Sometimes
Sometimes
Licensing-out
HIGH
LOW
MEDIUM
YES
NO
Sometimes
Outsourcing
MEDIUM/HIGH
MEDIUM
MEDIUM
Sometimes
NO
YES
R&D
Organization
LOW
Variable
Variable
YES
YES
YES
• Autonomous development is costly, slow, risky…
• R&D; project development; tests; learning curves; manufacturing/producing;
complementary goods/services
• …but it allows total control over the process; high valorization of existent
competencies;
• It fits firms with high competence level, access to capital sources, low time
pressure
• SA show some “loos of control” risk, but they can be limited to some
aspects (e.g. developing specific markets)
• Through JV firms formally share costs and profits; JV requires long-term
partnership (good access to partner’s competences, but allows sufficient
internal resource development)
Licensing in
• Low cost access to other technologies compared to internal development
• Potential depends on the combination between the licensed technology
and internal capability/knowledge
• Sometimes, it is useful to acquire “complementary” technologies (e.g.
batteries for other appliances)
• Licensing out
• It allows fast diffusion of technologies, while maintaining a certain degree
of control.
• It allows to diffuse technologies across wide ranges of products
How selecting (and controlling) partners
• Resources compatibility
• The partner owns “complementary” resources or that can be integrated..
• Strategical compatibility
• Entrepreneurship “style” and deep strategic targets should be compatible (and known) – e.g.
avoiding to mix “cost” targets with “innovation” targets.
• 1) Impact on opportunities and threats
• 2) Impact on strengths and weaknesses
• 3) Impacts on strategic orientation
• Partners’ Governance and Monitoring
• Equity ownership
• Relational governance
1) Impact on opportunities and threats
• Might cooperation modify customers’ contractual power, and in what
way?
• How does cooperation modify risk of new entrants entering the
market? (might the partner get a new competitor?, or does the
partnership improve entry barriers?)
• Might cooperation impact both behavior and positioning of the firm,
towards direct competitors?
• Might cooperation impact on availability of complementary
goods/services or changing the threat level related to substitute
products/technologies
2) Impact on strengths and weaknesses
• Is the cooperation capable to let improve (or to potentially reduce)
the firms strengths?
• Is the cooperation useful to improve capability to face its
weaknesses?
• Does the cooperation allow competitive advantage competitors will
find difficult to imitate? Might this competitive advantage to be
achieved without cooperation as well?
• Does the cooperation allow the firm to improve key capability and
resources?
• Might cooperation impact the firm financial framework?
3) Impacts on strategic orientation
• Is the cooperation compatible with the firms strategic targets?
• Might the cooperation be useful to close the existing gaps
(resources/technologies, etc.) between current situation and strategic
targets?
• What is probability that cooperation strategy targets are going to
change over time; Would such a changes be still compatible with the
firm strategic orientation?
Partners’ Governance
• Governance structure can be very articulated if cooperation targets are relevant and
complex.
• Many times, it is useful to develop contractual frameworks to assure that:
• A clear picture of duties and rights is available
• adequate legal protection is guaranteed to contractors
• Usually, cooperation contract specify:
• resources, services, plants, IPRs, etc. each partner is obliged to make available
• the degree of control allowed to each partner (e.g. possibility to involve other subjects into the
process; how managing IPRs developed, etc.; times and ways to manage financial flows or IPRS,
etc.).
• Contracts often include clauses on monitoring behaviors (e.g. compulsory reporting,
cooperation audit, etc.; conditions required to conclude cooperation).
• Sometimes, SA evolve into “equity ownership” (with shares owned by the partners –
they improve incentive mechanisms and sense of commitment).
• but…many SA are founded just on implicit and not formalized “relational governance”.
OPEN INNOVATION
• The Open Innovation (OI) paradigm is broadly defined as the shift
from a traditional closed and controlled R&D and innovation
environment towards open and flexible models
• An Open Innovation strategy (OIS) aims to redefine the boundaries
between the company and its surrounding environment, making the
firm more porous and embedded in loosely-coupled networks of
different actors, collectively and individually working towards creating
and commercializing new knowledge.
• Furthermore, the concept of Open Innovation is related to that of the
open business model, since the link between technology and new
business models is strengthened by the intensive use of Open
Innovation.
• With the rise of Web 2.0 (User-generated content) a new generation
of business models has emerged, and converged in the new
paradigm of Open Innovation 2.0.
• This new paradigm involves “principles of integrated collaboration,
co-created shared values, cultivated innovation ecosystem, unleashed
exponential technologies, and extraordinarily rapid adoption”