Managing Non-Core Technologies
Annaleena Parhankangas, Päivi Holmlund, Turkka Kuusisto
Technology Review 149/2003
Managing Non-Core Technologies
Experiences from Finnish, Swedish and
US Corporations
Annaleena Parhankangas
Päivi Holmlund
Turkka Kuusisto
National Technology Agency
Technology Review 149/2003
Helsinki 2003
Tekes – your contact for Finnish technology
Tekes, the National Technology Agency, is the main financing organisation
for applied and industrial R&D in Finland. Funding is granted from the state
budget.
Tekes’ primary objective is to promote the competitiveness of Finnish industry and the service sector by technological means. Activities are aimed at diversifying production structures, increasing productivity and exports and
creating a foundation for employment and social well-being. Tekes finances
applied and industrial R&D in Finland to the extent of nearly 400 million euros
annually. The Tekes network in Finland and overseas offers excellent channels for cooperation with Finnish companies, universities and research institutes.
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The technology programmes are an essential part of the Finnish innovation
system. These programmes have proved to be an effective form of cooperation and networking for companies and the research sector for developing
innovative products and processes. Technology programmes promote development in specific sectors of technology or industry, and the results of the research work are passed on to business systematically. The programmes also
serve as excellent frameworks for international R&D cooperation. Currently,
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ISSN 1239-758X
ISBN 952-457-142-0
Cover: Leo Malinen
Page layot: DTPage Oy
Printers: Paino-Center Oy, 2003
Foreword
The renewal process of industries, companies, businesses, products and technologies is a key factor
behind competitiveness, growth and success. Surveys have revealed that even on the level of national economy, the so-called creative destruction is a mechanism that improves competitiveness.
From the point of view of national economies and individual companies, technology development
and R&D activities are investments in the future. Developing a technology is a long-term process
where the financial rewards almost always materialize after several years. Companies need to operate in an ever-faster changing environment and change their strategies faster than ever before. This
means that some technologies developed by companies are no longer of key importance to them
under the changed circumstances. However, such technologies may well be of value in other contexts and environments. This study analyzed tried and tested methods for managing and exploiting
these non-core technologies in Finnish, Swedish and US companies. As companies need to operate
in increasingly international markets, it is important to identify methods deployed in other countries, too.
This study was carried out by Annaleena Parhankangas and her project team at Rensselaer Polytechnic Institute, Wharton School of Business and Helsinki University of Technology. The project
was funded by the National Technology Agency Tekes, Danisco Finland, Fortum, and the Foundation for Finnish Inventions. The authors as well as the financiers wish to thank the members of the
project steering committee, Eija Ahola, Pekka Piiroinen, Risto Salokangas, Hannele Wallenius and
Jan-Erik Österholm for their advice and support during the past two years. In addition, we would
like to express our gratitude to Professor David Hawk and Ms. Hannele Kuusi – their encouragement and enthusiasm served as a major trigger for initiating this project. We remain deeply indebted to Professors Åsa Lindholm-Dahlstrand, Christer Olofsson, Göran Lindström and Gina
Colarelli O’Connor for their help in data collection. Also the contribution of Mr. Yalin Sevgör, Mr.
Heikki Toivonen and Mr. Pauli Honkkila is greatly appreciated. Finally, carrying out this study
would not have been possible without the representatives of several Finnish, Swedish and US corporations who sacrificed many hours of their valuable time to this study. We hope that this study is
useful for them.
The research team has studied an important and topical subject and produced both academically
new information and this practically-oriented report, primarily for the use of companies. Tekes
wishes to thank the research team both for its excellent work, and for the practical task of transferring the results of its work for the use of companies.
Tekes, the National Technology Agency
Executive Summary
Large corporations are known as a significant source of innovations due to their extensive research and development
activities. However, they are not always able to pursue all
the technological opportunities available for them within
their boundaries. Some studies estimate that large corporations may end up shelving as much as 70 percent of their
patent portfolios. The aim of this study is to identify more
constructive ways of utilizing this intellectual property,
which, if nurtured in a different context, has a potential of
resulting in new businesses, jobs and economic well-being.
This study is based upon an in-depth analysis of several
Finnish, Swedish and US corporations and their attempts to
manage technologies outside their strategic core. The empirical inquiry is complemented with a review of existing
literature, focusing on the process of managing intellectual
property in large corporations.
Our results show that the strategies of managing non-core
technologies within large corporations may be divided into
non-systematic and systematic approaches. The term “nonsystematic approach” refers to a process that is not explicitly defined and where non-core technologies are managed
case by case. Corporations applying a more systematic approach have clearly defined procedures for managing the
technology-based assets outside their core. Based on our
study, we argue that the use of systematic approaches is
much more common in the United States and Sweden than
in Finland. It seems to us that the adoption of a more systematic approach is strongly linked to the formalization of
corporate venturing and technology acquisition processes
in a corporation. The various approaches to managing
non-core technologies, as well as related country-level and
organization-level differences are discussed in this report.
Our study aims at guiding corporate managers in their demanding task of exploiting their technology portfolio to the
fullest. For this purpose, we divide the process of managing
non-core technologies into three phases. The first phase involves the review of technology portfolio and identification of non-core technologies. The second phase deals with
choosing an organizational mode that provides an optimal
home for non-core technologies. The organizational mode
may be external, hybrid or internal. Once the organizational mode has been chosen, several important decisions
regarding the scope and terms of technology transfer need to
be made. The third phase includes also the aftercare activities of the internal and hybrid modes. Finally, it should be
kept in mind that managing non-core technologies is a
reiterative process. It is very common that the parent corporation needs to reconsider the importance of and the optimal
location for a non-core technology several times during the
aftercare process. Finally, this report ends with a discussion of the role of public sector organizations and private
service providers in assisting the large corporations in exploiting their technology portfolio to the fullest.
Table of Contents
Foreword
Executive Summary
1
2
3
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1
Background and objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2
Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3.1 Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3.2 Non-core technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4
Structure of the report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Process of Managing Non-Core Technologies: An Overview . . . . . . . . . . . . . . . . . 5
2.1
Phase I: Technology portfolio review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2
Phase II: Selection of organizational mode . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3
Phase III: Transaction-related issues and aftercare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Organizational Modes for Managing Non-Core Technologies . . . . . . . . . . . . . . . . 9
3.1
Sell-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1.1 Motive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1.2 Managing sell-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1.3 Outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2
Spin-off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2.1 Motive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2.2 Managing spin-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2.3 Outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3
Donation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4
Collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4.1 Motive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4.2 Types of technology-based alliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4.3 Collaborating with non-profit organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.4.4 Outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.5
Joint venture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.5.1 Motive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.5.2 Managing joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.5.3 Outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.6
Technology licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.6.1 Motive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.6.2 Licensing non-core technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.6.3 Outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.7
Internal development in established business units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.7.1 Motive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.7.2 Organizing internal development in established business units. . . . . . . . . . . . . 15
3.7.3 Outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.8
Internal development in a corporate venturing unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.8.1 Motive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.8.2 Organizing and managing corporate venturing . . . . . . . . . . . . . . . . . . . . . . . . 15
3.8.3 Outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.9
Putting on the shelf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.9.1 Motive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.9.2 Implementing the waiting strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.9.3 Outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.10 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.10.1 Motive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.10.2 Outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.11 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4
5
Management of Non-Core Technologies in Finnish, Swedish and
US Corporations: Current Practices and Experiences. . . . . . . . . . . . . . . . . . . . . . 21
4.1
Non-systematic versus systematic approaches to managing non-core
technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.2
Longitudinal analysis of individual ventures developing non-core technologies . . . . . . . . 22
4.2.1 Objectives of the technology development . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.2.2 Co-evolution of technologies and governance forms . . . . . . . . . . . . . . . . . . . . 23
4.2.3 Role of co-incidence, luck and chance events . . . . . . . . . . . . . . . . . . . . . . . . 24
4.3
Systematic approaches to managing non-core technologies . . . . . . . . . . . . . . . . . . . . . . 24
4.3.1 Lucent Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.3.2 Xerox . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.3.3 Procter & Gamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.3.4 Nortel Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.3.5 The Perstorp case – Pernovo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.3.6 Saab-Scania Combitec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.3.7 Volvo Technology Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3.8 Synthesis of systematic approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.4
Cross-case comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.4.1 Country specific differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.4.2 Divested ventures and their relationship with the parent corporation . . . . . . . . 35
4.4.3 Timing of the separation from the parent corporation . . . . . . . . . . . . . . . . . . . 35
4.4.4 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Recommendations for Corporate Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.1
Choosing the overall approach to the management of non-core technologies. . . . . . . . . 39
5.2
Conducting the technology portfolio review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.3
Selecting the organizational mode . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.3.1 Desired future access, degree of commitment and revenue sharing . . . . . . . . . 40
5.3.2 Strategic importance for the parent corporation . . . . . . . . . . . . . . . . . . . . . . . 40
5.3.3 Risk, revenue potential and time frame. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.3.4 Characteristics of the technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.4
Defining the terms of the transaction and the implementing aftercare activities . . . . . . . . 43
5.4.1 Defining the scope of technology transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.4.2 Screening for partners and recipients of technology transfer . . . . . . . . . . . . . . 43
5.4.3 Determining the value of the technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.4.4 Negotiating the contractual terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.4.5 Securing funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.4.6 Implementing the transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.4.7 Implementing the aftercare activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6
5.5
External service providers and the management of non-core technologies . . . . . . . . . . . 50
5.6
Public support mechanisms and the management of non-core technologies . . . . . . . . . 51
5.7
Recommendations for public support organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Appendix 1 Description of longitudinal case analyses. . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Appendix 2 Comparison of technology management practices
in case corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Appendix 3 Private and public service providers and management of
non-core technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Technology Reviews of Tekes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Figures
Figure 1.
Research framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Figure 2.
Open innovation paradigm for managing industrial R&D
(adapted from Chesbrough, 2003b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Figure 3.
Figure 4.
The process of managing non-core technologies . . . . . . . . . . . . . . . . . . . . . . . 6
Classification of intellectual capital (adapted from Sullivan, 1998) . . . . . . . . . . 7
Figure 5.
Inputs to the technology review process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Figure 6.
Figure 7.
Phase III: Terms of transaction and aftercare activities. . . . . . . . . . . . . . . . . . . 8
Organizational modes for managing non-core technologies. . . . . . . . . . . . . . . 9
Figure 8.
Major types of technology-based alliances. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Figure 9. Organizational designs for corporate venturing . . . . . . . . . . . . . . . . . . . . . . . 16
Figure 10. NVG’s model for commercializing new technology. . . . . . . . . . . . . . . . . . . . . 25
Figure 11. Lucent NVG’s operating model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Figure 12. CIC/XNE project funnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Figure 13. Marketing of intellectual property at P&G . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Figure 14. Venture selection management (O’Connor and Maslyn, 2001) . . . . . . . . . . . . 30
Figure 15. Three approaches to the management of non-core technologies
(adapted from Harbison & Pekar, 1998: 136) . . . . . . . . . . . . . . . . . . . . . . . . . 39
Figure 16.
Figure 17.
Figure 18.
Figure 19.
Organizational mode and desired future access to technology . . . . . . . . . . . 40
Strategic importance at the moment and in the future . . . . . . . . . . . . . . . . . . 41
Risk, revenue potential, and time frame . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Negotiation process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Tables
Table 1.
Table 2.
Corporate venturing forms, objectives, and needs of corporate managers . . 16
Modes for managing non-core technologies: A summary . . . . . . . . . . . . . . . 18
Table 3.
Advantages and disadvantages related to various organizational
modes available for managing non-core technologies . . . . . . . . . . . . . . . . . . 19
Table 4.
Table 5.
Table 6.
Case companies and their approach to managing non-core technologies . . 21
Comparison of systematic approaches used by the sample corporations . . . 34
Maturity of the technology at the time of the divestment, establishment
of a collaborative arrangement or the decision to continue the technology
development in-house . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Performance of corporations applying a systematic approach. . . . . . . . . . . . 37
Organizational mode and the characteristics of the technology . . . . . . . . . . . 43
Challenges and recommendations associated with the external modes . . . . 46
Challenges and recommendations associated with the hybrid modes. . . . . . 47
Challenges and recommendations associated with the internal modes . . . . . 48
Recommended aftercare actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Examples of public support measures available for managing non-core
technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Table 7.
Table 8.
Table 9.
Table 10.
Table 11.
Table 12.
Table 13.
1 Introduction
1.1 Background and objectives
Large firms are known as a significant source of innovations due to their extensive research and development activities (Pavitt, 1991; Fontes, 1996). Large firms are also
shown to have the complementary resources required for
successful commercialization of innovations (Teece, 1986;
Rothwell, 1983). However, several studies report that large
firms encounter serious difficulties when trying to exploit
their innovation potential to the fullest. This appears to be
due to the difficulties associated with the corporate conditions of bureaucracy, strategic misfit, internal inertia and
risk aversion (Strebel, 1987; Bower and Christensen, 1995;
Abertnathy and Utterback, 1978). Looking at the situation
from a different angle, we may say that no company is
smart enough to know what to do with every business opportunity it finds, and no company has enough resources to
pursue all the opportunities it might execute (Wolpert,
2002).
Previous studies suggest that a patent intensive US corporation may end up shelving up to as much as 70 percent of
its patent portfolio (Rivette and Kline, 2000). On the one
hand, this may imply the duplication of inventive efforts, or
technologies that never reach the market. On the other
hand, unutilized intellectual assets represent a huge business opportunity. It is estimated that large corporations
could make substantial sums of money by transferring
technology from a core business activity to outside industries (Elton et al., 2002; Chesbrough, 2003b).
However, large technology-based firms seldom have
clear-cut strategies for dealing with what they see as their
non-core technologies, i.e. technologies they are either unable or simply unwilling to develop and further. This is
highly acceptable by the contemporary business logic
since, by definition, what is considered non-core technologies by a parent firm is defined as not contributing to competitive advantage. As such, non-core technology ventures
are often discontinued, regardless of their potential to prosper in organizational environments that would nurture
them. Some of the more constructive ways of dealing with
these ventures include: sell-offs, licensing, joint ventures,
spin-offs, and internal development.
Licensing, collaborative arrangements and sell-offs transfer the rights to further develop the technology to another
organization. The success of this form of technology trans-
fer depends, to a great extent, on the absorptive capacity of
the receiving organization and the implementation of technology transfer process (Cohen and Levinthal, 1990,
Zander, 1991).
The option of spin-offs is perhaps the least understood and
most fascinating when dealing with non-core technologies.
Previous literature has reported how spin-off firms are important agents of knowledge transfer from established corporations to new businesses (Roberts and Wainer, 1969;
Lindholm-Dahlstrand, 1997; Dorfman, 1983; Dietrich and
Gibson, 1994; Parhankangas and Hawk, 2000). This work
illustrates how spinning off businesses can benefit the parent firm by decreasing the administrative burden, releasing
funds for the development of core businesses, and serving
as an arms length means to distance the parent corporation
from the risks associated with exploring new, revolutionary ideas. In addition to developing the non-core technology in collaboration with others or transferring the ownership rights to an external party, corporations may sometimes have a good reason to maintain non-core technological assets in-house.
In this study, we aim at comparing the role of these major
options for dealing with non-core technologies as they are
defined and originate within large corporations. We seek
an answer to the following questions:
• How do large corporations deal with the existence of
non-core technologies within their organizations?
• What strategies can be used in large corporations in the
management of non-core technologies and non-core
technology-based ventures?
• Can the differences in the use of these strategies be explained by the characteristics of the parent corporation,
specific characteristics of the technology, or in the light
of external environment?
• How do changes in the governance and ownership structure of a technology come to affect the rate and direction
of technology development?
The preliminary research framework is depicted in Figure
1. From the theoretical perspective, our study focuses on
technology management and entrepreneurship literature.
We use these theoretical perspectives to explain the relationships between the corporate and national culture, venture characteristics and the choice of the strategy. In addition, we are interested in how this choice comes to affect
the rate and direction of technology development.
1
Environment
Characteristics
of Parent
Corporation
Strategy
For Managing
Non-Core
Technologies
Rate and
Direction of
Technology
Development
Venture
Characteristics
Figure 1. Research framework.
1.2 Method
We started our inquiry by reviewing the existing literature
on the process of managing intellectual property in large
corporations. In a similar vein, we conducted a literature
study on various organizational modes available for large
corporations seeking ways to exploit their technology portfolio to the fullest. After the literature review, we conducted an analysis of 7 Finnish, Swedish, and US corporations to build information and create an understanding of
how various large corporations have dealt with their
non-core technologies during the past years. Based on this
overall view, we selected eight specific technologies for an
in-depth analysis, to follow how ownership changes affect
the evolution of the technology. In Finland, the case companies include Cultor (the current Danisco Finland),
Fortum, and Raisio. In the United States and Canada, we
investigated Lucent, Xerox, Procter & Gamble, and Nortel
Networks. In Sweden, we worked closely with Pharmacia
Corporation, Saab-Scania, Perstorp, and Volvo Technology Transfer.
1.3 Definitions
1.3.1 Technology
The origins of the word technology can be traced back to
ancient Greece. In classical Greek, the word techne referred to the skill of hand or technique. The word logos
meant knowledge or science. Interpreted in a simplifying
manner, technology can thus be defined as knowledge of
skills or techniques or as a science of skills and technologies (Autio, 1995). Alternatively, technology refers to a
process, which, through the application of scientific or
other knowledge, allows for commercial production of
goods and services (Dussauge et al., 1992; Smith, 1986).
Technological activities differ from scientific activities in
the sense that the major outputs of scientific activities are
information and knowledge, whereas technological activities produce also products or services (Allen, 1977). Information and knowledge are inputs both into scientific and
technological activities.
2
Technology development is the result of several layers of
activity. Broadly, we can identify three levels:
1. Individuals develop ideas, theories, or perspectives that
are known only to them or their colleagues or the groups
they belong to. This tacit knowledge may be derived
from their experiences, experimentation or imagination.
2. The second level consists of tacit knowledge that is verified and codified through a scientific process of experimentation. In the process of verification, some of the
tacit knowledge is found to be valid, some will be dismissed, and some may await further attempts at verification. In the process of codification, the tacit knowledge
is formalized and put into a language that can be communicated and understood by others. So, as a result of
scientific verification and codification, the knowledge
becomes available to a large number of people.
3. Finally, there is a level of development where the knowledge is put to use – physically embodied in products,
services, or procedures (Narayanan, 2001).
The definitions of technology described above demonstrate that technology is a multidimensional concept encompassing many aspects and components. For instance,
Sharif and Ramanthan (1987) divide technology into four
components. They distinguish between technoware, infoware, humanware, and orgaware. Technoware refers to the
physical manifestations of technology, such as car engines,
microchips and software packages. Infoware denotes the
articulated knowledge concerning the physical manifestations. Individual technological skills are included in the
term humanware, whereas the organizational skills related
to technology are called orgaware. The orgaware component manifests itself in organizational routines and processes. Even though technological development is fuelled
by advances in scientific knowledge, technology depends
on and cannot exist without non-scientific, more practically-oriented knowledge (Aldrigde, 1990).
The discussion above points out that it is impossible to separate technological development from its context. Therefore, we use the term technology to denote various constellations of resources required to convert scientific and engineering knowledge to products and services. Examples of
such resource constellations include technology-related
business ideas, inventions, patents, technology development projects, technology-based ventures, business units,
or any combinations of these.
1.3.2 Non-core technology
The firm-focused concepts of technology (Molina, 1999)
have analyzed technologies from the point of view of their
strategic importance to the competitiveness of firms. Some
authors use terms, such as “critical” technologies (Whelan,
1988), “distinctive” and “basic” technologies (Ford, 1988),
as well as “key” technologies (A.D.Little, 1981) to denote
technological assets that directly affect a company’s competitive position. Enabling technologies help a company to
operate, but do not directly help them to compete (Whelan,
1988). Strategic technologies (Whelan, 1988) or pacing
technologies (A.D.Little, 1981) are still in the early stage
of their development and carry the potential for changing
the basis of competition.
Gaynor (1996) defines core technologies as “those technologies that are essential to maintain a competitive position”.
This definition is well in line with the concept of core competence introduced by Prahalad and Hamel (1990), defined
as competitively unique competencies that create customer-perceived value and serve as a gateway to new markets. The key message of the “core competence” literature
is that the corporations should focus on their core competencies and outsource or divest less important activities. In
practice, the identification of core competencies has
proved to be problematic and the corporations’ urge to focus on their core competencies as been sometimes criticized as some kinds of “self-fulfilling feel-good exercises”
(Collis and Montgomery, 1995). Despite these problems,
in practice many corporations end up defining some technologies, like many other assets, as non-significant for
their current competitive position. In a similar vein, firms
may become owners of technologies they are not able to
further develop. We call these technologies non-core technologies.
Non-core technologies are usually not directly linked to the
core businesses of the company or used in the parent corporation’s current or future products. Although non-core,
these technologies may be marketable and exploitable in
other organizations and contexts. It is important to note that
the definition of non-core technology is time and context-dependent. The distinction between core and non-core
technologies is made at a certain point of time based on the
current corporate strategy and competitive environment.
At some other point of time or made by some other person,
the decision might be different. Therefore, we chose to
consider the distinction between core and non-core technologies as a strategic decision based upon managerial discretion. The criteria for identifying non-core technologies
are, therefore, beyond the scope of this study.
The reader should bear in mind that the development of
novel technologies always carries along the element of uncertainty and ambiguity. Therefore, it might be difficult for
corporate management to make an unambiguous distinction between its core and non-core technologies. We do our
best to integrate this element of uncertainty in our analysis
of the management of non-core technologies in large corporations.
1.4 Structure of the report
This report is organized as follows. The first chapter serves
as an introduction to the topic. The second chapter briefly
describes the steps required for successful management of
non-core technologies in a large corporation. In Chapter 3,
we review the organizational modes available for large corporations seeking to exploit their innovation potential to
the fullest. Chapter 4 focuses on the experiences of Finnish, Swedish and the US corporations relative to the management of technologies outside their strategic core.
Chapter 5 concludes the report by presenting recommendations for corporate management based on the existing
literature and the experiences of technology managers all
over the world.
In this study, non-core technologies are understood as
technologies that companies are not able or willing to further develop and/or exploit.
3
2 Process of Managing Non-Core Technologies:
An Overview
Figure 2 illustrates how ideas and ventures may cross organizational boundaries when the emphasis shifts from research and development to commercialization activities.
Some of the ideas originating from the firm’s research process may seep out of the firm, either in the research process
or later over the life cycle of a technology-based venture.
Reasons for some technology-based business ideas ending
up being divested include unexpected discoveries stemming from research and development activities having no
obvious linkages to the current or future core businesses of
the parent. Sometimes the parent corporation may recognize that some of its core technologies may be used for
serving a totally different set of customers and decide that a
separate organization would be better equipped to address
this need. In case of more mature technologies, shifting
corporate strategies may render them less valuable for the
parent corporation (Parhankangas and Arenius, 2003).
Ideas may also start outside the parent corporation and
move inside. Previous research indicates that many of the
ventures acquired by large corporations end up being divested because of problems associated with integration
(Lindholm, 1994). Mechanisms for “technology leakage”
include external licensing, joint ventures, sell-offs, spinoffs and strategic alliances.
Research
The process of managing non-core technologies can be divided into three phases. The first phase involves a review
of technology portfolio and identification of non-core technologies. The second phase deals with choosing an organizational mode that provides an optimal home for non-core
technologies. The organizational mode may be external,
hybrid or internal, as described in Chapter 3. Once the organizational mode has been chosen, several important decisions regarding the scope and terms of technology transfer need to be made. The third phase includes also the aftercare activities of the internal and hybrid modes. Finally, it
should be kept in mind that managing non-core technologies is a reiterative process. It is very common that the parent corporation needs to reconsider the importance of and
the optimal location for the non-core technology several
times during the aftercare process. As a result, some technologies incubated using the internal or hybrid modes may
become more significant for the parent corporation, leading to the re-integration to the strategic core. In the opposite case, the parent firm may want to divest the technologies through a spin-off, sell-off or licensing arrangement.
The process of managing non-core technologies is depicted
in Figure 3 and described briefly below.
Development
Maturity
New Market
Boundary of the firm
Research
Projects
Current Market
Figure 2. Open innovation paradigm for managing industrial R&D (adapted from Chesbrough, 2003b).
5
PHASE I : REVIEW OF TECHNOLOGY PORTFOLIO
PHASE II: SELECTION OF
ORGANIZATIONAL
MODE
Valuation of the
Opportunity
PHASE III:
TECHNOLOGY TRANSFER
AND AFTERCARE ACTIVITIES
Terms of the
Transaction
Internal
Core
Technology
Portfolio
Hybrid
Aftercare
Technology
Transfer
Non-Core
External
Business
Strategy
Competitive
Assessment
Resource
Sharing and
Control
Re-evaluation
Figure 3. The process of managing non-core technologies.
2.1 Phase I: Technology portfolio
review
The first step in the process of managing non-core technologies involves gaining an understanding of the size and
strength of the technology-based assets possessed by the
corporation. Technology portfolio review is defined as
“systematic review of corporation’s technology portfolio in
order to inventory and categorize the corporation’s current
technologies and analyze the different value extraction possibilities of these technologies” (Narayanan, 2001).
This step may seem elementary, but previous research suggests that most firms have little or no idea of the composition or value of their technology portfolio (Rivette and
Kline, 2000). In many firms, there are no intermediate divisions responsible for compiling information on technology-based assets. Thus, the coordination between the divisions of a firm regarding technology management issues is
often rather limited and inefficient. “There is a lack of holistic view of technology portfolios; technologies reside in
separate divisions and business units, and very rarely does
a CTO have a good overview of what technologies are
there (in the firm)” (Boston Consulting Group, 2003).
In here, we advise the corporate managers to view their
technologies as a constellation of resources, both tangible
and intangible, keeping in mind that sometimes it is easier
map technologies by identifying the products, processes
and services they are related to. The technology portfolio
may be seen as a part of the corporation’s intellectual capital consisting of its human and intellectual assets, as shown
in Figure 4. Technology-related human capital may be defined as the technology-related capabilities of the employees, contractors, suppliers, and other company-related people associated with the value creation of the firm (Sullivan,
1998). The human capital includes the collective experi-
6
ence, skills, and general know-how of all employees. Intellectual assets may be defined as the codified, tangible, or
physical representation of specific knowledge to which the
company can assert ownership rights. Intellectual assets
that receive legal protection are intellectual property, such
as patents, copyrights, trade secrets, and trademarks.
Intellectual capital is of little value by itself. Many of the
firm’s intellectual assets become part of its structural capital, including administrative and technical methods, customer capital, processes, procedures, as well as the firm’s
organization structure (Sullivan, 1998; 2000). Perhaps
more important than the infrastructure are the complementary business assets provided by the firm. These complementary assets include manufacturing facilities, distribution networks, customer lists and relationships, supplier
networks, and complementary technologies. Complementary assets may be divided into generic complementary assets available on the open market and specialized complementary assets defined as exclusively held by the firm or
the group of firms (Sullivan, 1998, 2000). As a result, we
may say that the firm’s technology portfolio consists of
bundle of technology-related human capital, intellectual
property and structural capital, none of which can be
treated separately from one another.
For most companies, the easiest and most logical place to
start the review is with intellectual property, because most
companies already have an easily identifiable collection of
patents or copyrighted works (Sullivan 1998). However,
technology review activities should not be limited to technologies protected by patents. Besides patent portfolios,
idea databases in use in some corporations may reveal unutilized inventions and technology-based business plans
with huge potential outside the parent corporation. While
idea databases and patent portfolios may help identifying
relatively early-stage non-core technologies, more mature
Human Capital
Experience
Know-how
Skills
Creativity
Intellectual Assets
Programs
Inventions
Processes
Databases
Methodologies
Documents
Drawings
Designs
Intellectual Property
Patents
Copyright
Trademarks
Trade secrets
Structural Capital
Figure 4. Classification of intellectual capital (adapted
from Sullivan, 1998).
Inputs to technology review process
/ portfolio mining process
Idea databases
Divestment candidates
ally in? How does the firm define its businesses? What
strategies are available? Do we have resources to commercialize this technology? The external realities concern opportunities and threats and focus on fundamental forces affecting the long-term viability of the industry as well as the
immediate opportunities available for the firm.
After the valuation, each technology belongs to some cluster of the technology portfolio. These clusters are then prioritized and aligned with the corporate strategy. Those
technology clusters that do not fit in the company’s current
or future mainstream businesses can be seen as non-core.
The next step is to assess the value of these technologies
and possible value extraction possibilities.
2.2 Phase II: Selection of
organizational mode
We approach the dilemma of value extraction from
non-core technologies by considering various organizational modes available for their further development and
exploitation. While making the decision, corporate managers are likely to pay attention to the desired future access to
the technology, the strategic importance of the non-core
technology, the characteristics of the technology as well as
challenges and benefits associated with each mode. Chapters 3, 4 and 5 will focus on the characteristics of the organizational modes available for managing non-core technologies, guiding corporate managers in their employment.
Patent portfolio
Figure 5. Inputs to the technology review process.
technologies, technology-based projects or business units
are likely to be more visible for corporate managers. These
technologies may also become candidates for termination,
sell-offs, spin-offs or collaborative arrangements, if their
strategic importance diminishes due to changes in corporate strategy. Under such circumstances, they should be
added to a corporation’s listing of non-core technologies.
Figure 5 shows the most common points of departure for
technology review activities.
Corporations use various methods for evaluating the value
of the technologies in their portfolio. The relative value of a
technology is largely dependent on the firm’s view of itself
and on the reality of the marketplace (Sullivan, 1998). Each
firm exists in a context that shapes the firm’s view of what
is and what is not of value. Context may be defined as the
firm’s internal and external realities. Internal reality concerns direction, resources, and constraints. Corporate managers may ask themselves: What businesses is the firm re-
2.3 Phase III: Transaction-related
issues and aftercare
After the selection of the organizational mode, the parent
corporation needs to pay attention to the terms and implementation of the technology transfer agreement. Fully
aware of the fact that the content of a technology transfer
agreement will vary depending on the organizational mode
chosen by the parent corporation, we suggest that there are
some general issues that need to be addressed in each case.
These issues are illustrated in Figure 6.
The definition of the scope and the terms of the technology
transfer transaction becomes especially important in cases
where the parent corporation decides to transfer the rights
to technology development to a new owner or continues
technology development in collaboration with external
parties. At this phase, the corporate managers and venture
managers need to list resources required for the successful
commercialization of the technology, paying special attention to the potential and existing synergies between the
technology-based venture and the mainstream businesses
of the parent firm. The objective of this step is to identify
the intellectual property, intellectual capital, and comple-
7
mentary resources that need to be transferred to the recipient organization. Even in the case of internal modes, it is
crucial to gain a good understanding of the scope of the
venture in terms of its resource needs and linkages to the
rest of the parent organization.
In hybrid and external modes, the parent needs to find a
partner or a recipient for technology transfer. Personal or
professional connections, technology brokering services,
or active marketing of intellectual property may facilitate
the implementation of this step. After the identification of
the recipient, the terms of the transaction need to be agreed
upon. Harbison and Pekar (1998: 4) suggest that negotiations around the technology-based transactions focus on
two sets of factors. The first set of factors can be labeled as
business fit, including issues like agreed purpose and objectives, goal congruency, due diligence, transaction price,
contract writing, and exit strategy. The second set of factors, implementation issues, includes the relative level of
Scope of
arrangement
YES
All Modes
contributions, ownership and control, and managerial issues (Rigsbee, 2000).
In addition to the contractual terms, the parent corporation
needs to pay attention to securing funding especially for internal development and hybrid modes. The need for resource sharing and ongoing control are likely to emerge in
cases where the parent corporation decides to continue
technology development in-house or in collaboration with
others. Even some external modes, such as licensing and
sell-offs, might require that the parent corporation transfer
some personnel to the recipient organization on a temporary basis in order to facilitate technology transfer. Many
spin-off firms, in turn, may become dependent on the parent firm’s support in the area of legal and administrative
services, and complementary assets during their first years.
Finally, a crucial part of the aftercare process is to determine when and how to exit from an internal or hybrid mode
of technology development.
A partner
or
recipient
required?
NO
Internal
modes
Hybrid and
external modes
Screening for
partner or recipient
Valuation
Contractual
issues
Financial issues
Implementation
YES
Internal and
hybrid
modes
NO
Aftercare
needed?
External
modes
Figure 6. Phase III: Terms of transaction and aftercare activities.
8
3 Organizational Modes for Managing
Non-Core Technologies
Finding a nurturing environment for non-core technologies
is a challenge that every technology manager is likely to
face. In our report, we are going to discuss several organizational arrangements that may provide a good home for
non-core technologies. These organizational arrangements
can be divided into three groups depending on whether the
non-core technologies are exploited internally, externally,
1
or in collaboration with external parties. Figure 7 presents
these categories and the modes included in each of them.
Internal Modes
Internal development
● In an established
business unit
● In a corporate
venturing unit
Other Modes
● Termination
● Putting on the
External Modes
Hybrid
Modes
Alliances
● Joint venture
● Other
collaborative
arrangements
Divestment Modes
● Sell-off
● Spin-off
(no parent firm
ownership)
Other Modes
● Donation
Other Modes
● Licensing
● Spin-Off
(partly owned
by the parent)
Figure 7. Organizational modes for managing
non-core technologies.
Strategic alliances, licensing arrangements, and spin-off
firms partly owned by the parent represent hybrid modes.
The hybrid modes aim at developing or exploiting
non-core technologies in collaboration with external organizations, such as other companies, universities, technology agencies and programs. Hybrid modes serve as a
means for reducing the risk and saving resources from the
parent firm’s point of view, but also require sharing the
possible future profits and other outcomes of technology
development.
With internal modes, intellectual property rights are kept
within the parent organization and the further development
of technology is mainly carried out with in-house resources. In this study, we are looking at three types of internal modes: internal development in business units or corporate venturing organizations, termination and putting the
technology on the shelf (the waiting strategy).
The optimal location for a non-core technology may not remain the same for all of its lifetime. For instance, an invention stemming from a central R&D laboratory may be
transferred first to an internal corporate venturing unit, and
then out of the parent firm through a sell-off or a spin-off
arrangement. Therefore, it is crucial that corporate managers readdress the question of the optimal location for the
venture several times over its life cycle.
3.1 Sell-off
Sell-off can be defined as follows (Woo et al., 1992):
External modes are used to transfer the technology-based
assets out of the parent corporation. The motives for
externalizing technological competences vary from the
lack of resources to strategic reorientation and re-positioning. The most common external modes are spin-offs and
sell-offs. In addition to these divestment modes, donation
of a technology may also be understood as an external
strategy for managing non-core technologies.
1
A sell-off occurs, when divested assets are purchased by
and become part of another firm.
In this study, the divested assets are technology-related and
they can be both tangible and intangible. For example,
sell-off may involve the transfer of the intellectual property
rights related to a technology, or a complete business unit
utilizing the technology.
Note that except for the donation option, the organizational modes used for managing non-core technologies are basically the
same as the modes used for managing core technologies. However, the frequency of their use and the mode of their application
are likely to differ depending on whether we are talking about core or non-core technologies.
9
3.1.1 Motive
The reasons for divesting non-core technologies through
sell-off arrangements are many. Sell-offs may be used to
restructure the technology portfolio of a company in order
to focus on selected core technologies and businesses. Refocusing usually improves the restructuring firm’s ability
to create and sustain competitive advantage, since no company possesses infinite technological resources and capabilities (Dranikoff et. al., 2002; Steiner, 1997). McKinsey
& Company found that the companies actively managing
their business portfolios through acquisitions and divestitures create substantially more shareholder value than
those companies passively holding their business portfolios intact (Dranikoff et al., 2002). Many conditions conducive to corporate restructuring activities in general are also
present in sell-offs of non-core technologies in particular.
These external conditions include changing product market
conditions, such as overcapacity, deflation, slow growth,
and intense foreign competition, just to mention a few.
As Steiner (1997) suggests, the motivations for sell-offs
are usually financial in nature. First, a company may have a
desire to generate cash to pay down its debt, reducing the
company’s dept equity ratio. A second motive for a sell-off
may be the poor profitability of the unit developing the
non-core technology. Third, the technology may be more
valuable to some other company than the parent, as there is
a low level of interdependence and synergies with the parent company’s other units (Woo et al., 1992). The second
and the third motives are the most obvious reasons for carrying out technology-related sell-offs.
3.1.2 Managing sell-offs
Managers engaged in the sales of non-core businesses are
faced with at least three fundamental challenges. The first
challenge involves the determination of the value of the
technology. The second challenge is to maintain the health
of the business during the process of selling it. The problem
is to maintain stakeholders’ commitment during the disposal phase (Nanda and Williamson, 1995). Third, finding
a purchaser for a non-core technology might require a substantial amount of time and effort.
may decide to leave to pursue other opportunities. Also
suppliers and distributors may feel uncomfortable, because
the sale may cause discontinuities in the relationships between the members of a value-chain (Nanda and Williamson, 1995).
The timing of the sale is also crucial. Short-term financial
objectives may favor quick deals. If long-term alternatives
are taken into account, the company has to consider the
current situation, and forecast future situation in stock markets, the forthcoming technological changes, and future
strategic options. On the other hand, the costs of not selling
the technology must also be calculated and considered in
the decision-making.
Based on our interviews of corporate managers participating in this study, most corporations find a buyer for their
non-core technology by chance, or through personal contacts. In cases where informal networks do not provide the
parent corporation with suitable buyer candidates, the corporate management tends to move on and use other organizational arrangements for managing their non-core technologies.
3.1.3 Outcome
A sell-off may be one of the quickest ways to cash on a
non-core technology. After the transfer of ownership
rights, the parent corporation is free to walk away from the
technology with a fixed sum of money in its pocket. After
the sale, however, the parent corporation has no more access to the technology and cannot benefit from the possible
future profits accruing from it. It is time for the new owner
to take over the further development of the technology. We
assume that the divested technology-based venture may be
better off under its new owner compared to its prior position being not strategically important for the former parent.
This may result in improvements in innovativeness, creativity and motivation of the employees working for the divested venture.
3.2 Spin-off
The determination of the price for the technology is especially problematic, when we are speaking of novel technologies in emerging markets. The novelty of the technology
and the lack of knowledge of potential product applications
and size of the markets make the price setting a very demanding task.
The second challenge involves the management of the human side of the divestment. Labeling a business “for sale”
may result in distracted employees and distrustful customers, distributors and vendors. Further development of the
technology is usually put on the hold and skilled people
10
In the recent management literature, the notion of spin-off
has many connotations. In this study, we focus on new
business formation based on the technology-related assets
developed within the parent firm being taken into a
self-standing firm. A technology-related spin-off may be
defined as follows (Garvin, 1983):
A technology spin-off company is a company that is created
for the purpose of commercializing one or more research
discoveries outside the main business of the parent corporation.
3.2.1 Motive
Motivations for divesting technologies and technological
competencies through spin-off arrangements vary. Many
of the motivations for spin-offs are the same as described in
the chapter focusing on technology-related sell-offs, including overcapacity, deflation, slow growth, intense foreign competition, poor performance of the parent or the
spin-off unit, or strategic mismatch between the technology-based venture and the parent (Woo et al., 1992).
Furthermore, Lindholm (1994) found that spin-off arrangements might also be motivated by the not-invented-here
syndrome or integration problems, especially in earlier acquired units. The parent company can also have more
proactive motives. Founding a new organizational entity
may be the best way of allowing the venture team more
strategic and operational freedom to explore new ideas
(Parhankangas, 1999), while enabling the parent organization to focus more efficiently on its core areas, cash generation and primary markets.
Abetti (2002) argues that internal entrepreneurs are faced
with two choices, when their proposals for starting new
businesses based on radical innovations are rejected. The
first option is to go “underground”. The second option is to
spin off a new venture, with or without the blessing of the
parent company. Lindholm (1994) states that one of the
most important motives leading to the formation of a
spin-off company is the frustration of a technical entrepreneur in his previous position, feeling that the fruits of his
work are trapped inside the organization and his projects
are constantly terminated.
To conclude, motivations for corporate spin-offs and
sell-offs share many similarities. However, there are some
differences as well. First, the revenues resulting from a
spin-off arrangement may take years to materialize. This
refers especially to situations where the parent firm decides
to remain a minority owner of a newly founded firm. Second, informal discussions with corporate managers led us
to believe that spin-offs are often used in lieu of sell-offs,
when 1) it is impossible to find a buyer for the venture; 2)
setting a price for a technology is challenging to due to
market and technology uncertainties; 3) the venture managers have expressed their interest in becoming the founding team of a spin-off firm; 4) public sale of technology-based assets would endanger the success of the venture by creating insecurity among the key personnel, customers, and suppliers.
3.2.2 Managing spin-offs
Spin-off arrangements require a series of negotiations between the venture and corporate managers, in which the
scope of the technology transfer and its price are deter-
mined. Defining the scope of the spin-off refers to determining the assets of the parent company, both tangible and
intangible, transferred to the new firm. This phase is important, since the transfer of the assets has been found to be
very important for the performance of the spin-off company. According to Lindholm (1994), the transfer of industry knowledge and customer contacts is important for initial growth of young spin-off firms.
In addition, the parent firm has to decide whether to retain
an ownership share in the newly founded spin-off firm. Ito
and Rose (1994) found that the parent firm ownership is
adversely related to the profitability of the spin-off.
Chesbrough (2003a), in turn, came to a conclusion that the
equity stake of the parent was negatively associated with
revenue growth and market value of the spin-off. However,
the equity position per se does not seem to impair the financial performance of the spin-off firm. Rather, it looks like
that the spin-off suffers from the parent company’s involvement in the day-to-day management. Therefore, to
successfully manage the spin-off process, one needs to create governance structures that promote seizing new technical and market opportunities. In addition, prior studies suggest that spin-offs with venture capital investors on their
boards and outside CEOs grow more rapidly than other
spin-offs (Chesbrough, 2003a).
The relationship between the parent company and the
spin-off may be competitive, collaborative or independent.
Lindholm (1994) found that co-operation with the parent
company is positively associated with the growth of the
spin-off firm. In a similar vein, and R&D collaboration
promotes the innovativeness of the spin-off firm, especially during the first years after the establishment.
3.2.3 Outcome
The parent firm’s access to technological assets and the financial profits generated by the spin-off firm varies depending on how the relationship between the parent firm
and the spin-off is arranged. If the parent firm decides not
to maintain an ongoing relationship with the spin-off, the
parent’s access to the technology and financial profits will
be limited. Conversely, by acquiring a minority ownership
share, a parent firm has an option to follow the technology
development at arm’s length. This arrangement combines
the advantages of both large corporations and small entrepreneurial ventures, resulting in flexible and innovative
small firms with an access to abundant resources of a large
corporation. In these kinds of arrangements, the parent may
contribute technology, personnel, and possibly cash, in exchange for minority equity participation. The parent may
also become a major customer for its spin-off (Abetti,
2002).
11
3.3 Donation
Patent donation is one of the least known mechanisms for
managing non-core technologies (Reich, 2002). Hering
(2002) argues that donating intellectual property is by no
means a new option in the IP management tool kit, but it
has grown in profile and popularity over the recent years,
particularly in the United States, where it originated. The
motivation for patent donations stems from the fact that
sometimes the opportunity cost of maintaining a piece of
dormant intellectual property may be greater than offloading it, or giving it away.
Patent donations may be motivated by several reasons.
First, the intellectual property in question may no longer fit
into the corporate strategy. Second, the corporation may not
be able to find a buyer, who is willing to pay an acceptable
price for the technology. Third, donations may be triggered
by country-specific tax benefits and a desire to establish
contacts with universities and research institutes. Finally,
sometimes technology development efforts mainly result in
the generation of new scientific knowledge. In such cases, it
might make sense to donate the technology and the related
ownership rights to a university or a research institution.
In 1999, DuPont donated 23 of its unused patents to universities and non-profit groups. As a result, instead of having
to pay the maintenance costs of keeping them in its portfolio, DuPont received a $64 million tax write-off (Rivette
and Kline, 2000).
However, there are some problems related to donations.
First, a company planning to donate its intellectual property must find a suitable non-profit entity for the further development of the technology. Most research institutions
are very strong in basic research, but lack capabilities in the
commercialization of the technology. Second, the parent
firm should remember that the donation marks an end to its
access to the technology and the potential future revenue
streams accruing from it (Reich, 2002; Hering, 2002).
3.4 Collaboration
The business language of the 1990s popularized the term
“strategic alliance” to describe a planned state of co-operation between enterprises (Parr and Smith, 1998). This study
divides the strategic alliances into two groups: 1) those in
which there is some form of shared or cross-ownership
such as joint ventures, and 2) those in which there is only an
exchange of services, resources, or knowledge. Technological collaboration and technology-based alliances are examples of the second group.
In this study, we consider inter-firm alliances, technological collaboration with non-profit organizations, and joint
ventures as a means for managing non-core technologies.
12
Technology-based alliances are defined as relationships
where companies cooperate based on their technological
capabilities (Dussauge et al., 1992). We distinguish technology-based alliances from joint ventures, where a new
independent, jointly owned entity is formed to serve the
common interests of the partners.
3.4.1 Motive
There are plenty of good reasons for a large corporation to
collaborate with universities, participate in technology programs funded by public agencies, or ally with other firms
when managing their non-core technologies. First, the parent firm may be willing to share the cost and risk of the development of technologies with unknown value with an external party. Collaboration may be especially helpful in situations where technology development defies the limits of
our current state of knowledge. Thus, collaboration may
help companies to solve problems they would no be able to
solve by themselves with their own resources and competencies. Collaboration may also give the parent corporation
some extra time to learn more about the true value of the
technology, while still keeping its options open.
3.4.2 Types of technology-based
alliances
The extent and scope of technology-based alliances vary.
Figure 8 illustrates the diversity of the pursued strategic objectives in different types of technology-based alliances
(Dussauge et al., 1992).
Pre-competitive alliances allow a company to tap into its
partner’s technological capabilities. With pre-competitive
alliances, the objective is to jointly develop technologies or
new products. Pre-competitive alliances may even lead to
the establishment of separate organizational units dedicated to collaborative research and development activities.
(Dussauge et al., 1992).
In complementary alliances, the main objective is to exchange complementary technologies or to enhance commercial exploitation of a given technology by organizing
the transfer of technology in return for access to particular
markets. Nowadays, only a very few corporations are able
to gain a market share large enough to cover the initial investment in technology development. As a result, they will
have to engage in cross-licensing or cross-distribution
agreements with foreign competitors to ensure their entry
in foreign market in exchange for technology (Dussauge et
al., 1992).
The third type of technology-based alliances has broader
purposes and it includes joint manufacture. Such alliances
are most often used when the costs of the development programs are too high to be borne by one of the partners alone
Technology-Based Alliances
Technology development is the purpose of the alliance
Technology transfer
is the purpose of
the alliance
COMPLEMENTARITY
ALLIANCE
Example:
distribution
accords or
cross-licensing
agreements
The alliance is
constrained to
joint R&D
The alliance also
includes product
development and
manufacture
PRE-COMPETITIVE
ALLIANCE
Example: shared
R&D facilities
JOINT PRODUCTION
AGREEMENTS
Example: European
Aerospace programs
Figure 8. Major types of technology-based alliances.
and the extension of markets is needed. This has been the
case with some European alliances in the aerospace and defense industries (Dussauge et al., 1992).
3.4.3 Collaborating with non-profit
organizations
A corporation developing technologies jointly with universities, government laboratories or other publicly-funded research centers benefits from the government’s intervention. However, companies must be aware that technological collaboration with universities usually implies sharing
of future income. A contract specifying the rights and responsibilities of the parties must be formulated in order to
avoid conflicts.
Furthermore, a company planning collaboration with a
non-profit organization must be aware of the operational
and cultural differences between the partners. Integration
is required for a successful collaboration relationship.
Kanter (1994) suggests that the most productive relationships achieve five levels of integration: strategic, tactical,
operational, interpersonal, and cultural integration.
3.5 Joint venture
A joint venture involves two or more parties that combine
parts of their assets to establish a new independent company to pursue a business opportunity recognized by the
parties involved.
3.5.1 Motive
Joint ventures are typically established in situations where
the resources and the skills of both partners are necessary to
make the business venture in question to succeed. Joint
ventures are especially used when projects get larger, technology more expensive and the cost of failure too large to
be borne alone (Killing, 1988).
According to Nanda and Williamson (1995), a joint venture may serve as a starting point for a complete divestment
through a sell-off arrangement. Joint ventures offer many
benefits for the buyer and the seller: 1) parent firm profits
what the business is really worth, while 2) giving the buyer
an opportunity to learn the real value of the technology; 3)
maintaining the health of the business during the process of
divesting it, 4) facilitating the technology transfer between
the two partners.
3.4.4 Outcome
The collaborative arrangements may result in jointly developed technologies and products. The level of access to the
technology varies depending on the terms of the contract.
Also the ownership of intellectual property and profit sharing conditions are defined in the contract. In general, the
partners must realize that they may not have exclusive
rights to the fruits of the project. When collaborating with
universities and research institutes, the corporations need
to be aware of the potentially different approach of their
partners to publishing the results of technology development.
3.5.2 Managing joint ventures
Great attention should be paid to establishing and controlling joint ventures, since they have a high overall failure
rate. For instance, the ownership structure may become a
great source of conflict if the bargaining power of the partners do not correspond their real contributions to the joint
venture. The management of a joint venture can be shared
or there can be a dominant partner responsible for the operational management. Killing (1982) argues that operating
in the shared management mode is much more difficult
than managing the dominant parent ventures.
13
3.5.3 Outcome
The partners have an access to the technologies and profits
accruing from the joint venture based on the bargaining
power of each partner. Joint ventures do not tend to be long
lasting alliances. Bleeke and Ernest (1995) argue that the
median life span for alliances is only about seven years. In
many cases, joint ventures result in an eventual transfer of
ownership. Nearly 80 percent of joint ventures ultimately
end in a sale by one of the parties to another party.
out-licensing activity. In addition, the determining the
value of the technology is one of the most difficult questions in licensing (Boswell, 1998). Some companies have
established technology-licensing offices. However, these
are more common among the public-sector organizations,
such as universities. Finally, licensing is usually better
suited for managing rather mature and well-known technologies as opposed to emergent technologies.
3.6.3 Outcome
3.6 Technology licensing
Licensing, an already important mechanism for converting
innovations into profits, will become even more important
in the future as companies seek to gain extra value from
their intellectual capital (Parr and Sullivan, 1996). In 1980,
the market for patent licensing was about $3 billion. Today,
it is about $110 billion and growing rapidly (Rigby and
Zook, 2002).
Technology licensing involves a transfer of technology
from the licensor to the licensee. It includes rights to the
use of patented information and trademarks in certain territories abdicated by an agreement in favor of the licensee,
know-how, and services such as equipment installation,
start-up, and testing. This strategy involves the technology
licensor being paid a fee in return for the access to the technology. This fee can be an up-front payment, equity, royalties or some combination of these (Contractor, 1985:6).
Licensing strategy allows a company to retain a control
over its intellectual property, but also gives other companies a possibility to exploit it. This means that the parent
company has a complete access to a licensed technology,
while enjoying the profit streams accruing from a successful licensing agreement.
3.7 Internal development in
established business units
In this report, internal development refers to technology
development activities carried out in the central research
and development unit or in the established business units of
the parent firm. Internal development allows the parent
company to have a full control over and a total access to the
technology and possible future profits.
3.7.1 Motive
3.6.1 Motive
Technology licensing may be considered a means of cashing on a non-core technology insignificant for the parent
corporation, but marketable and valuable for other companies and organizations. It is also used as a mechanism for
establishing and monitoring joint ventures as well as strategic alliances (Parr and Sullivan, 1996).
3.6.2 Licensing non-core technologies
The details of licensing agreements vary case by case. For
example, in some cases the licensor may help the licensee
in the development and final use of the technology. This increases the financial risks taken by the licensor. In some
other cases, the involvement of the licensor is minimal
(Trott, 2002).
Licensing non-core technologies can be problematic. Parr
and Sullivan (1996) state that companies in the position of
licensing out non-core technologies are usually interested
in maximizing their income, while minimizing their investment in obtaining this income. In general, this means that a
company invests a minimum amount of resources into the
14
Our very definition of a non-core technology states that
these are technologies that parent corporations are not willing to further develop. Therefore, internal development
does not seem to be a plausible strategy for managing
non-core technologies. However, many technologies fall in
the gray area, where the future value of the technology is
hard to define, due to market and technological uncertainties. In such situations, the parent firm may choose to continue internal development until uncertainty around the
value of the technology diminishes. Secondly, sometimes
the parent firm may need to continue the incubation of its
non-core technology-based venture in order to prepare it
for a successful sell-off, spin-off, or a licensing arrangement later on.
Internal development of non-core technologies may also be
motivated by some more indirect reasons. Some authors
suggest that today’s management mantra according to
which the corporations should focus on only a few carefully selected technological competencies is probably misleading (Tidd et al., 1997). Large companies are typically
active in a wide range of technologies, but in only a few
they achieve a distinctive world-beating position. In some
industries, background technological competences are re-
quired in order to benefit from the linkages to suppliers of
components, subsystems, materials, and production machinery. Furthermore, corporations need to explore new,
seemingly unrelated fields in order to identify and develop
new business opportunities.
3.7.2 Organizing internal development
in established business units
Large companies may structure their research and development organizations in several ways. They may either have
one or more central laboratories, or one or more divisional
laboratories reporting to business operations.
Established business units are unlikely candidates for nurturing non-core technologies and often reluctant to invest
their scarce resources on them. However, sometimes the
development of non-core technologies in established business units might be an optimal solution for both the business unit and the technology-based venture. In here, we are
referring to situations where there exist significant synergies between the business unit and the venture, and the
non-core technology is still too immature to be separated
from the parent. Continued incubation may thus result in a
better deal for the parent firm, when divesting a more mature technology through a licensing, sell-off, or spin-off arrangement.
A centralized R&D organization is a more common home
for non-core technologies defying the limits of existing
technological knowledge. The activities of central R&D
laboratories are more long-term oriented in nature.
Explorative research can then be “protected” from the
more immediate demands of the business divisions until
the uncertainty around the value of technology diminishes.
In addition, centralized research centers are able to achieve
economies of scale in research and development and facilitate communication between research groups.
3.7.3 Outcome
Internal development is accomplished by using mainly internal resources. Incubating a technology-based venture
usually requires a considerable commitment. The upside of
internal development is the full control over and access to
technologies and products being developed, as well as to
the possible future profits.
From the viewpoint of a technology-based venture, the outcome of the internal development may vary. First, the venture may lead to an establishment of a new business unit
within the parent corporation or to an introduction of a new
product. As a result, the strategic importance of the venture
may increase within the parent firm (i.e. it becomes part of
the core). Second, the role of the venture may only be to
support other businesses and/or technologies, thus remain-
ing strategically unimportant and potentially under-resourced. And finally, the worst case is that the parent
firm fails in nurturing a business in an area fundamentally
different from its core businesses.
3.8 Internal development in
a corporate venturing unit
A corporate venturing unit may serve as a home for the development of non-core technologies. The mission of corporate venturing units involves building new businesses
within an established organization. Usually these new
businesses address new markets, products, services or
technology (Roberts, 1980; Roberts and Berry, 1985). The
objective of corporate venturing activities is to combine the
innovative capability of small firms with the complementary resources of large corporations (Rothwell, 1984). Corporate venturing offers a more autonomous approach to
technology development than the traditional R&D function. Therefore, corporate venturing activities typically involve activities that are radically new to the parent organization and carry a significant amount of risk (Block and
MacMillan, 1993), whereas development projects in existing business units are likely to be more incremental in nature.
3.8.1 Motive
The reasons for locating a non-core technology within a
corporate venturing unit resemble the motives for nurturing such ventures in established business units. First, the
parent firm may wish to incubate the venture until uncertainty around its value for the parent diminishes. Second,
the parent firm may perceive that too early of a separation
from the parent jeopardizes the future success of the technology-based venture, and thus the ability of the parent
firm to cash on its investments. Thus, internal corporate
venturing may be used for unlocking the hidden potential
of technologies, which lie inside the research and development unit and do not fit in with established businesses
(Chesbrough and Socolof, 2000).
3.8.2 Organizing and managing
corporate venturing
Corporate venturing is a process that needs to be managed
with care. This process involves the identification of a
business opportunity, the evaluation of this opportunity
and subsequently providing resources to support the new
venture (Tidd et al., 1997).
Corporate venturing can be either internally or externally
focused. Miles and Covin (2002) divide corporate venturing into four generic clusters in terms of the focus of entre-
15
Table 1. Corporate venturing forms, objectives, and needs of corporate managers.
Corporate Venturing Objectives
Corporate Management’s
Needs & Biases
Organisational Development &
Cultural Change
Strategic Benefits/
Real Option Development
High
Direct-Internal
Direct-Internal
Low
Indirect-Internal
Indirect-Internal
Need for Control of Venture
Ability and Willingness to Commit
Resources to Venturing
High
Direct-Internal/Indirect-Internal
Direct-Internal/Indirect-Internal
Low
Indirect-Internal
Indirect-Internal
High
Direct-Internal/Indirect-Internal
Direct-Internal/Indirect-Internal
Low
None
Indirect-Internal
Entrepreneurial Risk Accepting
Propensity
Miles and Covin (2002) have developed a framework, assisting the corporate management in choosing the appropriate venturing mode under various circumstances. The
framework modified from Miles and Covin (2002) is presented in Table 1.
The optimal choice of location and structure for a corporate
venture depends on a number of factors. Tidd et al. (1997)
state that the most decisive factor is the relatedness between the technology-based venture and the core businesses of the parent corporation. The relatedness in terms
of technology, products and market will determine the
learning challenges the venture will face and the most ap-
16
propriate linkages with the parent company. Burgelman
(1984) has developed a two-dimensional framework assisting corporate managers decide on the organizational structure of the corporate venturing activity. The variables in
Burgelman’s framework are the strategic importance and
operational relatedness of the venture, as illustrated in Figure 9.
Strategic importance
Operational
relatedness
preneurship and the presence of investment intermediation: 1) direct-internal venturing 2) indirect-internal venturing 3) direct-external venturing, and 4) indirect-external
venturing. The first two mechanisms have most relevance
in the context of non-core technologies:
• Direct-Internal venturing: New ventures are funded
without financial intermediation and developed with the
domain of the corporation by corporate employees
• Indirect-Internal venturing: The corporation invests in a
venture capital fund designed to encourage corporate
employees to develop internal ventures. The venture
capital fund typically originates and operates within the
corporation and is managed by corporate employees.
• Direct-External venturing: The corporation, without using a dedicated new venture fund, acquires or takes an
equity position in an external venture
• Indirect-External venturing: The corporation invests in
a venture capital fund that targets external ventures in
specific industries or technology sectors. The venture
capital may originate outside or within the corporation.
Very important
Uncertain
Not important
Unrelated
Special business
units
Independent
business units
Complete
spin-off
Partly
related
New
product/business
department
New venture
division
Contracting
Strongly
related
Direct
integration
Micro new
ventures
department
Nurturing and
contracting
Figure 9. Organizational designs for corporate venturing.
3.8.3 Outcome
Locating a non-core technology in a corporate venturing
unit enables the parent firm to retain a full control over the
intellectual property resulting from the venturing activities.
A corporate venturing unit is usually a rather temporary arrangement for nurturing non-core technologies. As the
venture matures, it is often spun out from the venturing organization to an internal business unit, or outside of the
parent corporation.
3.9 Putting on the shelf
Some companies may choose to put their non-core technologies into a waiting state. A waiting strategy can be used, if
a company is not willing to invest more resources on the
further development of a non-core technology at the moment, but nevertheless wants to maintain the technology
in-house and alive. Usually this means that the company
terminates development projects, but stores and maintains
the intellectual property related to the technology.
Garud and Nayyar (1994) suggest that the ability to maintain internally developed technology over time is important
for corporate vitality. They argue that companies should
learn to transfer across time instead of divesting or terminating technology-based ventures that they are incapable
of exploiting in the current market and technological circumstances.
3.9.1 Motive
All technologies cannot be utilized immediately after their
development (Garud and Nayyar, 1994). For example,
time lags in the emergence of technologies and markets
may hinder the immediate exploitation of technological
knowledge. In such situations, a firm may decide to wait
for market uncertainties to dissolve before launching the
innovation to the market.
Previous literature lists some additional reasons for putting
technologies (patents) on the shelf. A patent can be used as
a “legal bargaining chip” (Hall and Ham, 1999) when a
firm negotiates cross-licensing agreements, an infringement suit or access to external finance. A shelved patent
can be used to “build a wall” to effectively protect the
“core” of the firm or to prevent the entry of the competitors
in highly competitive areas (Gilbert and Newbury, 1983;
Hall and Ziedonis, 2001). New developments in financial
markets may also encourage putting unutilized patents on
the shelf. According to Weedman (2002), intellectual property may already be used as collateral for bonds and bank
loans. For instance, music copyrights have recently been
used as collateral for fixed income securities. Not far off in
the future will be the securities backed by patents, and possibly technological know-how.
3.9.2 Implementing the waiting strategy
The waiting strategy requires an organization to develop processes and allocate resources for managing the waiting period. Garud and Nayyar (1994) use the term transformative
capacity to denote the ability to transfer knowledge and capabilities across time. In this context, transformative capacity
can be considered as a company’s capacity to store non-core
technologies for later exploitation. Transformative capacity
depends on how well a company accomplishes three tasks:
the choice of technologies, their maintenance over time, and
their reactivation and synthesis when the need arises.
It is necessary for companies to determine whether to
maintain knowledge for future or recreate it when needed.
There is no need to maintain easy-to-create knowledge for
future use. In contrast, difficult-to-create knowledge should
be maintained (Garud and Nayyar, 1994). Maintaining
knowledge for future use is costly since resources must be
assigned to keep knowledge ‘alive’. If not maintained,
knowledge decays as skills, routines and assets fall in disuse; knowledge is lost, when key persons leave the company, or knowledge becomes obsolete (Levitt and March,
1988). In addition, intellectual property needs be managed
and protected.
The process of maintaining shelved technological knowledge starts with cataloging the shelved technologies. The
catalog should be periodically reviewed and scanned. It is
also important to develop avenues for researchers to share
information and provide incentives for maintaining currently unutilized technologies. Retaining key persons with
tacit knowledge or entire teams possessing systemic
knowledge is crucial for successful knowledge maintenance. The third task a company must be capable of executing is the reactivation and synthesis of the stored technologies. This involves several interrelated tasks: recognizing a
business opportunity, reactivating maintained knowledge
and coupling reactivated knowledge with complementary
existing knowledge (Garud and Nayyar, 1994). In this task,
the use of several different kinds of information sharing
and processing mechanisms is called for.
3.9.3 Outcome
If the company is able to reactivate the shelved non-core
technologies to exploit new business opportunities, the
outcome of the strategy is successful. In the opposite case,
trapped within a corporation, promising technologies and
business ideas will go wasted without being exploited
(Wolpert, 2002).
17
3.10 Termination
3.10.2 Outcome
Termination refers to a complete discontinuance of technology development activities. In most cases, the termination option involves no storage or maintenance of technological competencies developed prior to the termination
decision.
Putting an end to the development of non-core technologies can be considered a cost-effective solution in the short
term, releasing resources for other purposes. However, termination usually means that no one will be able to benefit
from the past R&D investments in terms of learning, profit
or positive cash flow. Termination may also incur significant indirect costs. Highly skillful people involved in technology development may become extremely frustrated if
their ideas and efforts are thrown away. This may affect adversely their innovativeness and creativity, and the company may even end up loosing some of its key people. Nevertheless, a terminated project may create value if managed
with care. The termination option should always involve an
analysis of what went wrong. In addition, the technical
knowledge created during the project should be stored for
potential later use.
3.10.1 Motive
Many factors may lead to the termination of a project.
These factors include the economic, technological and
market aspects of the project and the managerial aspects of
the company (Balachandra and Brockhoff, 1995). In general, a company is likely to harvest the most probable failures and to concentrate on the projects with the biggest
probability for success. With non-core technologies, the
termination strategy aims at putting an end to the further
consumption of scare resources by projects unrelated to
company’s current businesses and releasing the resources
for other purposes.
3.11 Summary
The characteristics of various organizational modes available for managing non-core technologies are summarized
in Table 2. The advantages and disadvantages associated
with each mode are listed in Table 3.
Table 2. Modes for managing non-core technologies: A summary.
Type
External
Hybrid
Internal
18
Mode
Future access
to technology
Future access
to profits
Degree of
commitment
Resource
sharing with
the parent
Financing
Sell-off
No
No
Low
No
Acquirer
Spin-off
Depends
Depends
Depends
Depends
Depends
Donation
No
No
Low
No
Recipient
Technological
collaboration
Shared
Shared
Moderate
According to
the contract
Shared
Joint venture
Shared
Shared
Moderate
According to
the contract
Shared
Licensing
Complete
Royalties
Moderate
According to
the contract
Mostly the
licensee
Internal development
in existing businesses
Complete
Complete
High
High
Parent
Corporate venturing
Complete
Complete
High
Moderate
Parent
Termination
No
No
Low
No
No one
Putting on shelf
After successful
reactivation
After successful
reactivation
Low, after
reactivation high
No
Parent
Table 3. Advantages and disadvantages related to various organizational modes available for managing non-core
technologies.
Organizational mode
Advantages
Disadvantages
Sell-off
• Immediate payment in form of cash or equity
• Releasing resources for the use of core
businesses through strategic refocusing
• The new owner may have complementary
resources required for the successful
commercialization of the technology
• Difficulties associated with assessing the
value of the technology
• Difficulties associated with finding a buyer
and closing the deal
• Difficulties associated with keeping the
organization “alive” during the divestment
process
• No access to future profits accruing from
technology development
Spin-off
• Strategic freedom
• Controlled technology transfer
• Exploiting the small firm - large corporation
synergies through collaboration
• Getting innovation out of bureaucratized
corporations
• Future access to technology and profit sharing
(spin-offs partially owned by the parent)
• Spin-off process requires attention and
commitment of resources
• Possibility of creating a competitor
• No immediate return on investment
• Potential loss of key employees
Donation
• Building relationships with universities and
research institutes
• Possible tax benefits
• Difficulties associated with finding the right
recipient
• Difficulties associated with the evaluation of
the value of donated IP
• No financial benefits
Technological
collaboration
• Cost and risk sharing
• Possibility to tap into the complementary
resources of the partner
• Gives time to learn the true value of the
technology
• Potential conflicts between the partners
• Potential integration problems
Joint venture
• Small – large firm synergies
• Resource and risk sharing
• Might serve as a means for complete
divestment
• Gives time to learn the true value of the
technology
• Shared ownership → potential conflicts
• Partial loss of control
Licensing
• Possibility to generate short-term extra
• Requires systematic approach to and special
revenues
competence in patent portfolio management
• Possibility to benefit from commercial success • Does not work well with emerging
of the licensed technologies
technologies
• Retaining the ownership rights to the
technology
Internal development
in existing businesses
• Facilitates the recognition of new business
opportunities
• Promotes knowledge accumulation and
learning within the parent corporation through
exploration activities
• Creation of business opportunities
• Full control over the assets being developed
• Internal resistance of funding non-core
activities with limited corporate resources
• Potential incompetence in dealing with new
markets and technologies
• Risks and costs are borne alone
19
Table 3. continues...
Organizational mode
Advantages
Disadvantages
Internal development
in corporate venturing
unit
• Possibility to foster corporate
entrepreneurship and radical innovations
• A mechanism for keeping talented
entrepreneurs within the corporation
• Enhances new product and business
development
• Provides strategic autonomy that is needed to
successfully develop radical innovations and
technologies
• Full control over the assets being developed
• A challenging process to manage
• Requires encouraging and supportive
corporate environment
• A large number of business opportunities
must be identified and evaluated to end up
with a single project that reaches commercial
success
• Possible cultural and organizational clashes
between the venture and the parent company
• Risks and costs are borne alone
Termination
• Releasing resources for core business
purposes
• No further investments and costs
• No possibilities to make money on technology
now or in the future
• Possibility of losing talented employees
• A possibly adverse impact on innovation and
creativity
Putting on shelf
• Cost savings
• Releasing resources for core business
purposes
• Technology may become trapped within the
parent corporation
• No short-term return on investment
• Possibility of losing key employees
• Cost of maintaining the technology
• Difficulties associated with reactivating
the technology or venture may be difficult
20
4 Management of Non-Core Technologies
in Finnish, Swedish and US Corporations:
Current Practices and Experiences
4.1 Non-systematic versus
systematic approaches to
managing non-core
technologies
Companies may adopt several approaches for managing
their non-core technologies. They may resort to ad-hoc
methods or they may apply a more systematic approach.
The term “non-systematic approach” refers to a process
that is not explicitly defined and where non-core technologies are managed case by case. Corporations applying a
more systematic approach have clearly defined procedures
for managing the technology-based assets outside their core.
Characteristic for a more systematic approach to technology
management is the existence of an organization dedicated to
managing this process. In almost all our case companies, this
unit was also responsible for managing corporate venturing
activities. Table 4 lists the sample corporations and their
approach to managing non-core technologies.
Table 4. Case companies and their approach to managing non-core technologies.
Company
Country
Approach
Sales (*)
$ Millions
Number of
employees (*)
Cultor
Finland
Non-systematic
1.689
6.933
Fortum
Finland
Non-systematic
11.951
17.772
Raisio
Finland
Non-systematic
998
2.800
Saab-Scania
Sweden
Systematic 1982–1997: Corporate Venturing/
Internal Development/ Acquisitions
5.924
30.337
Perstorp
Sweden
Systematic 1973–1997:
Corporate Venturing/ Acquisitions
1.470
6.747
Pharmacia
Sweden
Non-systematic
13.835
43.000
Volvo
(VTT)
Sweden
Systematic 1997–:
Corporate Venture Capital Activities
23.014
71.160
Nortel Networks
U.S.A.
Systematic 1997–2000: Corporate Venturing
10.560
12.700
Procter &
Gamble
U.S.A
Systematic 1999–:
Patent licensing and donation program
40.238
102.000
Xerox
U.S.A
Non-systematic 1979-1988:
1979–1982 Laissez faire
1983–1988 Ad hoc efforts
Systematic 1989–:
1989–1995
Corporate venture capital XTV
1996– Corporate incubator XNE
15.849
67.800
Lucent
U.S.A
Systematic 1997–2002: Corporate Venturing
12.321
47.000
* For systematic approaches, the size of the company is measured during the last year of operation of a dedicated unit focusing on
the management of non-core technologies. For companies applying non-systematic approaches, the data is from year 2002.
21
In all our case companies, the shift to a more systematic approach was triggered by a long wrestle with the problem of
how to manage technologies not directly applicable in the
mainstream businesses. At the same time, the parent corporations were faced with a need for a radical change stemming from their environment. In the case of Nortel Networks, the company was struggling to evolve from a traditional telecommunications company to a major player in
the Internet age. Perstorp had recently gone public and
adopted a high-growth strategy. Xerox, in its turn, had publicly been criticized for the mismanagement of its technologies related to computer applications. As a response to
this criticism, Xerox decided to create the XTV unit in order to cash on its non-core technologies. In the case of
Saab-Scania, the parent corporation was seeking a new
mission for its Jönköping unit under the threat of having to
lay-off people in this area.
Why do some corporations prefer systematic approaches,
while others choose to keep their processes less formalized? First, the size of the parent corporation is likely to
matter. Smaller companies might not need a highly structured approach for managing their non-core technologies.
Due to a relatively small number of non-core technologies
in their portfolio, it may be possible for smaller companies
to manage their non-core technologies case by case. In addition, smaller companies rarely have enough resources to
establish and maintain sophisticated structures geared at
commercializing their non-strategic technological assets.
However, differences in size cannot completely explain
why some of our sample corporations resorted to systematic
approaches, while others adopted an ad-hoc approach. For
instance, one of our smallest companies (Perstorp) chose to
formalize the management of its non-core technologies. In
Perstorp’s case, the small number of non-core technologies
was not enough to justify the establishment of a dedicated
unit for their further development. We assume that Perstorp
solved this problem by locating its non-core technologies
and acquired new ventures under the same unit. Secondly,
our empirical evidence suggests that the formalization of
new business development activities, corporate venturing
activities and the acquisition process of new, technology-based firms may facilitate the adoption of a more systematic approach to managing non-core technologies. The
systematic and non-systematic approaches adopted by our
case corporations will be described more in detail below.
4.2 Longitudinal analysis of
individual ventures developing
non-core technologies
As stated before, we chose eight ventures in Finnish and
Swedish corporations for further analysis, with our primary focus on the practices applied by these corporations
22
to the management of their non-core technologies. When
analyzing the history of these ventures we had several
questions in mind, such as: Why were these ventures initiated? Why did they become excluded from the strategic
core? What governance structures were used to manage
these ventures? How did the choice of governance structure affect the rate and the direction of technology development?
These eight ventures were managed, as we choose to put it,
using an unsystematic or an ad hoc approach to technology
management, referring to the fact that there was no dedicated organization in place for their development. The
comparison of these eight ventures as well as brief case descriptions can be found in Appendices 1 and 2. The description of more systematic approaches will follow later in
this report.
4.2.1 Objectives of the technology
development
In three out of our eight ventures, the parent corporation
had a clear mission for technology development. In the
case of conductive polymers, the parent corporation
wanted to develop a plastic battery. In those days, there
was a strong belief that plastic batteries could compete
against traditional ones in terms of quality. The decision to
diversify into the plastic battery business seemed very rational given the state of knowledge at the time of the decision. However, the subsequent years of development work
proved this initial optimism to be wrong, where it seemed
that the development team’s efforts were defying the laws
of nature. As a result, the venture team decided to back off
and apply their accumulated knowledge in closely related
areas.
In the case of specialty resins, the parent corporation
wished to initiate and establish an in-house production of
special resins for the use of parent corporation’s chromatographic separation processes. This goal was achieved. After a decade, however, in-house production ceased to be a
necessity anymore, due to the emergence of the external
supply of these resins. This led to the divestment decision
by the parent. External market conditions delayed the development of the technology seeking to utilize waste plastics in asphalt and fuels. At the time of the study, the development efforts of this technology were frozen, awaiting
changes in environmental regulations.
In five out of eight ventures, the parent firms were exploring new business areas with the help of new technologies,
with little knowledge of the possible outcomes of their actions. In the immobilization technology example, the parent corporation did not restrict its search to any specific application in biotechnology. By chance, it acquired a possession of fermentation plants. The possession of the plants
made it possible for Cultor to enter into an alliance with a
US corporation with complementary knowledge on enzyme manufacture. As a by-product of this alliance the parent firm was able to adopt the immobilization technology
and started looking for commercial applications.
The development of the ALE technology was triggered by
the parent firm’s desire to explore new business areas with
the help of new-to-the world technologies. However, the
parent corporation came soon to realize that the novel technology was too specific and the necessary development
path too heavy for an instrument manufacturer. As a result,
the parent firm decided to divest the technology trough a
sell-off arrangement. This started a chain of transactions
where the technology was transferred from one organization to another resulting in numerous product applications
during its decades-long history in various organizations.
The development of miniaturization, biosensor, and oxygen absorbent technologies resulted from the parent firms’
quest for new business areas around these technologies.
After decades-long development activities, the parent
firms were unable to integrate the fruits of the technology
development into their strategic core and decided to establish spin-off firms to further develop these technologies.
In five of out eight examples, the parent firms were searching for new business areas by exploiting new-to-the world
technologies with only a vague idea of what they were after. In only three examples, the parent firm had an unambiguous goal for technology development. Ironically, the
preset goal was achieved in only one of our examples, and
soon after its realization, the importance of the goal for the
parent decreased. In most cases, the technology development resulted in applications that were not known or anticipated in the beginning of the project. Many of them were
nothing like the corporate management imagined. Also, the
potential product applications were identified after a series
of ownership changes. Many of these applications ended
up being exploited by other firms than the parent corporation. It seems to us that these stories demonstrate the serendipitous nature of technology development.
4.2.2 Co-Evolution of technologies
and governance forms
To better understand how changes in governance structures
affect the rate and speed of technology development, special attention was paid to changes in the governance of
novel technologies during their development.
While analyzing the evolution of the conductive polymer
technology, it became obvious that there were four distinct
governance structures that came into use over time: 1) The
first was an alliance between Neste, National Research
Center of Finland, and a domestic lead battery manufac-
turer; 2) The second was a Nordic research consortium between Neste, National Research Center of Finland, and
Nordic universities and research institutions; 3) The third
was a joint venture between Neste and two scientists of
University of California; 4) and the fourth was a spin-off
firm from Fortum (former Neste). All the organizational
arrangements seemed to be dedicated to the development
of one or two specific applications. It appeared that each relationship had a need to bring focus to the activities.
A similar pattern may be detected in many of our other examples, as indicated in Appendix 2. It appears to us that
technologies become transferred from one organization or
network to another because of an incapability of the original owner to further develop the technology. Specifically,
we note that a rather generic technology can easily branch
into several product applications, the development of
which seems to be best managed by several individual
firms or constellations of them.
Changes in governance structures might have helped our
case companies avoid the problems of an organization being so tightly organized and structured to make it incapable
of encouraging and nurturing the development of a novel
technology. Established organizations are found to seek
solutions near the neighborhood of their existing solutions,
while relying on past historical experience for a guiding rationale (see, for instance, Ahuja and Lampert, 2001). They
are therefore unlikely to recognize radically new innovations. Besides deficiencies in opportunity recognition, parent firms may lack resources required for the development
of novel technologies outside their strategic core. For instance, it would have been more difficult for Cultor to pursue beverage-related applications without allying with
leading domestic and international breweries. In a similar
vein, establishing a spin-off firm may serve as a means of
separating a technology-based venture from a parent corporation not interested in or capable of its further development. Looking at the situation from the opposite angle, the
venture managers of the Biosensor technology report being
hurt by the parent corporation’s policy forbidding any contacts with the surrounding world for the secrecy reasons
during the time period of 1985–1988.
Changes in governance structures may also become a necessity, as the emphasis of activity shifts from pure research and development to commercialization. The clearest manifestation of this emerged from an interview where
it was stated that the contacts of the project management
were too technical in nature to facilitate the commercialization of the technology prior to the spin-off. In a similar
vein, the CEO of one of our spin-off companies saw it necessary to break free from the old networks of the parent
corporation in order to take a new product application to
the market. It was noteworthy that as a venture moved
closer to the market, there was also a tendency to encounter
and adopt more hierarchical forms of governance.
23
4.2.3 Role of co-incidence, luck and
chance events
Our discussions with venture managers increasingly led us
to believe that co-incidence, luck and chance events
(non-planned activities) actually played a very major role
in shaping the development paths of these novel technologies. First, perhaps due to market and technology uncertainties, managers found the role of formal planning of less
relative importance during the process. This applies to the
identification of new applications for the technology in
particular. In the words of the technology manager at
Cultor:
“In search of potential applications for this technology, we
engaged in a thorough and systematic analysis of existing
literature and existing customer base. However, all the applications that actually worked and were implemented
were found by chance. Companies often aim at modeling
processes and using well-structured management methods.
However, our experience shows that intuition can often
lead to exactly the same results.”
This intuition was mainly based on the venture team’s networks of contacts, relying on the personal history or chance
events. For instance, the CEO of a spin-off firm from
Fortum states that the identification of a market opportunity in the paper industry was purely due to this previous
employment at a leading Finnish paper manufacturer. This
is in line with prior network literature stating that the identification of opportunities relies heavily on individuals’ existing business and personal contacts (Gulati, 1995; Wong
and Ellis, 2002; Mitsuhashi, 2002).
In some instances, the impetus for technology development stemmed from being simply being in the right place at
the right time. In the words of a venture manager at Cultor:
“During that time, a need for measuring molecules
emerged in the pharmaceuticals industry. We did not have
that application in mind when we started, because in the
old days, pharmaceutical research was more based on
chemical processes. It was very fortunate for us that this
change came up.”
“The further development of the asphalt application is delayed, because the Finnish packaging industry does not
pay for the waste material utilization As a result, there is
not enough raw material for commercial production.”
Also, unpredictable and somewhat random changes in corporate strategy added uncertainty in the development of
novel technologies. Unexpected changes in corporate strategy were seen to open up new applications for the technology, as was witnessed with the development of conductive
polymers. Alternatively, sudden changes in corporate strategy were seen to lead to a tightening of philosophy and
later closing of some important windows of opportunities,
as we perceived with the ALE technology, conductive
polymers special polymers, and miniaturization technologies. This may act as an impetus for changes in governance
structures through sell-offs or spin-offs (Parhankangas and
Hawk, 2003).
4.3 Systematic approaches to
managing non-core
technologies
Some corporations have established a business unit dedicated to the management of their intellectual property outside the core areas. In the following chapters, we provide
seven examples of such organizational arrangements.
4.3.1 Lucent Technologies
“By chance, I heard about a research project going on at
the National Research Center of Finland pursuing similar
interests.”
In a similar vein, participation in research conferences led
in many cases to the establishment of new collaborative arrangements:
“Our conference presentation in New Mexico caught the
interest of two leading US scientists. Quite unexpectedly,
they wanted to collaborate with us.”
“Attending a research seminar brought us in contact with
Ericsson and that is how our collaboration started.”
In addition, unexpected or un-controllable changes in market development may both facilitate or jeopardize technology development:
24
Lucent Technologies created its New Venture Group
(NVG) in 1997 with a mission of extracting value from its
non-core technologies developed in the Bell Laboratories.
In addition to capturing value from these non-core technologies, Lucent also wished to increase the rate at which it
commercialized its technologies (Chesbrough and Socolof,
2000).
Before the establishment of NVG, Lucent contacted some
other companies and venture capitalists to learn from their
experiences in the realm of corporate venturing. These discussions helped the planning staff better understand the
leading venture capital partnerships’ approach to venture
financing and commercializing new technologies (Chesbrough and Socolof, 2000).
Lucent decided early on that it was not going to invest its
own money in the NVG activities or ventures. Thus, the
Organizational
Responsibility
Business Model
Value Realization
Business Group
Identified
Opportunity /
Technology
Fit between
strategic space and
business mode?
YES
Internal development
● Current business model
● Incremental variation
on business model
Revenue and operating
income
NO
New Venture Group
New business
opportunity?
YES
New business model
Lucent
long-term
ownership
interest?
S
YE
Internal sale / acquisition
NO
External sale / IPO
NO
IP Division
Licensing
opportunity?
YES
Patent / technology
licensing to another
business model
Fee / royalty
Figure 10. NVG’s model for commercializing new technology.
unit had to become financially self-sufficient. The NGV
team set a goal to achieve an overall 20 percent return on
investment over time for their venture portfolio (Chesbrough, 2003b). In addition, it was important for Lucent
that the NVG did not jeopardize the innovation process
within Lucent. Therefore, Lucent created a model where
the NVG balanced the protection of the internal innovation
process with the development of external paths to market
for Lucent technologies (Chesbrough, 2003b). The model
is depicted in Figure 10.
The commercialization process started with meetings
where the ideas and projects were discussed among NVG
managers and Lucent researchers. Even though some ideas
and discoveries showed great potential outside Lucent, the
internal Lucent business groups were always given “the
right of first refusal” over the technology (Chesbrough,
2003b). The business group evaluating the technology had
to carry out an assessment of the strategic fit between the
technology and its own business model within nine
months. If the business unit decided not to fund the further
development of the technology, the NVG was given the opportunity to commercialize it. The commercialization process involved drafting a business model and deciding on
the optimal exit strategy (Chesbrough, 2003b). Some Lucent ventures were spun out into legally separate entities,
while others stayed within the corporation. Joint ventures
were also an option (Rice et al., 2000). If the NVG decided
not to commercialize the technology, it became available
for external licensing through Lucent’s intellectual property licensing office (Chesbrough, 2003b).
Lucent recognized early on the need to adopt an operating
model combining the incentives, risk taking and fast decision making of the private venture capital industry with the
extensive technological resources and the culture of Bell
Laboratories. To manage the cultural change process, Lucent consciously created a hybrid or “half-way house” corporate venture structure, which balanced many aspects of
private venture capital with other aspects of its corporate
mission (Chesbrough, 2000), as shown in Figure 11. On the
dimensions describing the scale and scope of investments,
success measures, portfolio approach, governance, and decision-making, the NVG chose to emulate the venture capital model relatively closely. NVG started making multiple
investments of fairly small size. After the two years of operation, the NVG shifted its focus from many small investments to a few larger ones (Chesbrough and Socolof,
2000).
In the other dimensions shown in Figure 11, the NVG
chose to stay close to the corporate model, particularly on
the Environment dimension. This refers to the attempts of
creating organizational structures and culture conducive to
creativity, innovation, and entrepreneurship. In its funding
as well as incentives and compensation structures, the
NVG decided to place itself between these two approaches
(Chesbrough and Socolof, 2000).
Figure 11 illustrates the NVG’s approach in the beginning
of the operation. The approach, however, evolved over
time. For instance, the NVG moved from using its own
funds to syndicated investments with outside venture capi-
25
Corporate New Business Development
New Ventures Group
Venture Capital
Scale
Larger bets
Focused teams, < $20M to success
Scope
Strategic opportunities
Many investments across markets
Goal
New business creation
Market capitalization
Success Measures
Revenues and profits
ROI realized through exit/sale
Portfolio Approach
Fewer, managed successes
A few big wins, many losers
Focus of Work
Business development
Due diligence
Governance
Traditional business hierarchy
Decision-making
Corporate decision process
VC partnership and venture
boards
Faster, more frequent decisions
Funding
Provide corporate funding
Syndicate investments
Compensation
Corporate compensation
Equity risk/reward replaces cash
Environment
Create culture & environment
Not an organizational priority
Figure 11. Lucent NVG’s operating model.
tal firms. The composition of NVG boards changed accordingly. The partners of venture capital firms were able
to bring in new perspectives, expertise, and their networks
of useful contacts (Chesbrough, 2000).
The NVG group included a president -who reported to the
chief operating officer, and was a member of executive
council - and three vice presidents. The president and vice
presidents were Lucent’s internal investors. The remaining
staff of approximately 20 experts focused on early business
development. Each specialist focused on his or her own
market technology area. The leads for opportunities usually came from the NVG specialists or Lucent employees.
These leads were assessed and directed forward if they
showed great market and technological potential. Regardless of their origins, the nascent ventures came to belong to
the venture group. Besides funding, the venture group provided consulting and incubating services, such as human
resources and legal services (Rice et al., 2000).
The design of the New Ventures Group is deemed to be innovative (Chesbrough, 2000). The NVG was also a financial success. By early 2001, the NVG portfolio had created
more than $200 million in value (Chesbrough, 2003b).
During the first two years of operation the NVG invested in
19 ventures, mostly in the Internet, networking, software,
wireless and digital broadcast spaces. The five ventures
that have reached liquidity have brought in an 80 percent
return on invested capital.
Despite its achievements, the NVG model was nonetheless
controversial within Lucent. Most importantly, there were
26
difficulties in quantifying the strategic benefits produced
by the NVG to Lucent and its contribution to shareholder
value. There were political costs to the NVG model as well.
Most importantly, the NVG model put some of Lucent’s
managers in an awkward position after they had abandoned
some technologies, which Lucent later on needed to reacquire at a market price from the NVG. The tensions between the NVG process and Lucent’s businesses combined
with Lucent’s continued financial difficulties culminated
in a divorce. In January 2002, Lucent sold off its 80 percent
interest in the twenty-seven remaining NVG ventures to an
outsider investor group (Chesbrough, 2003b).
4.3.2 Xerox
During the years from 1979 to 1998, the Xerox Corporation set in motion a series of deliberate initiatives to manage technologies that did not fit within its mainstream business (Chesbrough, 2003a). Xerox’s policies with regard to
capturing value from technologies beyond its current business interests evolved over time, beginning as a laissez
faire approach, then turning into ad hoc methods, which
evolved into a formal internal venture capital structure,
culminating in a triage process. In the triage process, only
the spin-offs perceived by Xerox as fitting into its overall
corporate strategy were retained and placed into a corporate incubator (Chesbrough, 2002).
Xerox’s first attempt to systematically improve its ability
to profit from non-core technologies dates back to 1989,
when Xerox created a new entity for managing spin-offs.
Op
po
rtu
nit
ies
nt
ge
hn
c
Te
gy
olo
nit
Phase
ies
Opportunity
Scanning
rtu
po
Op
Business
Concept
Development
ct
Sele ology
hn
Tec ptions
O
Corporate
Strategic
Shuttles
Business
Incubation
I
II
NE
t
Licensing/Spinout
After the termination of XTV, Xerox decided to launch a
new approach for nurturing non-core technologies, as depicted in Figure 12 (Chesbrough and Darwall, 1999). This
time the structure in place was supposed to benefit the
er
XTV was a financial success for Xerox. It is estimated that
XTV generated a total of $219 million to the Xerox Corporation (Chesbrough, 2002) In line with the venture capital
model, two successful ventures, Documentum and Document Sciences, generated a lion’s share of these profits.
Despite XTV’s spectacular performance, it was terminated
in 1996. One of the reasons leading to the termination decision was XTV’s independence and its inability to develop
strategic ties to Xerox’s mainstream businesses. Looking
back, one of XTV’s weaknesses was that this structure
placed no value on fostering synergies with Xerox’s mainstream businesses. Some people also felt that the success of
XTV ventures came, at least partly, at the expense of other
Xerox products. It is also possible that the revenue streams
flowing to the XTV principals created jealousy among
other Xerox managers. Finally, the financial success did
not directly translate into gains for Xerox shareholders
(Chesbrough, 2002).
Em
The technology development process proceeded at XTV as
follows. First, a researcher approached the XTV with a preliminary business plan and a list of resources required for
the successful commercialization of the innovation. To
prevent any conflicts of interest, it was required that the
XTV personnel contacted the supervisor of the researcher
to gain his or her approval for the review of the idea. If accepted for further development, the project was kept inside
the laboratory in which it originated until it had been developed into a full working model. After the introduction of the
full working model, the project was transferred out of the
laboratory into a separate company established by one of
Xerox’s lawyers. In most cases, Xerox held onto the patents
and licensed them to the start-ups (Hunt and Lerner, 1998).
The XNE process was managed by the Corporate Innovation Council (CIC). The council was responsible for
screening potential candidates for incubation and managing the outplacement process. The candidate projects were
categorized into four groups (Chesbrough, 1999):
1. Technologies that Xerox’s business units were willing
to fund
2. Technologies that the business units were not willing to
acquire, but the XNE board was willing to support
3. Technologies span out to the venture community
4. Technologies that were not commercialized and kept in
the Xerox labs.
Em
erg
en
tM
ark
et
Officially, XTV was a corporate division within Xerox, but
in many aspects it operated like an independent venture
capital firm. It had a clear goal: to maximize return on investment (Hunt and Lehner, 1998). XTV had $30 million
under management. Xerox took eighty percent of the gains,
while XTV principals shared the remaining 20 percent.
The investment decisions were made by the XTV principals and the Management Board, consisting of Xerox’s
chief executive officer, chief financial officer, and chief
patent counselor. For the investments over $2 million, the
Management Board had the last word, whereas investments smaller in size were left to the XTV principals. The
spin-off process was clearly defined in the partnership
agreement between Xerox and the XTV principals (Hunt
and Lerner, 1998).
whole corporation. This new process – essentially an internal incubator – was called Xerox New Enterprises (XNE).
In parallel with XNE, Xerox established a process of spinning-out technologies that did not have synergies with
other Xerox business units (Chesbrough, 1999). This time,
the creation of synergies with Xerox’s mainstream businesses was of primary concern of XNE. Therefore, the
promising technologies were first offered to the Xerox
business units, which had nine months either to commit
themselves to or decide against the adoption of the technology (Chesbrough, 2002).
Se
Mar lect
Opt kets
ions
The structure of the entity resembled an internal venture
capital firm (Chesbrough, 2002). This structure was called
Xerox Technology Ventures (XTV).
BGs
Innovation
Council
III
Figure 12. CIC/XNE project funnel.
The XNE board was structured as a holding company of internally funded ventures. Projects that did not fit in perfectly at Xerox but held promise for the corporation’s
long-term strategy were incubated in XNE (Chesbrough,
2002).
XNE provided legal, financial, and strategic services to the
businesses in its portfolio and charged a low percentage of
27
revenue for these services. While Xerox owned, funded
and managed the XNE companies, each was legally distinct from the parent company (Chesbrough, 2002). Each
XNE venture had a president and board of directors,
chaired by the head of XNE. Up to 20 percent of the stock
in each XNE company was reserved for managers and employees. The performance of the XNE spin-offs to date is
lagging behind that of the XTV regime.
Besides facilitating corporate venturing and spin-offs by
organizational arrangements, Xerox Corporation manages
its licensing activities in a systematic way. With the formation of Xerox Intellectual Property Operations (XIPO), the
company reportedly intends to grow its license revenues
from the $ 8.5 million earned in 1997 to $ 180 million by
the year 2002.
XIPO’s role is to look at the total portfolio of patents and
technology and figure out how to best package, market, and
sell them as any other product (Rivette and Kline, 2000).
Instead of just protecting intellectual property, XIPO looks
intellectual property, mostly technologies, offensively and
start treating it as a moneymaker. In its licensing efforts,
Xerox aims at identifying groups of patents within its portfolio that could be licensed together as a package.
XIPO operates a web site, which aims at capturing global
customers, and increasing the turnover coming from the
non-core technology transfers. Through this web site, potential customers can contact the technical and licensing
professionals of Xerox Innovation Business Development
(XIBD). The purpose of this organization is to assist customers in determining which Xerox technologies could be
useful in meeting customers’ business needs and in structuring cost-effective terms for technology transfer (Xerox
Corporation, XIPO).
increasing pace of innovation, increasing speed to market, and the objective of increasing return on investment.
• Besides patent licensing, EDB & GL now includes licensing trademarks and know-how (from engineering to
marketing and building customer relationships), plus
new commercialization models such as equity investments in existing companies, formation of spin-offs or
other new entities, and technology donations to universities and research institutions.
EDB&GL has adopted the philosophy that intellectual
property marketing is best accomplished by making
one-to-one connections with potential customers and partners. As shown in Figure 13, this process incorporates both
reactive and proactive elements. On the proactive side, two
key resources are P&G’s retailer customers and its suppliers. Customers often manufacture their own products and
are thus potential licensees. Suppliers are also excellent
sources of diverse application ideas, since they often are
active in licensing themselves and already familiar with
P&G’s technology.
Making Connections
Proactive
Reactive
Web-Based
Marketplaces
Customers
Suppliers
Litigation/
Infringement
Unsolicited
Inquiries
Targeted
Cold Calls
General
Awareness
Creation
4.3.3 Procter & Gamble
A strong argument for utilizing patents as strategic assets
comes from the Procter & Gamble Company. The company employs more than 8 900 research and development
professionals, at its 18 R&D facilities in eight countries on
four continents. Today, Procter & Gamble has an active
patent licensing program, under its External Business Development & Global Licensing Organization (EDB&GL).
Since 1999, Procter & Gamble has employed a new approach to licensing based on three key principles:
• Profits from licensing agreements flow back to the business unit that developed the technology. Returning profits to business units provide unit managers with motivation to look for external commercialization opportunities.
• All technologies are candidates for externalization. A
technology is available for licensing- even to competitors- within three years after it is introduced to the market or five years after a patent is granted. This is due to
28
Corporate
Communications
Public
Relations
Figure 13. Marketing of intellectual property at P&G.
P&G also aims at creating general awareness of its licensing efforts through public relations and corporate communications. The primary public relations tools are public announcements of licenses. Corporate communications, from
the annual report to executive speeches, continue to focus
on the company’s innovation leadership and “open for
business” licensing organization.
A technology donation program is a key vehicle for extracting value from, and realizing the further development
of promising technologies that the company has elected not
to pursue. The donation program is founded on four key
principles:
• Each technology P&G donates has real, demonstrable
potential value.
• The selection of each recipient organization is made
with the consultation of independent experts. This process ensures that the recipient has the best possible capability to maximize the value of the technology in terms
of both development and commercialization.
• Each donation includes full disclosure to the recipient
organization, including ownership of all related patents
and documentation, as well as an in-depth scientific information transfer, through which P&G researchers
bring the institution’s researchers up to speed on all the
work to date.
• Follow-up support to help ensure success
(Weedman, 2002).
Reactive connections have also come, perhaps surprisingly, from such unlikely sources as patent-infringement
litigation. The simple fact in these cases is that the other
party is clearly interested in a P&G technology or trademark, and opting to license can create a win-win situation
for both parties. In addition to purely reactive and proactive
contacts, P&G uses intensively web-based market places,
such as yet2.com and its own web pages, for selling and
buying technologies (http://pg.t2h.yet2com/2h/page/
homepage).
Since implementing the new approach, P&G has experienced a sevenfold increase in annual income accruing from
its non-core technologies by maximizing the value of
P&G’s intellectual property (Weedman, 2002).
4.3.4 Nortel Networks
2
In late 1996, Nortel Networks established an in-house incubator called the Business Ventures Group (BVG). Nortel
Networks chose to form the BVG to specifically address
several challenges it had recognized with regard to corporate venturing – challenges that small, more agile start-ups
had advantages facing. Some of these included transitioning
R&D to commercial applications, attracting and retaining
high-caliber talent, building entrepreneurial business acumen, and providing the appropriate value-creation environment to balance the need for incubation with access to external capital and expertise. In addition, Nortel was looking
for new ways of commercializing technologies that fell beyond its strategic core.
The Business Ventures Group started in late 1996 as the internal venture arm of Nortel Networks’ Advanced Technology Program within corporate research and development. It had the endorsement of key officers at Nortel Net-
2
works, in particular, Gedas Sakus, then Senior Vice President and President for Technology.
The initial role of the BVG was to identify, cultivate, and
incubate possible stand-alone internal ventures. Individuals from the Advanced Technology Program or one of
Nortel Networks’ lines of business could propose ventures
after they had already invested resources in technology development to “kick the idea around a bit” and determine its
feasibility. The BVG incubated the venture as it grew and
moved along the path toward commercialization, determining the requirements and duration of incubation as well
as the amount of funding. In laying a path for technologies,
they determined four possible outcomes. The future of any
venture would depend on its relationship to Nortel Networks’ core businesses, the size and growth rate of the opportunity, and the sustainability of product differentiation.
The four possible outcomes
The Spinout – Many of the technologies or products that
would emerge from the BVG would be candidates for a
spinout – the preferred outcome of most venture project
teams. The main decision criterion would be if the product
or technology, although of commercial potential, was neither in line with Nortel Networks’ current strategic initiatives nor complementary to its existing business units. In
that case, Nortel Networks would aid the company in preparing and executing a search for external venture capital,
while retaining a significant share of the company.
The BVG’s initial decision regarding ownership followed
an 80/20 rule whereby employees involved would receive
20 percent of the venture’s equity in the form of options,
and Nortel Networks would retain 80 percent ownership
prior to raising external capital. The various vesting schedules would follow corporate venturing industry standards.
The Spin-in – In some cases, the products and technology
developed in the BVG could be folded into an existing
Nortel Networks business unit. The possibility also existed
that a new business unit could be created as a result of a
venture, if the venture was in line with Nortel Networks’
strategic direction.
Licensing – For those technologies that were not candidates for either a spin-out or spin-in stand alone business,
yet had potential commercial value, Nortel Networks could
hold patents and license the intellectual property to their
customers, suppliers, and partners.
Termination – After evaluating and measuring the venture’s development progress against pre-determined milestones, some projects would be terminated.
This description is based on O’Connor and Maslyn, (2001)
29
Although the outcomes were agreed upon, the ratio between spin-ins and spinouts emerged as an area of conflict.
The corporate management saw the program as being 80
percent spin-ins contributing to the core business and 20
percent spin-outs that would be non-core to the strategic direction. Joanne Hyland, Vice President for New Venture
Development at Nortel Networks said,
well as revenue and market potential based on venture capital benchmarks. The basic criteria were that the venture
should have a potential marketplace of over $100 million
and can capture 40-50 percent of the market over a
five-year period. The BVG also looked at the management
team of the proposed venture to gauge the fit of their skills
with the requirements of the business.
“In fact, we see the opposite ratio, so it’s clear that management has little expectation of new non-core ideas. Part
of the problem is that in order for these businesses to succeed, they almost have to be spun out so that they can get
the appropriate level of sales attention and that attention at
the right point in time. So, either they have to stay in the
venture group longer before they go back into the line of
business to become established, or else they have to be
spun out and potentially be brought back in once they’ve
grown enough to warrant the attention of management
within a line of business.”
Those proposals that showed promise were passed on to
BVG analysts for further exploratory work—the Pre-Selection Phase, which could last from one to three months.
During that phase, the business proposal was refined and
developed. The BVG team members and the analyst who
brought forward the proposal then decided whether the
project team had a compelling enough business proposal to
advance to the Selection Phase. A commercialization
checklist was utilized during this review to isolate commercial potential and to identify risks that needed to be mitigated. If so, the project team presented to the BVG Advisory Board for investment approval and advancement into
the Incubation Phase as an official venture in the portfolio,
as can be seen in Figure 14.
Process of managing (non-core) technologies
Early on, the BVG team recognized the need to systematize
the process so that it could handle the flow of ideas. One of
the first steps was to establish a website where employees
could submit their ideas as well as answer some initial and
important questions. Potential venture champions went
through two levels of screening. If they could answer the
questions and show potential, then they were taken through
the next level of questions. That was all done on-line.
The BVG had some clear ideas of the scope of projects they
would consider funding in terms of investment areas as
Business Concept
Identification
Pre-Selection Phase
1-3 months
When the BVG began to provide services in 1997, its offerings were quite basic. The BVG team provided project
teams with guidance in developing solid business proposals, assistance in obtaining funding approval, an incubation
environment, and transition support out of incubation into
the spinout or spin-in environment. As the BVG grew and
gained expertise, it expanded its services. Most importantly, the project team’s Board of Directors tracked the
progress of the venture closely. In addition to providing
marketing and business model analysis, the BVG was in-
Presentation to
Advisory Board
Screen
Concepts
Investment
Investment
Approval
Approval
Business Proposal
Refinement
Incubation/
Commercialization
Business Proposal
Generation
Outcome
Decision
Proposal
Pre-selection
Spin-off, Spin-in
LicenseTechnology,
Technology,
License
or end venture
Selection Phase
45 minutes
Incubation Phase
6-24 months
Migration Phase
Figure 14. Venture selection management (O’Connor and Maslyn, 2001).
30
volved with human resource and legal issues. Very importantly, the BVG offered the ventures a degree of protection
from executives who were seeking profits too early.
Managing the spin-out process
If it was decided that the appropriate path for a venture was
a spinout, the BVG and the Project Team Boards spent significant time preparing and executing the process of
searching for external funding. Before they even started
looking, the BVG and project team developed their business proposal to a point where it made a compelling case
worthy of investment. They outlined the sustainability of
the product as well as the venture’s competitive advantage,
conducted risk assessment, and attempted to demonstrate
that the venture solved a market challenge.
Time and attention were given to project team development to demonstrate to potential investors that the team
was capable of delivering. The teams were evaluated in
terms of technology, operations, business development,
marketing/sales and general management skills. Changes
were made and external expertise was brought on board to
fill gaps or strengthen the likelihood of being valued at a
higher amount by an external funding agent, such as a venture capitalist.
Some organizational issues were addressed before looking
for external funding. For example, the BVG addressed any
issues concerning intellectual property ownership. To ensure that the process went smoothly, the BVG established
the framework of a separate legal entity and obtained
buy-in from both the project team and Nortel Networks.
Once the venture project team began meeting with potential external investors, the BVG focused on communicating Nortel Networks’ objectives of gaining external expertise and maximizing shareholder value. As they proceeded
to negotiations, the BVG concentrated on strengthening
the business opportunity by leveraging media for co-branding of Nortel Networks and the venture, pursuing new
channels and strategic relationships, and continuing to
build the team and assess risks.
Success of BVG
By 1999, the BVG continued to receive over 100 proposals
in the course of a year – 25 to 30 per quarter. From the time
of the BVG’s inception in late 1996 to August 1999, 240
business concepts had been submitted – 80 had been
screened out at the beginning of the pre-selection phase and
132 during the pre-selection phase. Fourteen concepts and
proposals were in various phases of assessment, and the remaining 14 had been approved for funding. Of these 14,
one was spun-out, two ventures were terminated, and two
ventures were spun into the mainstream business of the
parent corporation. It is estimated that most of the ventures
will be spun-out in the end.
The valuation of Nortel Network’s share of the ventures
had multiplied by at least six times since the BVG began its
work. Even so, it was a small percentage of the total value
of the firm. Hyland remarked, “When you have a market
cap the size of Nortel Networks’, it virtually gets rounded
out of the financial equation.” Despite its success, the
BVG’s efforts had not yet produced the financial results
that the CEO, CFO and other key Nortel Networks executives were hoping to see (O’Connor & Maslyn, 2001). This
anticipates some major changes in the venturing activities
of Nortel Networks in the years to come.
4.3.5 The Perstorp case – Pernovo
In 1973, Perstorp, an old Swedish industrial group, established the Pernovo (Perstorp New Venture Development
AB) unit to allow for a more entrepreneurial culture within
the large corporation. Before the establishment of Pernovo,
the corporate management thoroughly familiarized itself
with the venture capital concept and practice in the US.
Pernovo’s aim was to develop new technologies for the
Perstorp group and thus to contribute to the long-term
growth of Perstorp. Small technology based firms were acquired and nurtured by the Pernovo unit without having to
struggle with the culture of the large corporation. Pernovo
engaged itself in small, often recently established, firms
with unique patents, projects or individuals. After a period
of incubation, they were spun-off, either internally into the
Perstorp corporation or externally onto the market through
a divestment. Also internal ventures were occasionally located in the Pernovo unit in order to exploit new business
opportunities. The acquisitions and divestments were taken
care of by the same organization. The former head of the
Pernovo unit suggests that this arrangement may well have
been a key factor behind Pernovo’s successful operations.
According to him, carrying out divestments and acquisitions require the same set of skills and competencies.
The venturing process at Pernovo consisted of three
phases: 1) searching, identifying and evaluating business
and growth opportunities; 2) entering into and managing
the selected ventures; and 3) exit. In searching and identifying the investment opportunities, securing a large
enough “deal flow” was crucial. The Pernovo unit relied on
an international contact network in order be able to tap into
a vast pool of business ideas and talent. Out of 100 ideas,
15-20 business plans were reviewed. Only one or two of
them were acquired by the Pernovo unit. An internal advisory team conducted the evaluation of ideas and business
opportunities, including the preparation of the worst-case
scenario and risk assessment.
In the second phase, two important functions were needed:
control and support. Pernovo established a board and advisory board with very distinguished people for each technology-based venture. Furthermore, operational reviews were
31
conducted three times a year. The boards were not only established to control the ventures but also to support them.
The support function was seen as very crucial when developing new businesses. The basic idea was that the parent
company had to contribute to the development of the venture, instead of only seeking to benefit from it. Pernovo’s
contribution usually took the form of support in business
administration and the creation of a nurturing organizational climate for the technology-based ventures. The parent firm also assisted the ventures in finding the right focus.
In addition, Pernovo organized training and education sessions and assigned a mentor for each venture. People from
different ventures were brought together to discuss a specific topic, thus facilitating the sharing of knowledge and
experiences.
The third phase was the exit phase, deemed the most difficult by the venture and corporate management. Pernovo
usually nurtured the ventures for a period of three to eleven
years. Divestments were usually carried out when the parent firm realized that it no longer could contribute to the development of a technology-based venture. In addition, it
was required that the venture had a professional management team and it had established its position in the market
place prior to the divestment from Pernovo. The number of
new, incoming ventures had also an influence on the divestment decision. If no new opportunities were available,
there was a tendency to hang onto the current investments.
To sum up, Pernovo applied a portfolio strategy. Every
year acquisition and divestment candidates were identified.
Also various exit alternatives were reviewed for each venture on a yearly basis.
Pernovo paid special attention to the human resource management during the divestment process. The management
team worked hard to maintain the motivation of the personnel in the units to be divested. Pernovo also granted
so-called “stay bonuses” to ensure that the best people
would not leave the divested unit.
A small team of 16 employees created the Pernovo unit.
After the contact networks and operation procedures were
established, five to eight people were needed to manage the
whole venturing process. This team had competencies in
business administration and technology. Contact network
was also used to hiring the external competence and expertise.
The Pernovo unit was a financial success. During the first
ten years, its sales increased from zero to more than 600
MSEK. In 1992, its sales accounted for approximately 30
percent of Perstorp’s total sales. Pernovo made 66 acquisitions until 1991. Between 1974 and 1992, it spun off 18
companies into Perstorp. In addition, there were three entrepreneurial spin-offs and twenty-one divestments (Lindholm, 1994). Despite its success, the unit was terminated in
32
1997, mostly due to the retirement of key people involved
in the development of the unit.
4.3.6 Saab-Scania Combitec
Saab-Scania Combitech (Combined Technologies) was established in 1983 when eleven Saab-Scania’s high-technology ventures were transferred to the Combitech organization. The internal spin-offs were later complemented
with additional acquisitions. Saab-Scania Combitech’s
mission was to become a leading-edge high technology organization with high margins and long-term orientation.
Many of the technologies developed within the unit originated from the Aircraft division. The technologies had typically been developed to solve specific technological problems in the parent corporation’s core businesses. After
solving the problem, there was no further use for these
technologies in the mainstream business units. There was,
however, a generic market available for them outside of
Saab-Scania.
Combitech was Saab-Scania’s wholly owned subsidiary.
Combitech, in turn, owned its own “companies”. During its
prime time, the Combitech Group consisted of 15 companies or ventures. All the companies were market-driven in
the sense that the focus was on product applications, not on
technologies. The management of Combitech required that
the business-models were repetitive, i.e. catering to multiple customer segments and industries. The repetitive nature of business models made it possible to cash on the extensive initial investments in technology development.
The Combitech companies reported to the Combitech
Group management. Each company had its own president
and board of directors. The president’s task was two-dimensional: 1) he or she was responsible for its own company; 2) and for the implementation of group-wide technological transfer and the exploitation of synergies. Technologies developed within a Combitech subsidiary were freely
available for anyone in the same group. For instance, each
Combitech company had an obligation to assist its colleagues in technology-related issues. Another important
goal was to find a balance between young, resource-consuming ventures and more mature, cash-generating companies within the Combitech group. In other words, the profits from more mature businesses were used to finance embryonic ventures.
The Combitech Group’s role was to take care of technology transfer from the parent corporation, and to create the
rules and enforce them. Every company had four operational board review meetings per year. Saab Scania
Combitech employed 10-12 persons. Six of them occupied
a key function within the group, such as operations reviews, group controls, strategic agreements and M&A,
troubleshooting, group communications, personnel and
technology transfer. The other half consisted of administrative personnel.
The Combitech Systems Group was successful in the
1980s and early 1990s. It generated cumulative profits of
1.5 billion SEK and a return on working capital of 26 percent. By 1992, Combitech made 17 acquisitions of which it
later divested seven businesses and closed down one business. In addition, Combitech made nine entrepreneurial
spin-offs and divested five subsidiaries. Unlike Perstorp,
there was no internal-offs from Combitech to its owner
Saab-Scania. Combitech Systems Group was, however,
terminated in the late 1990s. It had become too strong and
independent with too few synergies with Saab-Scania.
4.3.7 Volvo Technology Transfer
Volvo Technology Transfer was established in 1997 as one
of its objectives to support the development of internal
technologies with business potential outside the Volvo
Group. In other words, Volvo Technology Transfer aims at
making the most out of all the good ideas with commercial
and technical potential that arise at Volvo. The founders of
Volvo Technology Transfer believe that separating such
projects from the mainstream operations is often a better alternative than pursuing these projects within a large organization.
Volvo Technology Transfer operates very much like a corporate venture capital entity. It has a board authorized to
make investment decisions in new companies. The unit is
run by eight persons, among them senior investment managers with venture capital and corporate backgrounds,
graduates from Chalmers University of Technology, a
CFO and part-time personnel. By the year 2003, Volvo
Technology Transfer had made 18 investments, out of
which six were internally generated. These six non-core
technologies were based on either the inventions of Volvo
employees not directly linked to the mainstream businesses
or product needs expressed by the current customers. By
the end of the year 2003, Volvo Technology Transfer is going make its first exit.
Volvo Technology Transfer primarily funds projects that
have sales potential over 20 million euros, market potential
outside the Volvo customer base, and a management team
with good track record. It is also required that there exists a
consensus among all the shareholders regarding the future
of the company. In addition, Volvo Technology Transfer
preferably invests in projects in line with the core values of
and of relevance to the Volvo Group (Volvo Technology
Transfer).
This far, it has been up to the project managers to approach
Volvo Technology Transfer for funding. After the structuring the deal, Volvo Technology Transfer follows closely
the development of the ventures. In addition, Volvo Technology Transfer offers its own in-house competence for the
use of venture managers. In practice, the contribution of
Volvo Technology Transfer most often takes the form of
assistance in business development, management, finance
and law. In case there exist synergies between the venture
and the rest of the corporation, the venture team may also
tap into the technology, construction, production, and marketing-related competencies of the Volvo Group. Besides
facilitating networking inside the Volvo Group, Volvo
Technology Transfer serves as a bridge to potential customers and technical experts beyond the boundaries of the
firm.
Volvo Technology Transfer reserves itself a right to exit
from each investment within a specified period of time.
The exit procedure will be determined and agreed upon
among the investor group before closing the deal. At the
time of the study, trade-sales were the most favored option
among the exit alternatives. It is noteworthy that the Volvo
Group has a chance to reacquire the technology, although it
is not being automatically granted the right of first refusal.
It might still be too early to assess the financial success of
Volvo Technology Transfer. The CEO of the unit, Anders
Brannström evaluates that the unit has served the Volvo
Group as a gateway to novel technologies at a very low cost
and enhanced the image of the Volvo Group as a progressive and innovative corporation. It seems that this example,
too, speaks for combining the corporate venturing activities and the management of non-core technologies, while
adding also the element of corporate venture capital in the
equation.
4.3.8 Synthesis of systematic approaches
Except for Nortel Networks, all our sample corporations
located the management of their non-core technologies in
relatively independent subsidiaries. These units typically
employed 3–24 persons. Our Swedish sample corporations
(Perstorp, Saab-Scania, and Volvo) combined the nurturing of acquired ventures with the management of internal
non-core technologies. In a similar vein, Perstorp, Volvo
Technology Transfer, Lucent, Nortel Networks and Xerox
decided to carry out the management of non-core technologies in parallel with their corporate venturing activities.
Table 5 summarizes the key characteristics of the systemic
approaches applied to the management of non-core technologies used by our case corporations.
33
Table 5. Comparison of systematic approaches used by the sample corporations.
Company
Structure
Opportunity pipeline
Orientation
Financing
Staff
Perstorp
Subsidiary
International contact
network
Oriented towards
spinning-off and
spinning-in
Internal funding
5–16
Saab-Scania
Combitech
Subsidiary
Corporate personnel
and external contact
networks
Oriented towards
keeping the business
within the unit
Self-financing
10–12
Volvo Technology
Transfer
Subsidiary
Corporate personnel
and external contact
networks
Oriented toward
trade-sales
Own fund,
syndicated
investments
8
Nortel Networks
Part of
corporate
R&D
Corporate personnel
Oriented toward
spinning off
Syndicated
investments
10–20
Procter & Gamble
Subsidiary
Corporate personnel
Oriented toward
licensing
Corporate funding
N.A
Corporate
division
Corporate R&D
personnel
Oriented toward
spinning off
3
Own fund
(later also syndicated
investments)
• XNE
Holding
company
Corporate R&D
personnel
Oriented towards
keeping the business
within the company
Own fund
8
Lucent
Subsidiary
NVG specialists or
corporate personnel
Oriented toward
spinning off
Own funds,
later syndicated
investments
24
Xerox
• XTV
4.4 Cross-case comparison
4.4.1 Country specific differences
Appendix 2 lists the governance structures used to developing and nurturing individual non-core technologies analyzed in our study. The empirical evidence suggests that research collaboration with other companies, research institutes and universities was much more commonplace in
Sweden and Finland than in the United States. It seems to
us that the US corporations almost completely relied on
their own resources. In addition, our data suggests that using systematic approaches is more common in the United
States and Sweden as opposed to Finland. This difference
is striking, leaving us wonder whether the Finnish corporations were seeking to overcome the potential disadvantages
stemming from their non-systematic technology management practices with the help of benefits accruing from networking.
34
Networking seems to be at least partly a cultural phenomenon, characteristic to the relationship-oriented business
cultures prevailing in the Nordic countries. Networking
might be a less natural way of doing business in highly individualistic, transaction-oriented cultures, such as the
United States (Ouchi, 1981). This idea is also reflected in
the work of Chesbrough (2003b), highlighting the shift
from a closed innovation paradigm to a more open regime
as a current phenomenon. This may sound somewhat outdated to Nordic businessmen for whom the networking has
been an integral part of conducting business for decades.
Our observations are in line with a study of European Commission comparing the importance of inter-firm networking in various countries. This study ranks Finland as the
most networked country with 70 percent of its innovating
firms collaborating with other firms, universities or public
research institutes. Sweden is the number two with its 57
percent (European Commission, 2001). Even though we do
not have similar figures for the United States, we suspect
that she is likely to fall behind the Nordic countries in her
networking-orientation.
It seems that our Finnish examples were able to benefit the
most from the public support measures available for technology – based new ventures. In all Finnish cases, there was
a public organization (Tekes, Sitra, or Finnvera) present providing financial support or other services facilitating the
transfer of technology out of the parent organization. However, this finding is definitely not an indication of the absence of public support mechanisms for start-ups and technology transfer in the United States and Sweden. The role of
the public sector may be less pronounced in the United
States, where many support mechanisms are implemented
as a joint effort between the private and public sector. In addition, the financing of small American technology-based
firms is organized mainly through private venture capital
companies (Small Business Administration, 2003).
In addition, our case material reveals some interesting differences between Finland and Sweden. The Swedish public support measures for innovative new firms and technology transfer are said to be very fragmented with a strong
focus on regional policy (Arnold and Kuusisto, 2002),
which may explain the relatively insignificant role played
by the public organizations in our Swedish examples. In
addition, it seems to us that the Swedish capital market provides better financing opportunities for technology-based
new ventures than its Finnish counterpart. Sweden’s private equity market experienced a strong growth in the
1990’s – both the number of investors and the amount of
funds grew significantly. Well-functioning capital markets
facilitated the establishment of spin-off firms, as illustrated
by the two Pharmacia spin-offs described in Appendix 2.
The largest biotech-related investment ever made in Sweden, approximately $28 million, went to Pharmacia’s Gyros
spin-off. In the second financing round in 2002, Gyros received an additional $37 million. Also the case of Biacore
illustrates nicely the skillfulness of the Swedish corporate
managers in utilizing the well-functioning Swedish capital
markets for promoting their non-core technologies. First,
the corporate managers located costly and rather risky
technology development activities in a limited partnership,
the losses of which were tax deductible. When uncertainty
around the technology diminished, the limited partnership
was dissolved and a newly founded subsidiary was successfully listed on the Stockholm stock exchange. In Finland, the (venture) capital market catering to technology-based ventures is smaller and less established. This
may explain why Finnish corporations tend to prefer
sell-offs to spin-offs whenever they can find a buyer for
their non-core technologies.
Our US corporations resorted almost solely to internal
funding when managing their non-core technologies. However, venture capital funding was used for the establishment
of spin-off firms further developing non-core technologies
of the parent. However, the importance of securing control
through internal funding was highlighted even in spin-off arrangements. In 60 percent of cases, Xerox initially owned
two-thirds or more of the equity of its spin-offs.
The use of the donation option was totally limited to our
US case corporations. The popularity of the donation option may be explained by the fact that a certain percentage
of the value of donated intellectual property can be used as
a tax benefit based on the corporate income tax rate, which
is approximately 38 per cent (Hering, 2002). Some studies
suggest that 75 per cent of large or medium-sized US corporations are considering donations or have already donated intellectual property (Hering, 2002). DuPont is one
of the companies that routinely engage in donating under-utilized intellectual property to not-for-profit organizations. DuPont has, for instance, donated 11 patents to University of California.
4.4.2 Divested ventures and their
relationship with the parent
corporation
Very few of our parent corporations established an on-going relationship with their spin-offs. In only one of the
cases, the spin-off operated as a supplier to the parent company. Somewhat surprisingly, our Swedish spin-offs report
having suffered from the parent corporation’s reluctance to
engage in resource sharing and collaboration after the
spin-off, despite perceived mutual benefits of doing so.
Some parent corporations initially acquired an equity share
in a newly founded spin-off firm. However, this ownership
share was soon diluted. Despite the absence of equity linkages, many parent corporations helped their spin-offs in
many ways during the early years of their operation.
Prior research provides evidence of extensive collaboration between a spin-off and its parent (see, for instance,
Lindholm, 1994). Our results deviate from these findings,
most likely because we are dealing with new-to-the-world
technologies with very little actual or potential synergies
with the mainstream businesses of the parent corporation.
4.4.3 Timing of the separation from
the parent corporation
Table 6 reports the maturity of technology at the moment
when the parent corporation decided to divest, or alternatively, to further develop the non-core technology within
its own organization or in collaboration with external parties. In most cases, technology development had proceeded
far from the conception of a technology-based business
idea. In many spin-off and sell-off arrangements, the technological assets took the form of patents, product applications or prototypes, and in some cases, a business unit utilizing the technology had been established. It is interesting
to note that more embryonic technologies were often managed within an internal business unit or corporate venturing
unit.
35
Table 6. Maturity of the technology at the time of the divestment(*), establishment of a collaborative arrangement or the decision to continue the technology development in-house.
Parent Corporation
Case
Maturity of technology
Arrangement
Pharmacia Sweden
Gyros
Patents, products
Spin-off
Biacore
Established business, patents,
product applications
Spin-off
Immobilized yeast
Established business
Sell-off
Finex
Established business
Spin-off
Bioka
Patents, product concepts
Spin-off
Mikrokemia
A small patent portfolio and
prototypes
Spin-off (later
sell-off)
Panipol
Patents, product applications
Spin-off
Polytronic
A number of patents and two
product applications
On the shelf
Cultor Finland
Fortum Finland
Raisio Finland
(*) Divestments include sell-offs, buy-outs and equity spin-offs.
Our interviews highlight the dangers of a too early separation of a venture from its parent, for instance without a
sound patent portfolio. The patent portfolio served as a
good bargaining chip for our case companies in their negotiations with venture capitalists and potential buyers of
technology-based assets. For instance, the investors would
not have invested in Gyros, if the management team had
not been able to purchase the intellectual property. In a
similar vein, Chesbrough (2002) found that the number
forward citations was significantly and positively associated with the market value of a spin-off firm.
It must be kept in mind, however, that the cost of maintaining the patent portfolio may be a burden to a small spin-off
firm during its first years. Parent corporations sometimes
help their spin-offs to bear these costs. For instance,
Fortum retained the patent rights and paid the patent fees
during three first years of the operation of its spin-off.
4.4.4 Performance
Evaluating the performance of our case corporations as
promoters of their non-core technologies is problematic,
due to a wide variety of reasons. First, our technologybased ventures are all in a different phase. For instance,
some of the spin-offs have operated several years and the
others have just recently started their operations. Only the
time will tell how these emerging ventures will succeed in
the market place. Second, our case projects embrace a wide
variety of technologies and markets complicating the
cross-case comparison. Third, the selection of performance
36
metrics is far from straight forward. We believe that relying solely on financial measures would tell us only a part of
the story. Therefore, we decided to use both financial and
non-financial performance metrics. Furthermore, we need
to decide whether we are going to look at the performance
from the perspective of the parent corporation or the technology-based venture. Or, should we alternatively define
success as a “win-win” situation? One good example of the
difficulties associated with performance measurement is
the case of 3Com. In 1979, Xerox attempted to cut its costs
by leasing the Ethernet technology, for a one-time payment
of $1,000, to a former employee, Robert Metcalfe. Armed
with this license and the Ethernet networking standard supported by DEC and Intel, he raised venture capital and
started a company that became known as 3Com. 3Com went
public in 1984, and its market value eventually exceeded
that of Xerox itself (Chesbrough, 2002). From the perspective of the spin-off, the arrangement was a success. However, Xerox could not cash on the success of its spin-off.
In general, it can be said that formalized corporate venturing activities were successful in all our sample corporations, at least in the financial sense, as shown in Table 7.
Despite the great overall performance of dedicated corporate venturing units, the performance of the individual ventures varied a lot. Many corporations seem to have adopted
a portfolio approach, where a couple of successful ventures
were enough to support the whole venturing activity and
less successful ventures. However, our examples demonstrate that adopting and maintaining a systematic approach
to the management of non-core technologies is by no
means easy. Despite excellent financial performance, al-
most all the attempts to systematically manage the
non-core technologies were terminated after some period
of time. According to Rice et al. (2000), the life span of an
independent venture capital fund is typically ten to twelve
years. In our examples, corporate venture capital units
seemed to be much more short-lived.
There are several reasons behind the terminations of units
dedicated to the management of non-core technologies.
First, there are significant difficulties associated with the
quantification of the strategic benefits provided by these
units for the parent corporation. This is especially true in
the times of economic distress and decreasing returns. Another serious problem is that the venturing unit’s financial
successes may not always translate into gains for the parent
company’s shareholders, since the earnings from the
divestments are often discounted as one-time gains that
may not yield much to the shareholders.
In several examples, there were tensions between the unit
managing non-core technologies and the rest of the parent
corporation. The lack of synergies between the ventures
and the mainstream businesses was one source of these tensions. In addition, some business unit managers became
jealous of the independence and success of the dedicated
venturing units.
In our study, the dedicated corporate venturing units were
extremely dependent on the strong support from the top
management team. In several cases, changes in corporate
Table 7. Performance of corporations applying a systematic approach.
Corporation
Ventures
Returns /value
Xerox
1979–1998
35 spin-offs:
• 29 % IPOs
• 22 % sold-off
• 17 % closed down
• 3% reacquired
• 3% dispersed
• 26% going concern
1989–1996:
$299 million in value
($30 million committed)
Lucent
1997–2001
27 ventures
• 80 percent of the shares sold off
to an outsider investor group
Created more than $200 million
in value
Nortel Networks
1997–2000
14 ventures (expected outcomes
in 2000)
• 64% in incubation
• 7% spun-out
• 14 % spun-in
• 14% terminated
50 % of the ventures can be
considered relatively successful
Procter & Gamble
EDB&GL
N.A
A seven-fold increase in the income
accruing from the sales of intellectual
property
Pernovo
1973–1992
66 ventures (in 1992):
• 41 % divested (spin-offs
and sell-offs)
• 27 % spun-in
• 32% in incubation
In 1991/92, the unit’s sales
represented about 33 percent of
Perstorp’s total sales
Volvo Technology
Transfer
1997–
18 ventures
Looks promising, but it is still too
early to say
Combitech
17 acquisitions of which
• all were divested (spin-off or
sell-off), as the whole unit
was terminated
26 % average return on working
capital, turnover of 2 Billion SEK,
profit of 200 Million SEK
37
strategy or the top management team resulted in the termination of the unit. In a similar vein, the head of the venturing unit played an extremely important role. This was
clearly evident in the Saab-Scania and Pernovo cases,
where the retirement of the head of the venturing unit
marked the end of the whole unit. Despite these problems,
the systematic approach has at least one advantage over the
non-systematic approach, which is the accumulation of
skills and knowledge.
The financial performance of individual ventures nurtured
under a less systematic approach is even more difficult to
evaluate. There are tiny spin-offs, such as Panipol with the
sales of 500 000 euros (in 2001), and relatively large companies, such Biacore with turnover of SEK 614.2 million
(in 2002). Some of our spin-off firms have started their operations only recently, for instance Gyros in 2000, while
some other divestments, such as Bioka, occurred a long
38
time ago. In addition, we had difficulties in obtaining financial data on acquired ventures and ventures still nurtured by the parent corporation.
When evaluating the success of technology development in
non-financial terms, we may conclude that five out of eight
technology development projects served as a basis for new
business creation. Two ventures were acquired in order to
strengthen the current or future core competencies of another corporation. Only one of the ventures was put on the
shelf to wait for the markets to emerge. As a result, we may
say that our sample ventures were relatively successful in
terms of the creation of new product applications and
firms. The parent firm’s benefits accruing from technology
development seem to be heavily dependent on its ability to
form network relationships and to conduct technologybased transactions (licensing, sell-offs, spin-offs) within
these networks.
5 Recommendations for Corporate Managers
In this chapter, we present recommendations for corporate
managers with regard to how to manage their non-core
technologies. The recommendations are based on the existing literature and interviews conducted in our sample companies. While presenting these recommendations, we follow the logic of the process for managing non-core technologies presented in Chapter 2.
The experiences of our sample corporations suggest that
the nurturing of internal corporate ventures, acquired ventures and technology-based ventures outside the strategic
core require similar kind of competencies and resources.
Therefore, it might make sense to locate the management
of non-core technologies, acquired ventures and corporate
ventures under the same organizational unit to achieve critical mass of ventures justifying the use of the institutional
approach.
5.1 Choosing the overall approach
to the management of
non-core technologies
● Formalization of procedures
● Dedicated staff, high degree of
● Establishment of knowledge
Corporations may adopt various approaches to the management of non-core technologies. Taking an ad hoc approach is how many companies in our sample tackle with
this issue today. In a company adopting this approach, little
knowledge of best practices is ever captured and passed on.
Technology managers are essentially on their own, learning how to manage non-core technologies case by case. In
an environment of very few non-core technologies, this is
adequate. However, considering the increasing importance
of exploiting the technology portfolio of a corporation to
the fullest, before too long this approach is likely to produce frustrating and unsatisfactory results. In some companies, knowledge related to the management of non-core
technologies resides in one or two specialists, and little
knowledge sharing exists between them and the rest of the
organization. Finally, some corporations may move to the
most skilled level, which is called the institutional approach. Here, procedures are formalized, often with a dedicated staff engaged in a high degree of knowledge sharing.
A repository of knowledge is established for future use
(Harbison and Pekar, 1998). These three different approaches are visualized in Figure 15.
5.2 Conducting the technology
portfolio review
We recommend that corporate managers take a while to
consider whether a more systematic approach would improve their organization’s ability to benefit from its
non-core technologies. If the institutionalization of technology management activities seems to be too resource consuming relative to the benefits accruing from this approach,
a viable alternative might be using the services of external
service providers. More information on private and public
organizations offering support for technology transfer and
development can be found in Chapters 5.5 and 5.6.
Companies seeking to extract the maximum value from
their technology-based assets should review their technology portfolios on a regular basis. Without systematic and
continuous procedures, companies may have difficulties in
identifying their non-core technologies. While conducting
the technology portfolio review, corporate managers
should bear in mind that sometimes the distinction between
a core technology and a non-core technology is blurred,
and many technologies may fall in the gray area, where the
future value of a technology to the parent is extremely dif-
Institutional
Lone Ranger
sharing
repository for future use
● In-house/ external guru
● Individually based
● Little knowledge sharing/
limited resources
Ad Hoc
● Reinvent each time
● No knowledge capture
● No best practices
Figure 15. Three approaches to the management of
non-core technologies (adapted from Harbison &
Pekar, 1998: 136).
39
ficult to evaluate. In the following, we give corporate managers some recommendations with regard to the technology portfolio review:
• Align the technology and intellectual property strategy
with the overall corporate strategy balancing the short
and long-term objectives, prospects and product/technology mix
• Establish a patent database and idea database to get an
understanding of the emergent technologies possessed
by the firm. Review these databases on a regular basis to
identify potential non-core technologies
• Review all the technology-based projects and business
units under the threat of termination in order to identify
technologies with potential outside the parent firm
• Divide your technologies into three categories: 1) technologies that form the basis of your competitive advantage (core technologies); 2) technologies that you are definitively not going to need now or in the future
(non-core technologies); 3) technologies that do not
seem to be important right now, but their future value is
still to be defined (potential non-core technologies)
• Consider non-core technologies and the related intellectual property as business opportunities and business assets rather than just legal assets
• Aim at identifying the current and future value of the
company’s non-core technologies and finding different
ways of extracting the value of these technologies
• Take also into account the non-cash value of a non-core
technology, including the synergies with the company’s
current or future core technologies
• While identifying technologies, consider also related human capital and complementary resources
5.3 Selecting the organizational
mode
In this chapter, we will introduce some guidelines assisting
parent corporations in choosing the optimal mode for managing their non-core technologies.
5.3.1 Desired future access, degree of
commitment and revenue sharing
Parent corporations should pay special attention to the desired future access to the technology when deciding on the
organizational mode for managing non-core technologies.
The desired future access to a given non-core technology
may be divided into three categories: high, moderate and
low. The other aspects affecting the choice are the desired
future profit sharing, the degree of commitment, and resource sharing with the parent corporation. Figure 16 illustrates the implications of various organizational modes for
profit and revenue sharing, degree of commitment, and resource sharing with the parent.
5.3.2 Strategic importance for
the parent corporation
In addition, the strategic importance of a non-core technology must be taken into account, when evaluating various
organizational modes. Even though a non-core technology
may not be strategically important at the moment, it may
become so in the future. This possibility should be taken
Profit and revenue sharing
Desired access
to technology
Shared between the parent and partners:
●
No future access:
●
●
●
●
sell-off
spin-off
donation
termination
●
sell-off
No profit/revenue:
●
●
Future access:
●
●
●
●
●
●
internal development
corporate venturing
putting on shelf
collaboration
joint venture
licensing
internal development
corporate venturing
No profit/revenue:
●
Low:
●
●
●
●
sell-off
spin-off
donation
termination
putting on shelf (during the waiting period)
Shared between the parent and partners:
●
●
●
collaboration
joint venture
licensing
●
High:
●
●
internal development
corporate venturing
Moderate:
●
●
●
collaboration
joint venture
licensing
sell-off
spin-off
donation
termination
collaborative spin-off
High level:
●
●
internal development
corporate venturing
Depends:
●
●
collaboration
joint venture
No:
Low:
●
putting on shelf
Figure 16. Organizational mode and desired future access to technology.
40
●
●
●
●
Moderate level:
donation
termination
Parent company alone:
●
●
No:
spin-off with minority share
Parent company alone:
Resource sharing
with the parent
Degree of commitment
●
●
putting on shelf
licensing
Strategic Importance
Not important
Uncertain
Choose an internal
or hybrid mode
Select the organizational mode
based on:
Willingness to commit resources
The desired future access to profits and
technology
● Availability of entrepreneurial resources
● Availability of collaboration partners
● Availability of recipients for technology
transfer
●
●
Select the organizational mode
based on:
●
●
●
●
●
●
Willingness to commit resources
The desired future access to profits
and technology
Willingness to take risk
Availability of entrepreneurial resources
Availability of collaboration partners
Reactivation capability
●
●
●
●
●
●
Internal development
Putting on shelf
Termination
●
●
●
Termination
External Modes
Hybrid Modes
Joint venture
Collaboration
Licensing
Figure 17. Strategic importance at the moment and in the future.
into account, especially before terminating the venture.
When the technology is perceived to have more value for
other organizations than the parent, sell-offs, spin-offs,
collaboration or licensing may help the parent firm to cash
on its prior investments. Figure 17 considers the implications of the current or future importance of a non-core technology for the choice of organizational mode.
5.3.3 Risk, revenue potential and
time frame
The risk level and the revenue potential of various organizational modes vary. Most importantly, some organizational modes generate an immediate return on investments,
while the profits accruing from some other modes might
take years to materialize. Sell-offs and licensing arrangements of non-core technologies seem to be attractive op-
tions for corporations seeking to benefit from their
non-core technologies in the short run. They bring in relatively fast cash flow, and are less risky than strategic alliances, for example. Licensing is the least risky (in financial
terms) and the least demanding of the external modes. According to Paul Melin of McKinsey, companies often employ the sell-off strategy, when dealing with non-core technologies. Sell-offs generate revenue in the short term, and
thus they expose parent corporations to minimal financial
risk when compared to the spin-off option or partnering.
However, in high-tech industries, the most popular business model typically involves establishing a company
around the innovation instead of licensing out the technology. “The large companies are out there to buy you [newly
formed companies around the innovation] not to license
your technology, because they want your human resources
as well” (Boston Consulting Group; 2003). Figure 18 illustrates the revenue potential, risks, and time frame associated with individual organizational modes.
41
High
Corporate venturing
Internal development
Joint Venture
Revenue
Potential
Spin-off
Collaboration
Licensing
Putting on shelf
Sel-off
Very Low
Donation
Termination
Short/low
Time frame /risks
Long/high
Figure 18. Risk, revenue potential, and time frame.
5.3.4 Characteristics of the technology
Based on previous literature, we expect that several characteristics of technology impact the parent corporation’s ability to resort to various organizational modes for managing
non-core technologies. We follow the Rogers (1980) and
Winter (1987) taxonomies, when analyzing the impact of
codifiability, complexity, teachability, and system dependence on the opportunities for technology transfer.
Technologies vary in the degree to which they have been
articulated and codified. Some are based on systematic scientific analysis. Their properties are well understood and
have been exhaustively documented. Products and processes based on such technologies can be easily codified,
facilitating their transfer to other units or to new owners
(Håkanson and Nobel, 2000). Some technologies are, however, more tacit in nature. Tacitness refers to the observation that a person often knows more than he or she can say
(Polanyi, 1962).
Generally speaking, the proportion of tacit knowledge in a
technology depends mostly on its age and complexity. A
mature technology that reaches a later phase of its life cycle
has been widely used and standardized in industry. These
kinds of technologies are relatively easy to transfer across
organizational boundaries through licensing or sell-off ar-
42
rangements without intensive support from the parent organization to the recipient organization. On the other hand,
cutting-edge technologies are still in a state of flux. There
have been very few previous applications. Engineering
drawings, working procedures and manuals are being constantly modified (Tsang, 1997). Greater knowledge tacitness requires richer media for knowledge transfer (Teece,
1981). These kinds of technologies are very difficult to
transfer across organizational borders without transferring
people from the parent organization to the new owner.
Therefore, emergent non-core technologies are best managed through internal development, collaboration or through
the establishment of a spin-off firm, or a joint venture.
Another dimension of knowledge is whether it is simple or
complex. Following Kogut and Zander (1993), the complexity may be defined as the number of critical and interacting elements embraced by an entity or activity. Regardless of its age, a simple technology is easier to codify and
transfer across organizational borders. Greater knowledge
complexity requires richer media for knowledge transfer.
Sometimes complex technologies cannot even be codified
due to a large number of knowledge vectors. Therefore, we
assume that the most feasible options for managing complex non-core technologies are internal development, collaboration and the establishment of spin-off firms or joint
ventures.
Table 8. Organizational mode and the characteristics of the technology.
Characteristics of
the Technology
Recommended Organizational Modes
Emergent, Complex, and
Non-Teachable Technologies
Internal Development, Joint Ventures & Other Collaborative Modes, Spin-offs
Mature, Simple and
Teachable Technologies
All
Systemic Technologies
Internal Development, Joint Ventures & Other Collaborative Modes, Spin-offs,
Sell-Offs (provided that the linkages between the divested unit and
the parent corporation are not violated)
Non-Systemic Technologies
All
Teachability captures the extent to which individuals can
be educated to be able to further develop the technology
(Zander and Kogut, 1995). The concept of teachability is
thus closely related to the codifiability of technology, making it possible to transfer the technology across organizational boundaries with the involvement of the technical
personnel from the parent corporation. In a similar vein,
non-teachable technologies are best exploited within joint
ventures, spin-off firms, collaborative networks or internal
business units of the parent corporation.
System dependence refers to the extent to which technological knowledge needs to be described in relation to other
knowledge vectors (Garud and Nayaar, 1994). In other
words, system dependence indicates the degree to which a
technology is dependent on many different (groups of) experienced people or other resources possessed by the parent corporation in its further development. System dependence is closely related to the concept of relatedness referring to synergies between two separate economic activities
(Rumelt, 1974). Systemic technologies cannot be separated from their context, be it a business unit, project team,
or some other constellation of the parent corporation’s human and organizational resources. Depending on the context where the technology is embedded in, the most feasible options for exploiting systemic non-core technologies
include sell-offs, spin-offs, joint ventures or other collaborative arrangements. If the parent corporation is not willing
to lose some of its key technical personnel along with its
non-core technology, the best option seems to be internal
development. The recommended organizational arrangements to managing non-core technologies based on their
tacitness, complexity, teachability, and system dependence
are shown in Table 8.
5.4 Defining the terms of the transaction and the implementing
aftercare activities
5.4.1 Defining the scope of
technology transfer
Defining the scope of technology transfer is especially relevant when considering the external and hybrid modes. We
recommend that corporate managers and venture managers
take the following actions when completing this step:
• List all the resources possessed by the parent corporation
required for the successful further development of the
technology. Transfer these resources to the recipient organization
• If transferring all the resources required for technology
development is not feasible for the parent, consider giving the spin-off, sell-off, licensee or joint venture an access to these resources after the divestment through a
collaborative arrangement
• In the case of internal and hybrid modes, analyze potential and actual synergies between the technology-based
venture and the rest of the parent corporation. Facilitate
the realization of these synergies
5.4.2 Screening for partners and recipients
of technology transfer
Screening, identifying, and approaching a potential recipient of technology transfer is one of the most challenging
steps in all hybrid and external modes. Also, this step is the
one that largely determines the ultimate success of these organizational modes.
43
Successful managers say that it is of outmost importance to
take an active rather than reactive stance in this process. An
active posture enables a company to screen out unsuitable
partners and to study the strengths and the weaknesses of
prospective partners (Harbison and Pekar, 1998). In a similar vein, venture managers in our sample companies told us
that meeting with the right partner was based on their personal connections or simply on being in the right place at
the right time. For instance, scientific conferences and
symposia proved to be excellent places to find partners for
technology development.
Another avenue for identifying recipients for technology
transfer is to analyze the patent landscape in order to find
companies with synergistic patent portfolios. Parent corporations may use, for instance, patent citation trees (companies whose patents have cited your patents) to find an acquirer for their technologies (Rivette and Kline, 2000).
When using the hybrid modes, the analysis should go beyond potential partners’ capabilities and their industry and
market positions to include also the cultural fit between the
two organizations. Too often more time is devoted to
screening potential partners in financial terms than managing the partnership in human and cultural terms (Kanter,
1994). To sum up the discussion above, we recommend
that corporate managers
• Give luck a chance. Create possibilities for meeting with
potential partners by going to scientific conferences and
symposia and presenting publicly the results of technology development in one of your non-core areas
• Encourage your employees forming contacts to corporations outside your own industry. In many cases, the most
promising applications for non-core technologies can be
found in outside industries
• Use external technology brokering services, both public
and private
• Analyze patent portfolios to find corporations with synergistic technology portfolios
• Analyze the characteristics of the potential acquirer or
the partner. Do not forget cultural and human issues
5.4.3 Determining the value of
the technology
Prior to the negotiation process, both the parent corporation and the buyer should try to assess the value of technology to the best of their abilities. These valuations are a
good starting point for the negotiation phase. Several methods have been developed for evaluating technologies, such
as net present value, return on sales, cost-based valuation,
market-based valuation, economic analysis and the real options approach. No single technique seems to be superior,
therefore, the use of more than one valuation technique for
more robust results is encouraged (Sullivan, 1998). The use
44
of outside experts is also commonplace, when determining
the value of the technology.
The most used valuation method is the net present value of
an anticipated future revenue stream. This method is applicable at any stage of development (Sullivan, 1998). The
data required to calculate the net present value includes net
revenue streams, timing of payments, and risk. The discount rate depends on the degree of risk. A disadvantage of
this method is that it requires significant knowledge of
competitive environment, and a thorough business and
marketing plan (Sullivan, 1998).
Calculating the return on sales is a simple and quick. However, it is only a rough estimate, in which a royalty is based
on net profits as a percentage of revenues (Sullivan, 1998).
Cost-based valuation equates the value of a technology
with the cost to replace it, either with identical or equivalent technology (Megantz, 2002). The valuation is based on
the total expenses associated with developing a technology, including the cost of development, overhead and intellectual property protection costs. Megantz (2002) suggests
that cost-based valuations can be useful, for instance, in
helping to determine whether to license or develop a technology in-house. However, it is argued that this method is
imprecise and may undervalue technologies, since the revenue is not related to the value of intellectual asset (Sullivan, 1998).
In a market-based valuation, comparable transactions are
analyzed to determine the value of a technology. The use of
market-based valuations requires that comparable data can
be found. An auction can also be used to determine a market-based valuation (Megantz, 2002). This method yields
very robust results, but it requires an existence of an active
market with similar technologies, and companies with similar products (Sullivan, 1998).
Economic analysis is used for valuing tangible assets. In
the economic analysis, the value of the technology is based
on the future income attributable to its use. This method requires substantial effort and market knowledge (Megants,
2002). Several approaches can be used for estimating the
economic benefit provided by a technology, including
• Determination of the excess earnings generated through
use of the technology
• Estimation of all business assets and subtraction of the
value of all tangible assets and other intangible assets.
The remainder represents the value of the technology
• Combination of the above mentioned techniques
The real options approach, in its turn, has been found to
produce much better results than the traditional valuation
methods alone. Unlike most traditional methods, the real
options approach takes into account the contingencies and
managerial decisions taking place after the investment de-
cision. The real option approach is usually applied in parallel with more traditional approaches. Only 27 percent of
the CFOs report to use the real options approach, mainly
because of its mathematical and complex nature (Amram
& Kulatilaka, 1999).
In a larger scale spin-offs, sell-offs, or joint ventures, a due
diligence process might be needed to ensure that the basis
of evaluation of a proposed transaction is sound.
5.4.4 Negotiating the contractual
terms
Preparing for external and hybrid modes almost always requires signing a legal contract. The key negotiated issues
include the value of the technology, the rights and responsibilities of each party, structure of the arrangement and
termination clauses. The contract will determine which assets will be transferred from the parent corporation to the
recipient organization and whether the parent firm will retain any ownership rights to the technology. Also, the contract should specify, whether the parent corporation is responsible for providing any support for technology transfer
activities. In addition, contracts typically specify the duration of the arrangements. The negotiation process, which
can be described as cyclic, is illustrated in Figure 19.
The content of legal contract varies depending on the type
of the organizational mode chosen for the further development of the technology. For instance, a successful implementation of hybrid modes require that partners agree upon
control and administrative issues, type of alliance, transfer
of assets, management operations, capitalization and voting rights, termination of the arrangement, confidentiality
and competition issues, as well as taxes and accounting related matters (Harbison & Pekar, 1998: 118). More information on the specifics of legal contracting can be found in
literature focusing on the implementation of sell-offs, corporate spin-offs, licensing, and collaborative arrangements
(see, for instance, Goldscheider, 2002; Epstein et al., 2001;
Lennon, 2001).
Regardless of the organizational mode chosen, the contract
should provide proper incentives for all parties involved in
the further development of the technology. A “win/win”
negotiation philosophy is especially fertile in the hybrid
modes, where the purpose of the negotiation process is to
set the ground rules for a future relationship. Thus the negotiation results will not be judged by what a company accomplishes at the negotiating table, but by the final outcome of the relationship, months or even years later
(Megantz, 2002).
5.4.5 Securing funding
Termination
clauses
Setting the
price
Agreeing on
the structure
of the arrangement
Determining
the post-agreement
rights
The need for securing funding for the further development
of the technology is likely to emerge, when the parent corporation decides to resort to internal development or hybrid
modes. In addition, the establishment of a spin-off company might require that the parent corporation assist the
venture team in contacting venture capitalists, commercial
banks, or public financiers for funding. More detailed information on public and private sources of funding available for the development of non-core technologies can be
found in Chapters 5.5 and 5.6.
5.4.6 Implementing the transaction
Figure 19. Negotiation process.
No matter which organizational mode a company chooses
to apply, there will be challenges associated with the implementation of each of these strategies. The following
three tables summarize the major challenges associated
with each mode, presenting some recommendations relative to how to overcome them.
45
Table 9. Challenges and recommendations associated with the external modes.
Mode
Major challenges
Recommendations
Sell-off
Keeping the unit alive during the divestment
process
• Involve employees in the divestment process.
• Protect and maintain the intellectual property during
the divestment.
• In order to get most out of the arrangement, keep
on investing in technology development during
the divestment process.
Successful management of divestments requires
time and a wide variety of competencies from
the parent corporation. None of these skills are
the core competencies of the parent.
• Locate divestments and acquisitions activities under
the same organizational unit. Similar kinds of
competencies are needed by both functions
• Consider locating divestments and corporate
venturing activities under the same unit
• Use external services
Difficulties associated with estimating the value
of technology-based assets
• See Chapter 5.4.3
• Use external services
Difficulties associated with finding a buyer
• See Chapter 5.4.2
• Use the help of external service providers and
public support organizations
Successful management of divestments requires
time and a wide variety of competencies from
the parent corporation. None of these skills are
the core competencies of the parent.
• Place divestments under the same organization as
acquisitions and corporate venturing activities, since
similar kinds of competencies are needed in both
functions
• Use the services of external parties in various points
of the divestment process
Organizational and cultural challenges associated
with the spin-off firm’s transformation from an
internal venture to a self-standing firm
• The parent company should, if possible, support the
spin-off process and the newly founded firm
Lack of entrepreneurial talent and motivation
in the parent corporation difficulties in finding
venture champions willing to leave the corporate
setting to run a company of their own
• Increase the awareness of venture managers of the
benefits related to running an independent company;
reduce the uncertainties around entrepreneurial life
by offering the management team of a spin-off firm
an option to return to the parent corporation within
the three first years of the spin-off firm
• Consider outside CEOs. According to Chesbrough
(2002), spin-offs with outside CEOs experienced
faster growth and higher market value than spinoffs with internal CEOs
Difficulties associated with evaluating the value
of technology
• Consider using third party evaluators
Identifying the right recipient
• Donate only intellectual property that contributes
value to the recipient
• Use external services for identifying the right
recipient organization
Spin-off
à
Donation
46
Table 10. Challenges and recommendations associated with the hybrid modes.
Mode
Major challenges
Technological
collaboration &
joint ventures
The outcome and process of collaboration are
• Define the objectives, responsibilities and rights
highly sensitive to the objectives and strategies
of each party in a written contract
of each partner. These strategies and
objectives are likely to change over time.
Licensing
Recommendations
Potential conflicts between the partners
• As above, define explicitly the allocation of rights
to any intellectual property and other outcomes of
the collaborative arrangement
• Apply a win-win philosophy during the negotiations
and collaboration
Integration problems
• Take into a account and manage organizational and
cultural differences between the organizations
Difficulties associated with evaluating the
value of the technology
• Use external service providers
• Outsource mainly well-known, mature technologies
Licensing efforts require special competence
and active technology portfolio management
efforts
• Establish a licensing office with business-oriented
professionals or use external service providers
Difficulties associated with finding a licensee
• Outsource mainly well-known, mature technologies
• Use outside service providers and web-based
services
47
Table 11. Challenges and recommendations associated with the internal modes.
Mode
Major challenges
Recommendations
Internal
development &
corporate venturing
Justifying the funding of technology
development
Political problems
• Stress the potential synergies between the business
unit and technology
• Highlight the importance of exploration activities
for the long-term vitality of the parent corporation
Potential lack of in-house competencies and
knowledge in areas crucial to the venture
• Consider some other organizational mode; in this
case, internal development is not probably the best
choice
A high volume of new ideas and business
opportunities is needed to justify the existence
of a venture organization
• Maximize the flow of internal and external ideas,
for instance, by locating internal ventures, acquired
ventures and divestment candidates under the same
organization
Creation of organizational climate encouraging
and supporting entrepreneurship
• Emphasize strategic freedom and independence
Risk of over-investment in ventures not critical
for the parent
Risk of trapping ventures in an organization
not able to nurture them
• Have a systematic exit-analysis. Analyze different
exit options and their financial outcomes
• Use some other organizational mode, in case the
parent corporation lacks resources to support
technology development
Adverse impact of corporate bureaucracy
and policy on the venturing activities
• Emphasize strategic freedom and independence
No one will be able to cash on the R&D
investments
• Consider other modes before the final termination
decision
Challenges associated with developing the
criteria for terminating the ventures
• Define a set of indicators that emphasize both
financial and non-financial as well as short-term
and long-term factors, including also the potential
future use of the technology
Boosting employees’ motivation
• Conduct a careful analysis of what went wrong
in order to enhance learning and justifying the
termination decision
Maintenance of skills and capabilities over
time, i.e. keeping the technology alive
• See Table 12
Uncertainty due to incomplete information
about future demand and supply conditions,
competitors’ actions and other externalities
• Do not shelve easy-to-create knowledge,
regenerate it when needed
Termination
Putting on shelf
5.4.7 Implementing the aftercare activities
In many cases, the management of non-core technologies
requires the attention of the parent corporation even after
the optimal mode for the development of the technology has
been chosen. This applies especially to the hybrid and internal modes of technology development. The magnitude of
the parent firm involvement depends on the organizational
48
mode chosen and the terms of the agreement. Table 12 describes the scope and content of aftercare activities associated
with licensing arrangements, donation options, spin-offs, collaborative arrangements, and internal modes. In here, we assume that sell-offs and terminations do not require major aftercare activities from the parent corporation.
Table 12. Recommended aftercare actions.
Mode
Actions
Licensing
(Megantz, 2002)
Technology development
• In some cases the licensor agrees to develop the licensed technology further
Improvements
• Sometimes any improvements made in a defined period of time will be included
in the agreement. In such cases the licensor must notify the licensee and transfer
this knowledge to him
Intellectual property
• Many agreements require the licensor to defend the licensee against infringement
suits brought by third parties
Marketing
• Some agreements, especially those including trademarks, specify joint marketing
activities
Putting on the shelf
(Garud and Nayyar, 1994)
Maintenance
• Catalog shelved technologies
• Periodically review the catalog of shelved technologies
• Develop avenues for researchers to share information
• Provide incentives for maintaining currently shelved technologies
• Retain key personnel who possesses tacit knowledge
• Maintain a minimum threshold of knowledge
• Retain entire teams when knowledge is systematic
Reactivation and synthesis
• Encourage the job rotation of scientists, technologists, and engineers
• Promote knowledge sharing between research laboratories and business units
• Organize symposia and seminars to share information
• Increase the awareness of the personnel on ongoing and past research projects
• Formalize the task of recognizing new business opportunities
• Reward reactivation
• Allow enough time for successful reactivation and synthesis
Spin-offs partly owned by
the parent
Parhankangas, (1999);
Lindholm, 1994
Resource sharing
• Share technological, production, marketing, and distribution related resources,
if desirable
• Provide the venture with administrative and legal services, if desirable
• Assist the venture with patent-related costs, if desirable
Collaborative Arrangements
Alvarez & Barney, (2001)
Monitor technology development
• Control the development of the venture, for instance, through board meetings
• Constantly assess the strategic importance of the technology developed by
the spin-off to the parent corporation
• Share resources and competencies with the partner
Internal Development
Burgelman & Sayles, (1986);
Sorrentino & Williams, (1995)
Prepare for exit or reintegration
• Provide the venture with enough resources
49
5.5 External service providers and
the management of non-core
technologies
The process of managing and profiting from non-core technologies may be challenging and resource consuming, especially for inexperienced companies. Particularly the implementation of sell-offs, spin-offs, licensing arrangements and joint ventures may call for the use of external
service providers.
Parent corporations seeking recipients for technology
transfer typically have difficulties with identifying the possible alternative applications of their non-core technologies in other industries (McKinsey & Company, 2003).
“Quite often, one has to do quite a bit of work to understand if a technology is applicable in a certain industry...you need to make some hypothesis like ‘this could be
used for doing this’ and once you have the hypothesis, finding a buyer is a lot easier. But the identification of alternative uses of a technology is very challenging”. In addition,
a seller must know the nature of the alternative technologies being used in the target industries to determine
whether the firm’s non-core technology could benefit the
potential buyers (Boston Consulting Group, 2003).
After determining the recipient industry, the parent firm
should determine the price of its technology. In order to be
able to do so, they have to understand how important this
technology is for the potential buyer, how much money the
target industry companies make, how much would it cost to
modify the technology to meet the needs of the buyer, and
how many alternatives are out there for the technology
(McKinsey & Company, 2003; Boston Consulting Group,
2003). In here, the presence of external technology experts
working in coordination with internal technology experts
may prove to be critical. In the following, we will introduce
various external service providers that can assist large corporations in managing their non-core technologies.
Elton et al. (2002) suggest that companies should build intellectual property networks consisting of two kinds of external experts: knowledge partners and conversion partners. The knowledge partners may be divided into broadbased technologists and industry specialists. Broad-based
technologists, typically based in technical societies, universities, and research institutes, are generalists who have a
twofold task of providing an overview of all potential applications of a given technology, ranked according to technical and business feasibility, and of estimating the economic impact of each application. Industry specialists are
experts with knowledge of applications in specific markets. They can often be found in the same institutions as
broad-based technologists.
50
Conversion partners, in turn, provide services such as the
evaluation and marketing of technologies, technology
brokering, and occasionally, offering a portfolio of existing
intellectual assets that enhance a company’s offerings. According to Elton et al. (2002), it rarely makes sense for a
company to have conversion experts in-house. Business-building partners, which help companies create new
ventures, are good examples of conversion partners.
Technology-based transactions described above involve so
many complex areas of finance, tax, law, and commercial
know-how that it is vital to involve experienced patent attorneys and lawyers at the earliest possible stage of closing
the deal. These lawyers may be internal or external. In a
similar vein, business advisors and financiers, such as accountants, management consultants, venture capitalists,
and investment bankers could facilitate the implementation
of spin-offs (including larger scale management buy-outs),
sell-offs, or joint ventures. These advisors normally play a
crucial role in checking out the feasibility of the arrangement, negotiating the terms, evaluating the value of the
technology, and securing the funding (Blackstone &
Franks, 1989). Using outside service providers has been
found to be positively associated with the success of technology-based ventures. For instance, spin-offs with a
higher degree of venture capital representation achieved a
higher revenue growth rate, enjoyed higher market value
(Chesbrough, 2002) and showed a higher degree of
professionalization (Hellman & Puri, 2002) than spin-offs
with a lower level of venture capital representation.
Finally, advances in information and communication technologies make it possible for corporations to utilize specialized Internet-based technology networks when selling
or licensing their technologies. There are two kinds of networks that may be exploited: knowledge networks and
technology transfer networks. The knowledge networks
provide information on the nature and availability of technologies, while the technology transfer networks are
on-line marketplaces helping companies buy and sell technologies.
Examples of knowledge networks include Thomson Derwent, one of the first global patent and scientific information
providers. A technology transfer network, yet2.com, is an
example of a virtual technology marketplace. yet2.com’s
business model is simple. Technology providers pay
yet2.com commissions for each transaction based on the
total value of the transaction and the membership agreement between the client and yet2.com. More information
on these external service providers can be found in Appendix 3.
5.6 Public support mechanisms
and the management of
non-core technologies
Besides private service providers, large corporations may
resort to public support measures, when developing and
supporting technologies outside their strategic core. In the
following, we will briefly present some public support
measures available for Finnish, Swedish and US corporations, seeking to utilize their non-core technologies
through internal, hybrid or external modes. Some examples
of these measures are presented in Table 13.
The support for internal development of non-core technologies takes mainly the form of financial services, such as
loans, guarantees, and direct investments. In Finland,
Tekes, Finnvera, the Employment and Economic Development Centers (TE-Centers), as well as the Finnish Industry
Investment are mainly responsible for providing support
for technology-based business development in large corporations. In Sweden, the Sixth Swedish National Pension
Fund and the Swedish Industrial Development provide
large corporations with equity capital and loans, respectively. In addition, Swedish Export Credit Guarantee
Board and Swedish Export Credit Corporation offer guarantees and export credit. In the US, public support is not, in
principle, granted for large corporations. Only the Advanced Technology Program can be seen as a source of
funding for internal development strategies.
All three countries have a wide spectrum of support instruments available for collaborative arrangements. In Finland,
there are services like INTRO, technology clinics, technology programs, a technology transfer portal and R&D services facilitating research and development collaboration.
In addition, Tekes makes large corporations eligible for its
grants and loans provided that they conduct technology development in collaboration with small and medium sized
firms and/or research institutions. In Sweden, large corporations may resort to Vinnova’s services, the AIS program,
or NUTEK’s technology brokering services, when seeking
support to their collaborative efforts. In the US, Internet
portals, such as ACE-Net and SBA-NET’s BusinessLINK,
PRO-Net, TECH-Net and SUB-Net, create a huge contact
base for corporations seeking collaboration partners. A
more detailed description of these services can be found in
Appendix 3.
There are not as many public support mechanisms available for licensing activities of large corporations, as there
are for collaboration. Tekes has a technology transfer portal, which can be used both for searching partners and licensing technologies. Other major players in this field include the technology transfer organizations in Finland and
Sweden. In the US, a web portal called TECH-Net assists
large corporations in their licensing efforts.
The spin-off strategy seems to be the most favored option
in terms of the magnitude of public support measures available. In Finland, there are a wide variety of public financial
mechanisms applicable to spin-off companies, even though
the general spin-off activity is estimated to be relatively
low (Georghiou et al., 2003). For instance, the Foundation
for Finnish Inventions offers support funding, grants and
loans for the protection, development and commercialization of inventions after the evaluation of the invention.
These support mechanisms are currently targeted to individuals and SMEs. Sitra provides young, technology-based
firms with venture capital funding and runs the LIKSA program in collaboration with Tekes, catering to young high
technology firms and their early business development efforts. Tekes, in its turn, offers grants and loans for SMEs
developing leading-edge technologies. Finally, the TE
Centers, Finnvera, and some technology transfer companies offer young, technology-based firms loans, grants, equity funding and other financial services.
In Sweden, Almi and the Sixth National Pension Fund offer loans and equity, respectively, for small businesses.
NUTEK has also financing instruments for start-ups and
young firms. Even though the Innovation Center Foundation (SIC) does not offer support for large companies,
spin-off firms are eligible for financial support, grants and
loans, once they have been separated from the parent corporation (Stevenson and Lundström, 2001).
In the US, the Small Business Administration’s loan guarantees play a significant role in small business finance, thus
also promoting the formation of spin-off firms. In addition,
Small Business Innovation Research (SBIR) program
within the SBA offers support for technology development
in promising and successful small businesses. In a similar
vein, the Advanced Technology Program (ATP) under the
National Institute of Standards and Technology (NIST)
was established to support ambitious R&D projects. It
should be kept in mind, however, that small business finance, such as the funding of spin-off firms, relies heavily
on the private sector actors, such as venture capitalists and
business angels in the United States (Honkkila and Toivonen, 2003).
51
Table 13. Examples of public support measures available for managing non-core technologies.
USA
SWEDEN
FINLAND
INTERNAL MODES
52
TE-Centers
• Investment support
Finnvera
• Loans and
guarantees
Finnish Industry
Investment
• Equity investments
Tekes
• Grants and loans
HYBRID MODES
Joint ventures
Collaboration
Finnvera
• Joint European
Venture Program
Finnfund
• Loans
Sitra
• INTRO-electronic
marketplace
Tekes
• Technology clinics
• Technology
programs
• Grants & loans
• Technology transfer
portal
• Collaboration
projects
VTT
• R&D services
Nordic Investment
Bank
• Loans
Tekes
• Technology
transfer portal
Technology
transfer
companies
Foundation for Finnish
Inventions
• Support funding,
grants and loans
• Technology transfer
services
• Prototype workshops
Sitra
• LIKSA-grants and
venture capital
Tekes
• Grants and loans
TE-Centers
• Investment support
Finnvera
• Loans & guarantees
Finnish Industry
Investment
• Equity investments
Technology Centers
• Incubator services
Vinnova
• Grants
• AIS-program
Nordic Investment
• Loans
NUTEK
• Technology brokers
Vinnova
• AIS-program
Technology
transfer
companies
Almi
• Loans
Innovation Center
Foundation
• Grants and loans
NUTEK
• Funding
Sixth Swedish National
Pensions Fund
• Equity investments
Swedish Industrial
Development Fund
• Equity investments
Small Business
Administration
• SBA-Net
ACE-Net
SBA-Net
• TECH-Net
Small Business
Administration
• Loans & guarantees
• Research services
The National Institute
of Standards and
Technology
• Advanced Technology
Program
Small Business
Investment Company
Program
• Venture capital
Sixth Swedish
National Pensions
Fund
• Equity investments
Swedish Export
Credit Guarantee
Board
• Guarantees
Swedish Industrial
Development Fund
• Equity and loans
The National
Institute of
Standards and
Technology
• Advanced
Technology
Program
EXTRNAL MODES
The National
Institute of
Standards and
Technology
• Advanced
Technology
Program
Licensing
Spin-offs
5.7 Recommendations for public
support organizations
Discussions with corporate managers gave us a reason to
believe that the management of non-core technologies is
often regarded as too resource consuming and complex of
an activity to be carried out in-house. In a similar vein, relying on external service providers is often deemed too expensive relative to the financial benefits accruing from
these investments. One should keep in mind that potential
revenues accruing from individual non-core technologies
are often relatively insignificant for large corporations with
annual sales of thousands of millions of dollars. However,
potential new jobs, tax revenues, and technology spillover
effects might be very significant from the perspective of
public policy holders. Therefore, the public sector might
have the incentives, motivation and the means to address
this question.
Public organizations may facilitate the management of
non-core technologies in large corporations in a number of
ways, as Table 13 indicates. From a large corporation’s
perspective, the wide variety of these services may even
seem confusing, as they are scattered across myriad organizations. Our first recommendation to public support organizations involves increasing the awareness of large corporations of the importance of utilizing their technology portfolio to the fullest, and informing them about the public
support mechanisms available. It would be recommendable that various public support organizations join their
forces and provide large corporations with an overview of
all services available at various phases of technology development. The question of whether or not there exists a
need to establish a dedicated unit for this purpose warrants
a future study.
Our interviews with technology managers suggest that
large corporations might be reluctant to bring in external
experts for conducting a technology portfolio review. After
all, making a distinction between core and non- core technologies is a strategic decision that requires careful assessment from the part of the corporate management. After this
phase, however, there is plenty of room for public intervention. Even today, many public organizations provide services facilitating technology transfer out of large organizations. In the future, public support organizations may consider forming a network of experts, capable of assessing
the value of emergent technologies, and identifying suitable recipient organizations across industry and organizational boundaries. Also collaboration with private sector
service providers, such as venture capitalists, investment
banks, and technology brokering services should be considered. The recommendations for public support mechanisms are listed below.
• Increase the awareness of the large corporations of the
importance managing their technology portfolio to the
fullest
• Inform the corporate managers of public support mechanisms available
• Create an overview of the support mechanisms provided
by all public sector organizations
• Consider establishing a dedicated unit for coordinating
the efforts geared toward the commercialization of
non-utilized technology-based assets of large corporations
• Consider collaboration with private service providers,
such as investment banks, technology brokering services, consultant companies, and venture capitalists
• Establish a contact network consisting of experts in private and public sector organizations responsible for
identifying the potential uses and recipients for emerging technologies
• If required, offer assistance in structuring and closing
technology-based transactions, as well as technology
transfer activities
53
6 Summary and Conclusions
Large corporations are known as a significant source of innovations due to their extensive research and development
activities. However, they are not always able to pursue all
these technological opportunities within their boundaries.
Some studies estimate that large corporations may end up
shelving as much as 70 percent of their patent portfolios.
The aim of this study is to identify more constructive ways
of utilizing this intellectual property, which, if managed in
a more nurturing context, has a potential of resulting in the
creation of new businesses, jobs and economic well-being.
In this study, we aim at comparing various options for dealing with non-core technologies as they originate within
large corporations. We define non-core technologies as
technologies that the parent corporation is either unwilling
or unable to further develop. We seek an answer to the following questions:
• How do large corporations deal with the existence of
non-core technologies within their organizations?
• What strategies can be used in large corporations in the
management of non-core technologies and non-core
technology-based ventures?
• Can the differences in the use of these strategies be explained by the characteristics of the parent corporation,
specific characteristics of the technology, or in the light
of external environment?
• How do changes in the governance and ownership structure of a technology come to affect the rate and direction
of technology development?
We started our inquiry by reviewing the existing literature
on the process of managing intellectual property in large
corporations. In a similar vein, we conducted a literature
study on various organizational modes available for large
corporations seeking ways to exploit their technology portfolio to the fullest. After this, we conducted an analysis of 7
Finnish, Swedish, and US corporations to build information and create an understanding of how various large corporations have dealt with their non-core technologies during the past years. After this overall view, we selected eight
specific technologies for an in-depth analysis, to follow
how ownership changes affect the evolution of the technology.
Our results show that the approaches adopted by large corporations to the management of non-core technologies may
be divided into non-systematic and systematic approaches.
The term “non-systematic approach” refers to a process
that is not explicitly defined and where non-core technologies are managed case by case. Corporations applying a
more systematic approach have clearly defined procedures
for managing the technology-based assets outside their
core. Based on our study, we argue that the use of systematic approaches is much more common in the United States
and Sweden than in Finland. It seems to us that the adoption of a more systematic approach is strongly linked to the
formalization of corporate venturing and technology acquisition processes in a corporation. Although financially
very successful, these organizational arrangements tend to
be short-lived, and extremely sensitive to changes in top
management, corporate strategy and competitive conditions in the industry. The various approaches to managing
non-core technologies, as well as related country-level and
organization-level differences are discussed in this study.
Our study aims at guiding corporate managers in their demanding task of exploiting their technology portfolio to the
fullest. For this purpose, we divide the process of managing non-core technologies into three phases. The first phase
involves the review of technology portfolio and identification of non-core technologies. The second phase deals with
choosing an organizational mode that provides an optimal
home for non-core technologies. Once the organizational
mode has been chosen, several important decisions regarding the scope and terms of technology transfer needs to be
made. The third phase includes also the aftercare activities
of the internal and hybrid modes. Finally, it should be kept
in mind that managing non-core technologies is a
reiterative process. It is very common that the parent corporation needs to reconsider the importance of and the optimal location for the non-core technology several times during the aftercare process. Finally, this report ends with a
discussion of the role of public sector organizations in assisting the large corporations in exploiting their technology
portfolio to the fullest.
55
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Appendix 1
Description of longitudinal case analyses
Panipol Oy Ltd
In the early 1980’s, a large chemical corporation Neste decided to diversify into the battery business, in an effort to
pursue and enhance its international competitiveness. It
was then believed that it would be technically possible to
replace the heavy lead batteries with much lighter plastic
batteries for use, in for instance, electric cars. In order to
develop plastic batteries, an improved knowledge of conductive polymers was called for. Conductive polymers
were discovered only a couple of years earlier by Alan
Heeger, Alan MacDiarmid and Hideki Shirakawa of University of Pennsylvania. To access this new to the world
knowledge, Neste ended up recruiting a young PhD who
had been working with Alan MacDiarmid in Philadelphia
at the time of the discovery.
Applying the conductive polymer technology into plastic
batteries proved to be a disappointment from the operational point of view. It seemed that plastic batteries could
never replace the lead, nickel and cadmium batteries because of quality problems. This realization marked the end
of the battery research at Neste. However, the knowledge
related to conductive polymers did not go wasted. At those
days, the parent firm Neste was a leading international
plastic producer, and decided to explore the possibilities of
blending conductive polymers with commercial mainstream plastics. It was believed that these polymer blends
could be used in computers and emergency room equipment to protect this equipment from becoming electrically
charged. The venture team started experimenting with various polymers and allied with several Nordic firms and research institutions. In mid-1980’s, this phase was ended by
another disappointment. It seemed that making a polymer
chain conductive would also render it more rigid, and thus
difficult to mold for various product applications. However, during this phase the venture team was able to build
up production facilities, while all the competitors were still
operating on the laboratory scale.
The venture team presented their results at a research conference in New Mexico. Based on the conference presentation, two leading scientists of University of California expressed their willingness to collaborate with the venture
team. They had developed a dissolvable polyaniline derivate without sacrificing its conductive properties. Neste, in
its turn had the production facilities matching the needs of
University of California. As a result, Neste decided to establish a joint venture with these two American scientists
dedicated to the development of conductive polymers, and
their applications.
The subsequent years marked a very intensive period in the
development of the technology, resulting in a pre-commercial product line of insolvable polyaniline and polymer-LEDs. The number of people working for this project
grew rapidly in the late 1980’s. However, in the mid1990’s the strategic importance of the venture for the parent corporation decreased, as Fortum (formerly Neste) decided to divest all its plastic-related businesses. In 1998, a
spin-off company was formed to continue the development
of conductive polyaniline applications. Today, the spin-off
company is active in selling additives for basic polymers
and developing applications related to anti-corrosive
paints, and conductive surface applications.
Immobilization technology
In the late 1970’s, a large Nordic life science corporation,
Cultor, was exploring new business areas to exploit the recent developments in biotechnology. Their strategy was to
move further into the biotech industry. At the same time,
quite unexpectedly, Cultor got an opportunity to acquire a
manufacturing plant suitable for fermentation purposes.
During those days, Cultor also entered into an alliance with
a large US corporation, where Cultor provided the production facilities and the partner technological competences
related to the production of industrial enzymes. As a
by-product of this alliance, Cultor adopted many technologies from its partner, among them so called “immobilization technology”, potentially applicable for enzyme immobilization, ion exchange, chromatography, and protein separation.
A project team was set up to explore potential product applications of the technology. By accident, the project manager found out about a parallel research project going on at
the National Technical Research Center. The mission of
this project was to apply immobilization technology in beer
fermentation. Cultor participated in this project, which resulted in an alliance between a large brewery, KOFF, and
Cultor. Besides beer fermentation, the venture team got
gradually involved in the development of various other
product applications, such as soft drinks, non-alcoholic
beers, extremely pure lactic acid, just to mention a few. All
these applications were developed in alliances with other
firms or research institutes. Only the applications related to
beer fermentation generated a continuous revenue stream.
However, this revenue stream was not enough to pursue the
development of other applications of the immobilization
technology. The fact that the project team was not able to
come up with product applications for the core businesses
of Cultor made the technology less valuable in the eyes of
the corporate management. Struggling with financial dis-
61
tress, the parent firm decided to sell the rights to the technology to an international engineering company, Tuchenhagen, in 1997.
Atomic Layer Epitaxy (ALE) Technology
In the early 1970’s, Tuomo Suntola was developing electronic measurement systems at the National Research Center for a large medical equipment manufacturer, Instrumentarium. Later on, this assignment turned into a fulltime job at Instrumentarium. In 1974, after having conducted a market survey, Tuomo Suntola suggested that
Instrumentarium initiate the development of high quality
flat panels for medical devices. However, technology development proved to be too time and resource consuming
for Instrumentarium. Thus, the corporate management decided to sell all the rights related to the technology to
Lohja, a large Nordic corporation specializing in consumer
electronics with complementary technological resources.
Lohja planned to integrate the technology to the manufacture of TV displays, an operation initiated at Lohja in 1977.
The first prototype was introduced in 1978, and the product
was launched to the market in the mid-1980’s. However, in
1989, Lohja, decided to divest some of its business divisions. Among them was also the business developing the
ALE technology. As a result, this business unit was sold to
a US corporation, Planar Ltd.
In 1987, a large energy corporation, Neste (the current
Fortum), recruited Tuomo Suntola and 20 of his co-workers to apply their technological knowledge in various
emerging business areas of the corporation, including the
manufacture of solar panels and catalysts. The project team
received international recognition for their scientific
achievements. By the late 1990’s, the venture team came
up with a prototype for solar panels. However, commercial
production of the solar panels did not prove to be a commercially feasible solution. ALE technology was also applied to the manufacture of catalysts. The most important
application of the technology was the ALE reactor developed for the manufacture of flat panels and thin material
layers used in the manufacture of semiconductor devices.
Except for the catalysts, all the other applications of the
technology lay outside the core areas of Fortum. That is
why the corporate management ended up selling the business unit to a global semiconductor company, ASM in
1998.
Finex: Specialty Resins
In the 1960’s, Cultor was a pioneer of chromatographic
separation in various industrial applications. The successful implementation of chromatographic separation required hardware, software and specialty resins. In the
1970’s, specialty resins were not available on the market.
As a result, Cultor decided to start the in-house production
62
of resins for chromatographic separation purposes. The
in-house production of resins was first located under the
R&D unit. Later on it was transferred to an engineering
unit specializing in separation technologies. After some
years of experimentation, the venture team was able to produce specialty resins on a commercially viable scale.
In 1990, Cultor decided to terminate the production of specialty resins, now widely available on the market. The personnel expressed their willingness to continue the development of the technology in a self-standing firm. As a result,
six persons from Cultor transferred to a newly formed
spin-off company. The very first challenge faced by the
spin-off company Finex involved decreasing its dependence on its first and only customer, Cultor, by broadening
the clientele and developing new applications of the technology. By the year 2001, Finex had diversified successfully into two new product areas, including powered resins
and special polymers.
Gyros: Miniaturization technologies
The roots of the miniaturization technology at Pharmacia
date back to the late 1980’s when the corporation was taking its first steps toward a better understanding of the biosensor development. In 1990, a new ambitious CEO decided to establish an exploratory research group searching
for new areas of interest, although the corporation as a
whole was under financial distress and laying off personnel
in more established areas. Most of the people forming the
newly founded exploratory research group had been engaged in the corporation’s earlier efforts in biosensor development in a subsidiary spun-off from Pharmacia. By the
year 1996, a number of patent applications were filed.
However, the research group anticipated that launching the
product to the market would still take at least five more
years. At those days, Pharmacia Biotech had the tendency
to discontinue projects that would not generate short-term
revenue. For some reason, this project was not discontinued, but it almost starved to death under the meager financial support from the parent.
In 1997, Pharmacia Biotech merged with Amersham Life
Sciences Ltd. The new owner had a much bolder attitude
toward risk taking and exploratory research. As a result, the
project was revitalized. Another strike of luck came in the
form of a new vice president in R&D. He saw great potential in the technology and soon he became a dedicated venture champion for the whole research group. However, the
other business units were unwilling to invest in a technology that they considered too risky and too unrelated to their
current operations. As a result, the venture was spun-off in
2000, with a considerable venture capital backing. By
2002, the newly founded spin-off firm, Gyros, had specialized in proteomics and launched its first product to the market.
Bioka: Enzyme-based oxygen absorbent
Cultor had learned the basics of the manufacture of glucose
oxidase during the decades of collaboration with leading
US biotechnology firms. In the mid-1980’s, Paavo
Lehtonen heard from oxygen absorbents widely used in Japan and realized that oxidoreductases could also be used
for that purpose. He started product development and
ended up with an enzyme-based oxygen absorbent bag, a
product with far better quality compared to the competing
solutions. In addition, the venture team developed an enzyme-based oxygen absorbent film in collaboration with
UPM-Kymmene. However, market demand did not pick
up, mostly due to the fact that the product is not so well
known among the European customers.
In the early 1990’s, the parent corporation Cultor decided
to transfer the development of its biotechnology applications to a joint venture called Genentech. Following this restructuring activity, all the operations related to the development and commercialization of enzyme-based oxygen
absorbents were transferred to Bioka, a newly founded
spin-off firm. Paavo Lehtonen became CEO of this company. After its foundation, Bioka has been searching for
partners in order to commercialize its product applications.
Waste Plastic Applications
In 1995, Olli Pinomaa of Polytronic Oy Ltd came up with
an idea that the quality of asphalt could be improved by
adding some plastics to it. His co-worker, Markku
Kivirinta had had a long career in the utilization and recycling of industrial waste materials. Because of his background, he realized that it would be more feasible to use
waste plastics instead of quality plastics for the manufacture of asphalt. The results of laboratory tests were promising. However, Polytronic needed a larger partner for developing the technology. A suitable partner was found
through a collaborative TEKES project with Raisio. At
those days, the Raisio Group was looking for new ways to
exploit its oils and fats. Polytronic noticed that Raisio’s fats
could be used in dissolving plastics. To exploit their complementary resources and knowledge bases, Raisio and
Polytronic signed a collaborative agreement in 1994. The
development work took place in a unit called Raisio Engineering Ltd.
The collaboration between Raisio and Polytronic resulted
in a number of patents. For instance, there are patents related to using waste plastic as a fuel and a raw material for
asphalt production. In the late 1990’s, however, Raisio decided to divest Raisio Engineering Ltd. At that time, the
other units of Raisio were not willing to develop the technology further. Thus, the project was put on the shelf. At
the time of the study, both Raisio and Polytronic were still
awaiting changes in environmental regulation with a po-
tential of facilitating the use of recycled materials, and thus
serving as a trigger for the commercialization of the technology. In addition, they are filing new patent applications
and looking for a potential buyer for the technology.
Biacore (Biosensor development)
During late 1970’s, Professor Ingmar Lundström of Linköping University started a series of projects for the measurement of biological components at his new institute. In
close contact with his group, parallel research activities
took place at the National Defense Research Institute in
Umeå. As a result, the development of the systems for
biosensors was initiated. The Linköping group published
the first work on surface plasmon resonance in 1983. From
1982 onwards, there were direct research collaboration between the Linköping group and the Umeå group.
In the end of 1982, Pharmacia heard of biosensors developed at National Defense Research Institute and Linköping
University. Since there were already people within Pharmacia interested in these fields, Pharmacia decided to establish a team exploring the potentials of this technology.
In 1984, Pharmacia established a company called Pharmacia Biosensor AB that became general partner in the
limited partnership. Pharmacia Biosensor KB relied
mainly on external funding for the research and development work related to biosensors. From the beginning, the
unit focused on both diagnostic and biotechnology applications. From 1988 onwards, the best results from the diagnostic development were used in a new concept called
“Biomolecular Interaction Analysis”. The product BIACORE was developed during the time period 1988 - 1990.
The diagnostic application never resulted in direct diagnostic products. However, a product line for food analysis and
QC were later developed based on this knowledge. The
emerging field of biotechnology required better analytical
techniques and the BIACORE technology put figures on
biological function, which is important for the rapid development of pharmaceutical industry and academic research.
The first product was launched in September 1990.
In 1991, the top management team of Pharmacia wanted to
divest the venture, because of the high burn rate and their
difficulties of understanding the technology. As a result,
Pharmacia hired a consultant who traveled with the venture
team presenting the idea to a number of companies. However, no one was interested in acquiring the technology.
Since the venture team believed in their ideas, the limited
partnership was dissolved, and a new company was
founded to replace it. The spin-off company was listed on
the stock market at the moment of its inception. Since the
IPO, the spin-off company Biacore has been active in developing and commercializing new applications of the
technology.
63
Appendix 2 Comparison of technology management practices in case corporations
Comparison of longitudinal cases
Conductive polymer technology (1982-2002)
Immobilization technology (1980-2002)
Atomic layer epitaxy technology (1970-2002)
Original goal
A plastic battery for electric car
To explore recent developments in biotech
Medical device monitors
Role of
co-incidence,
luck and
non-planned
(chance) events
“Our conference presentation in New Mexico caught the
interest of two leading US scientists. Quite unexpectedly,
they suggested collaboration to us.”
“The decision to terminate the plastic battery research
project co-incided with a change in corporate strategy. The
new interest of Neste lay in applications, where conductive
polymers were blended with main stream plastics.”
“The severe economic recession of the early 1990’s made it
necessary for Neste to divest its plastic-related businesses,
thus leaving a venture without home in the restructured
parent corporation.”
“The application for the paper industry occurred to me just
because of my prior job in that industry.”
“Quite unexpectedly, we got an opportunity to acquire a
production plant in Southern Finland. It was suitable for
fermentation purposes and that is how it all began.”
“As a by-product of our alliance with this US corporation,
we learned the immobilization technology.”
“Quite by chance, I heard about a research project going on
at the National Research Center of Finland pursuing similar
interests.”
“In search of potential applications for the technology,
we engaged in a thorough and systematic search of existing
literature. However, all the applications that actually worked
and were implemented were found by chance. Many times
companies aim at modeling processes and using
well-structured management methods. However, our
experience shows that often intuition can lead to exactly
the same results.”
”Many of these things just happened.“
“Our conference presentation led to 4000
product inquiries. We should have saved that
presentation to a moment when our product was
ready”.
“Quite unexpectedly, Lohja decided to divest its
consumer electronic divisions. As a result, our
project was terminated.”
Milestones
in technology
development
1)
2)
3)
4)
5)
6)
7)
8)
9)
Plastic Battery → dead end
Experimentation with polytiofene derivates
Scaling up the production facilities
Conductive polyaniline → a commercial product
Polymer LEDs → a commercial product
Additives → a commercial product
Anticorrosive paints → under development
Conductive textiles → under development
Conductive surface application → under development
1)
2)
3)
4)
5)
6)
7)
Beer fermentation → a new product line at Koff
Fermentation of soft drinks → patents
Fermentation of non-alcoholic beers → new production
lines at Bavaria → design and sales of bioreactors to
other breweries
Control of the pH level of beer → patent, in use at
Bavaria
Production of extremely pure lactic acid → development
delayed at Danisco
Manufacture of food ingredients → development delayed
at Danisco
Manufacture of ciders and long drinks → under
development under a global research consortium
1)
2)
3)
4)
5)
Medical device application → discontinued
TV monitor application → alive and well
Catalyst application → under development
within the parent
Solar panel application → discontinued,
related know-how partly utilized by the
NAPS unit
ALE reactor application → alive and well
with the new parent
65
66
Governance
structures &
technologies
developed
within them
Conductive polymer technology (1982-2002)
Immobilization technology (1980-2002)
1)
1)
2)
3)
4)
Outcome
Alliance between Neste, National Research Center of
Finland, and Pakkasakku Oy → Development of Plastic
Battery
A Nordic Research Consortium → experimentation with
polytiofene derivates & scaling up the production
A joint venture, Uniax, between Neste and University of
California → Conductive polymers and Polymer LEDs
Spin-off firm from Fortum in alliance with the paper
manufacturer, textile company and paint producer →
additives, anticorrosive paints, conductive textiles,
conductive surface applications
A spin-off company selling conductive polymers
High tech applications acquired by a global chemical
corporation, Uniax
2)
3)
4)
5)
Joint venture between Cultor and Nabisco → basics of
immobilization technology
RIFB consortium → beer fermentation
Alliances with Koff, Marli, and Bavaria → fermentation
of beers and soft drinks,
A business unit under Tuchenhagen → design of
fermentation systems
Global research consortium → fermentation of ciders
and soft drinks
Atomic layer epitaxy technology (1970-2002)
1)
2)
3)
4)
5)
Beer fermentation applications sold to Tuchenhagen
The rights to other applications are retained by the parent
R&D lab of Instrumentarium → a flat panel
display for medical devices
A business unit under Lohja → TV monitor
applications
A subsidiary of the Planar corporation →
a world leader in TV-monitor related
technologies
A subsidiary of Fortum → catalyst, ALE
reactor, and solar panel applications
A subsidiary of a ASM → ALE reactor
applications
Most promising applications sold to a global
semiconductor corporation, catalyst applications
retained by the parent
Specialty resins (1970-2002)
Waste plastic applications (1994-2002)
Miniaturization technologies (1986-2002)
Original goal
In-house production of special resins for the use of parent
corporation’s chromatographic separation processes
Use of waste plastics in asphalt making
Building a new business area around the
potentials of miniaturization and microfluidics
technologies
Role of
co-incidence,
luck and
non-planned
(chance) events
“We found our second major product group due to the fact
that big manufacturers lost their interest in this business. As
a result, customers approached us and asked if we could do
it.”
“The decision to spin us out from Cultor had to do with
general refocusing tendencies of the parent. This decision
was further confirmed by the fact that resins for
chromatographic separations started to become available on
the market. As a result, in-house production was not a
necessity anymore.”
“In a joint Tekes project, we realized that Raisio’s fats could
be used for making asphalt. This led to the establishment of
a joint venture between Polytronic and Raisio. “
“The termination of Raisio Engineering Ltd led to the
termination of the project at Raisio.”
“The further development of the asphalt application is
delayed, because the Finnish packaging industry does not
pay for the waste material utilization As a result, there is not
enough raw material for commercial production.”
“Later on when I started thinking about the
possibilities of CDs, I remembered the name of
the company I learned to know in Lichtenstein
years ago. That is how it all started. It would
have never happened if I hadn’t gone to
Lichtenstein back then.”
“We met a researcher at a conference and
noticed that we are doing similar kinds of things.
The positive feedback we got from him gave us
enough courage to start the whole process”.
“Attendance to a seminar brought us in contact
with Ericsson and that is how our collaboration
started”.
“The merger of Pharmacia and Amersham
Sciences Ltd created a new situation, where
some projects put on the shelf prior to the
merger were revitalized. This is because
Amersham had a more positive attitude toward
risky technology development projects than
Pharmacia had.”
“The new VP in R&D was able to detect the huge
potential of the technology. That is why the
project was revitalized.”
“At that time, the drug screening and drug
development were hungry for very high
throughput devices. The existence of chemical
libraries, for instance, made it necessary to have
a high throughput analyzing technology. This
was not the case before.”
Milestones
in technology
development
1)
1)
1)
2)
3)
2)
3)
Resins for chromatographic separations → a commercial
product
Powered resin mixtures for water treatment and nuclear
applications → a commercial product
Special polymers for clothing, furniture and paint
industries → a commercial product
2)
3)
4)
Realization that some characteristics of asphalt can be
improved by the infusion of plastics
Asphalt application (on the shelf)
Fuel application (on the shelf)
Steel manufacture application (on the shelf)
a patent portfolio
a proof of principle
the first product application in the
proteomics area: a sample preparation
disc for use with mass spectrometers
development ongoing
67
68
Specialty resins (1970-2002)
Governance
structures &
technologies
developed
within them
1)
2)
3)
Outcome
Waste plastic applications (1994-2002)
Research Center and Engineering Department of Cultor: 1)
early development of resins for chromatographic
2)
separations
Production Plant in Kotka under the Cultor ownership:
manufacture of resins for chromatographic separations
3)
A spin-off firm Finex in collaboration with Cultor, Fortum,
Lappeenranta University of Technology and UPM
Kymmene:
– manufacture of resins for chromatographic separations
– development and manufacture of powered resin
mixtures
– development and manufacture of special polymers
• A successful spin-off firm developing and exploiting
a numerous applications of the technology
• Overall contribution to the product development of
the parent
Miniaturization technologies (1986-2002)
Polytronic: Early development of the asphalt application 1)
A joint project between Polytronic and Raisio Engineering
in collaboration with VTT: asphalt application & fuel
application
2)
Development frozen at Raisio and Polytronic , the owners
consider selling the technology
It remains to be seen whether these applications will be
accepted by the market.
3)
4)
5)
Pharmacia Biosensor 1986-1990: basic
understanding of the microfluidics area and
the CD applications was built
Exploratory research group within
Pharmacia 1990-1995 in collaboration with
many universities and Ericsson: patents and
patent applications
“On the shelf” 1995-1997
Revitalization of the project at Pharmacia
(1997-2000): patents, patent applications
and a proof of principle
Spin-off (Gyros 2000) in collaboration with
Åmic: product development in the
proteomics area
A spin-off company launching the first product
to the market
Biosensor development (1984-2002)
Enzyme-based oxygen absorbent (1979-2002)
Original goal
Developing a new business area for Pharmacia utilizing biosensor
technologies
Exploring new business areas for the parent corporation
Role of co-incidence, luck and
non-planned (chance) events
“In the beginning of 1980’s, Pharmacia heard of biosensors from
Bo Lindberg (from Professor Lundström’s group at Linköping University).
That is how it all started.”
“The contact with the Swedish Defense Agency was established through
participating in the same symposia and seminars.”
“During that time, a need for measuring molecules emerged in the
pharmaceuticals industry. We did not have this application in mind in the
beginning, because in the old days, pharmaceutical research was more
based on chemical processes. It was very fortunate for us that this change
came up.”
“When I heard about Mitsubishi Chemicals and its deoxydizer product, I got
an idea for a new product.”
“Because of the recession of the 1990’s, the parent corporation initiated
restructuring activities. As a result, many biotechnology projects, like this
one, were divested or terminated.”
Milestones in technology
development
1)
2)
3)
A portfolio of biosensor related patents
A biotech application
A food analysis application
1)
2)
Enzyme-based oxygen absorbent bag application
Enzyme-based oxygen absorbent film application
Governance structures
& technologies developed
within them
1)
Informal academia-industry networks (Universities of Lund and
Linköping, Pharmacia, and the Swedish Defense Agency) prior to 1984:
basic knowledge of elliptsometry, biosensors, surface plasmon
resonance resulting in patent applications
Limited partnership 1984-1991: development of the diagnostics
application and the biotech application, product prototype, building of a
marketing and sales organization in collaboration with Pharmacia
Biotech and Diagnostics, no contacts with outsiders were allowed
Spin-off Biacore: focus on marketing and sales, development of a new
instrument with higher resolution, and better software, development of
a food analysis application and a QC application
1)
Part of the Hanko Plants (basic knowledge of the chemical processes
behind the invention)
Part of FinnSugar Biochemicals Department (development of a oxygen
absorbent bag + patent application)
Alliance with UPM Kymmene (development of oxygen absorbent films +
patent appliation)
Part of Genencor
Part of the Cultor Research Center
Spin-off firm Bioka founded in 1991: Focusing on partnering and
business development efforts
2)
3)
Outcome
A successful spin-off company listed on the Swedish Stock Exchange and
NASDAQ; the biotech application is flourishing, the development of the
diagnostics application was discontinued
2)
3)
4)
5)
6)
A spin-off firm seeking ways to commercialize its product
69
70
Comparison of the management of non-core technologies in case corporations
Case
Country
Approach
Organizational mode
Relationship with the parent
Saab-Scania
Combitech
Sweden
Systematic procedures
and defined
organizational
structures
Internal development
An independent business entity, Businesses and technologies of
commercializing non-core
varying degree of maturity
technologies of the parent
Average return on working
capital: 26 percent, turnover of
2 Billion SEK, profits 200 Million
SEK, terminated in 1997
Perstorp-Pernovo
Sweden
Systematic procedures
and defined
organizational
structures
Corporate venturing →
spin-off and sell-off
The ventures were independent
and not limited by the strategy
of Perstorp
The sales of the Pernovo unit
accounted for 20 percent of
Perstorp’s total sales in the
mid-1990s and 33 percent in
1991. The venturing unit was
terminated in 1997
Volvo Technology
Transfer
Sweden
Systematic procedures
and defined
organizational
structures
Corporate venture
capital investments →
trade-sales and
integration
An independent business entity, Businesses and technologies of
supporting entrepreneurship,
varying degree of maturity
management of non-core
technologies and allowing the
parent corporation an access to
novel technologies
Too early to say
Pharmacia:
Gyros
Sweden
Non-systematic approach Spin-off
The parent company owns 10
percent of the spin-off, no
business relationship with the
parent
Patents, a proof of principle,
product applications
Estimated break-even in 2005.
The spin-off is worth SEK
700-800 million in 2002
Pharmacia:
Biacore
Sweden
Non-systematic approach Spin-off
Publicly owned company, the
parent company owns 59
percent, no collaboration with
the parent
Established business, a patent
portfolio, commercial products
Profitable, turnover (2002): SEK
614,2 million
Cultor:
Immobilization
technology
Finland
Non-systematic approach Sell-off
No ongoing relationship
Established business, several
commercialized applications
related to beer fermentation
N.A.
Cultor:
Finex
Finland
Non-systematic approach Spin-off
Supplier to Cultor
Established business, three
commercialized product
applications
Turnover: 4,7 M euros (2002)
Non-financial outcome*
Businesses and technologies of
varying degree of maturity
Financial outcome
Case
Country
Approach
Cultor:
Bioka
Finland
Fortum:
ALE technology
Organizational mode
Relationship with the parent
Non-financial outcome*
Financial outcome
Non-systematic approach Spin-off
No collaboration after the first
years
Enzyme-Based Oxygen
Absorbent Film: patents
and patent applications
Enzyme-Based Oxygen
Absorbent Bag: Idea stage
Seeking partners to
commercialize the first
product (2002)
Finland
Non-systematic
No formal relationship
A small patent portfolio, product The production was transferred
prototypes, products
to USA in 2001. Process
development left in Finland.
Performance data not available
Fortum:
Panipol
Finland
Non-systematic approach Joint venture, later
spin-off
No business relationship, the
parent owns 15 percent
A patent portfolio, product
applications, commercialized
products
Sales (2001): 500 000 euros
Raisio:
Polytronic
Finland
Non-systematic approach Collaboration, later
putting on shelf
Partly owned by the parent
Patents, product applications
on trial
No sales
Nortel Networks
USA
Systematic Approach
Spin-outs and spin-ins
Part of corporate R&D, parent
firm ownership depends on the
synergies with mainstream
businesses
A portfolio of technology-based 50 percent of the ventures
ventures developing new
can be considered relatively
products and technologies
successful
Xerox:
35 companies
USA
Policies evolved over
time:
1) laissez faire
2) ad hoc
3) formal internal
venturing
4) corporate incubator
Initially spin-offs
9 spin-offs with no initial
Patents, business concepts,
Xerox-equity. In other cases,
product applications, growing
the Xerox-equity varied between businesses
10 and 100 percent
Later development:
29 % IPO
22 % sold-off
17 % closed down
3 % bought back
3 % dispersed
26 % going concern
Procter & Gamble
(EDB&GL)
USA
Systematic procedures
and defined
organizational structures
Licensing
No parent firm involvement after Patents to be outlicensed
the separation
Seven-fold increase in the
annual income based on selling
P&G’s intellectual property
Lucent
USA
Systematic procedures
and defined
organizational structures
Spin-offs
No parent firm investment
By early 2001, the venture
portfolio created more than
$200 million in value
Spin-off, later sell-off
The ventures were sold to
an outsider investor group
(*) at the time of the decision to divest, terminate, form a collaborative partnership, or continue internal development of a non-core technology
71
Appendix 3
Private and public service providers and management of
non-core technologies
Virtual technology marketplace
yet2.com:
Many of the world’s premier research and development
companies currently provide technologies on an exclusive
basis to yet2.com. yet2.com is the first international environment for buying and selling technology on the Internet.
It is a virtual technology marketplace, and has over 6,000
technologies and technology needs listings. It offers its
customers the opportunity to easily and privately acquire,
sell, license and search technology-based intellectual assets. Virtually all industries and areas of research and development are covered in yet2.com’s network, giving technology officers, scientists and researchers an opportunity
to discover cutting-edge inventions as well as new applications for already known technologies. yet2.com helps companies extract value from undervalued or unused technologies by introducing a fast and effective technology transfer
procedure through their web site.
TechEx:
An Internet-based exchange for buying and selling biomedical technologies. TechEx is used by thousands of
technology transfer and research professionals to efficiently exchange licensing opportunities and innovations
available for partnering. TechEx is an Internet-based exchange for buying and selling biomedical technologies
(www.techex.com).
Knowledge Networks
Other service providers
British Technology Group:
• commercializes inventions and non-utilized
technologies
• works closely with research centers, universities
and technology companies
• a wide range of commercialization partners.
Competitive Technologies:
• an invention management, technology transfer,
commercialization and licensing company
• works with large and small firms, universities, and
federal and private research centers in the United
States and internationally.
Chipworks:
• main expertise area: technology portfolio review.
Milcom Technologies:
• A U.S. company, operating in partnership with defense
contractors, commercial companies, federal laboratories
and other R&D sources by licensing or purchasing these
partners’ technologies and building new technology
companies around them.
Research Corporation Technologies:
• A U.S. based independent technology development
company, which cooperates with universities and research institutions worldwide to commercialize their
early-stage technologies.
Thomson Derwent:
Thomson Derwent is one of the first established global patent and scientific information providers. They assist their
customers by providing them with key technical, scientific
and business information drawn from patents, research
journals and conference proceedings. Their clients include
some of the top Fortune 100 companies. With the use of
their services, their customers can monitor competitor activity, save R&D resources (by analyzing what is available
in the market), be aware of major industry trends, generate
new revenue sources and manage patent portfolios. However, their web-based services, such as databases, are not as
easily accessible as those of yet2.com. Derwent’s services
can only be reached through intermediary web sites operated by their partners, including Delphion, Dialogselect
and Axiom.
73
Public support mechanisms
Employment and Economic Development Centers
FINLAND
• 15 centers all over Finland and 4 additional
service points
• Regional organizations
• The primary goal is to enhance competitiveness and
working environment in SMEs
• Offer a wide variety of guidance and development services and financial instruments, which include investment support and support for SME’s development projects.
Foundation for Finnish Inventions
• The Foundation for Finnish Inventions supports and promotes Finnish inventive activity, protection, development and commercialization of inventions
• The Foundation serves as link between inventors, innovators, consumers, businesses, and industry in Finland
and or other parts of the world, whether it is a matter of
setting up production, licensing or any means of exploiting an invention
• The Foundation for Finnish Inventions provides technology transfer related services, such as advising, evaluating, financing, developing, and marketing of inventions. The target groups include individuals and small
and medium-sized companies (also individuals employed by large corporations)
• The main part of the funding comes from the Ministry of
Trade and Industry
• The funding provided by the Foundation for developing
inventions is risk financing (no securities required) taking the form of support funding, grants and loans.
Sitra (the Finnish National Fund for Research and
Development)
• Acts under the supervision of the Finnish Parliament and
aims at increasing economic prosperity in Finland
• Does not receive any public funding, but uses its original
capital and returns generated by its venture capital operations and venture fund investments
• Offers funding and related services for developing
promising ventures, commercializing innovations, and
enhancing international competitiveness of Finnish
companies
• Publishes new research information, educates both public and private sector’s decision-makers and aims at predicting future challenges and opportunities
• Cooperates with private financiers and public organizations
• Two primary funding mechanisms: LIKSA program
(a joint program with Tekes) and venture capital.
Tekes
• Aims at enhancing competitiveness among the Finnish
industry and service sector by supporting innovative activities
• Together with its partners, Tekes offers value-added services for technology-based Finnish companies for every
step of the innovation process
• The main financial instruments are R&D grants and
R&D loans
• The services offered by Tekes include technology programs, technology clinics, international activity services, guidance and information services.
74
Finnvera
• A completely state-owned specialized financing company operating under the supervision of the Ministry of
Trade and Industry
• Finnvera has three tasks prescribed by the Finnish law:
1. Development of favorable conditions for SMEs
2. Promotion of the exports and internationalization
of enterprises
3. Implementation of the government’s business
and industry policy measures as a provider of
risk financing
• Offers loans and guarantees to all kinds of Finnish companies throughout their life cycles
• The most notable loan programs include capital loans,
development loans, entrepreneur loans, internationalization loans, investment and working capital loans, Joint
European Venture loans
• Finnvera is an official Export Credit Agency in Finland.
Finnish Industry Investment
• An investment company owned by the government operating under the supervision of the Ministry of Trade
and Industry
• Its mission is to support the growth and internationalization of business activity in Finland by making equity
capital investments in venture capital and private funds
and in selected companies
• Investments are mainly targeted to projects which cannot get sufficient funding from other sources.
Technology transfer companies
• Their business concept is to commercialize promising
innovations and research results
• The owners of these companies are universities, Sitra
and possible other backers, such as municipalities,
Finnvera or Technical Research Center of Finland
• Include: Oy AboaTech Ab, Licentia Oy, OuluTech Oy
and Tuotekehitys Oy Tamlink.
SWEDEN
The Swedish national innovation system is illustrated in
the figure below (Tekes, 2002).
The National Research
Committee
Government
Ministry of
Education
and Science
The Swedish
Research
Council
Ministry of Industry,
Employment and
Communications
NUTEK
Vinnova
Other
Ministries
ITPS
R&D
funding
agencies
Other
Research
Councils
Funding Research
Foundations and
Other Piblic
Financing
Organizations
ALM
Business
sector
Higher
Education
Governmental
Institutes and
Agencies
Industrial
Research
Institutes
NUTEK
(The Swedish Business Development Agency)
• Responsible for drafting industrial policy in Sweden
• Provides financial support for start-ups and growth companies. The focus is on high technology businesses
• A variety of services including “Start Line” (a telephone
service for entrepreneurs and start-ups), “Entrepreneur
Guide” (a web service, which assists entrepreneurs in
finding necessary information and contact right authorities) and a financing database, which contains information about the financing alternatives.
Vinnova
(The Swedish Agency for Innovation Systems)
• Vinnova’s role is to integrate R&D in technology,
working life and society
• It has own regional networks but operates through
regional County administration
• Vinnova offers support for R&D in technology,
transportation, communication, and the labor market
• In addition, Vinnova has measures to support R&D
networks.
Business
Sector
ALMI
• An organization consisting of a wholly state-owned parent company and 21 regional companies
• Offers both financial support (primarily loans) and
counseling services
• Works in collaboration with other financial institutes
• Promotes investment in SMEs in Sweden.
Swedish Industrial Development Fund
• The aim of the fund is to promote profitable industrial
growth by providing venture capital and acting as an active investor in growing businesses throughout Sweden
• Investments in regional venture capital companies
• The fund invests in companies with turnover less than
SEK 400 million and the amount of employees less than
250 on all business sectors except trading and services
• The focus is, however, on promising high-tech companies
• Both equity and loan financing are possible.
Sixth Swedish National Pension Fund
• Invests primarily in unlisted growing SMEs in Sweden
• The investments are implemented either directly or
through private equity companies, which are partly
owned by the Sixth Fund.
75
THE UNITED STATES
Department of Commerce
• Possesses offices in every state
• Aims at creating an environment, which enables economic growth, technological competitiveness and sustainable development
• Several administrative agencies and offices including International Trade Administration, Technology Administration and Minority Business Development Agency.
• SBA offers also services, which are implemented
through various office networks, such Business Information Center, Small Business Development Centers,
U.S. Export Assistance Centers and Women’s Business
Centers
• Services and information are also extensively offered
via web-sites
• SBA-NET is a gateway that contains links to more specific networks of contacts.
Small Business Investment Company program (SBIC)
Small Business Administration (SBA)
• The objective is to aid, support and assist small business
and control that legislation does not discriminate against
small businesses
• SBA offices are located in every state
• Financing is mainly organized through private companies
• The SBA’s lending process is illustrated below
• SBA organizes programs creating opportunities for
small businesses to utilize their technological potential
and create innovation through research and development. The main program is Small Business Innovation
Research (SBIR), which ensures that also small businesses can participate in federal research and development programs
• Another important program is Small Business Technology Transfer (STTR) aiming at promoting cooperation
between small businesses and non-profit research institutes.
1
4
76
• Organized by SBA
• Wide array of possible investments vehicles ranging
from long-term loans to equity investments.
Advantage Technology Program (ATP)
• An initiative, which was created by the National Institute of Standards and Technology to support private
R&D projects that could not otherwise receive funding
or would suffer from limited resources
• The program is totally industry-driven
• To be eligible for finding, the company needs to allocate
its own funds to the project
• The ATP grant is used completely to finance R&D operations, not product development, commercialization or
marketing activities.
5
2
Private-sector lender
Small business
1)
2)
3)
4)
5)
6)
• A joint-effort venture capital operation between the government and private sector
SBA
3
6
A small business contacts a private-sector lender
An application is written and sent to SBA
SBA assesses the application and either guarantees the loan or not
If SBA secures the loan, the lender provides money for the business
The business repays the principal and related interests
If the business cannot repay, SBA is responsible to pay the amount it guaranteed
Technology Reviews of Tekes
149/2003 Managing Non-Core Technologies: Experiences from Finnish, Swedish and US Corporations
Annaleena Parhankangas, Päivi Holmlund, Turkka Kuusisto. 76 p.
148/2003 Kantasolutoimiala Suomessa. Toimijoiden näkemyksiä vuonna 2003. Noin 90 s.
147/2003 Innovative waste management products – European market survey. Christoph Genter. 40 p.
146/2003 Elektroniikan lämmönhallinta. Simo Keskinen. 8 s.
145/2003 Meriklusterikatsauksen englanninkielinen versio.
144/2003 Tracing Knowledge Flows in the Finnish Innovation System – A Study of US Patents Granted
to Finnish University Researchers. Martin Meyer, Tanja Siniläinen, Jan Timm Utecht,
Olle Persson, Jianzhong Hong. 36 p.
143/2003 Paikannus mobiilipalveluissa ja sovelluksissa. Antti Rainio. 75 s.
142/2003 Innovaatio investointina. Osa 1. Rahoitusteoreettinen näkökulma Tekesin vaikuttavuuteen.
Mika Vaihekoski, Seppo Leminen, Joonas Pekkanen, Jussi Tiilikka
141/2003 Suomen bioteollisuuden bioprosessitekniset tarpeet
140/2003 Suomen meriklusteri. Mikko Viitanen, Tapio Karvonen, Johanna Vaiste, Hannu Hernesniemi. 190 s.
139/2003 Innovaatioita metsästämässä – media valinkauhassa. Ulf Lindqvist, Timo Siivonen,
Caj Södergård. 44 s.
138/2003 Finland’s Wireless Valley: Domestic Politics, Globalizing Industry. Dan Steinbock.
137/2003 Kohti kansainvälistä arvoverkottunutta rakentamista - Linjaukset rakennusklusterin teknologiaohjelman kansainvälistymiselle. Towards Value Networks in Construction - Outlining Internatioalization for the Building Cluster Technology Program. Tapio Koivu, Hans Björnsson.
136/2003 Verkostotalouden uudet sovellukset – Aihealueen tulevaisuuden suuntauksia ja kehittämistarpeita. Klaus Oesch, Anssi Varesmaa, Tero Nummenpää, Petri Vuorimaa. 78 s.
135/2003 Uuden sukupolven teknologiaohjelmia etsimässä.
134/2003 Insights into services and innovation in the knowledge-intensive economy. Dr Jari Kuusisto,
Dr Martin Meyer. 62 p.
133/2002 Independent living market in Germany, UK, Italy, Belgium and the Netherlands. Christine
Grumbach, Finpro Germany, Merja Heikelä and Timothy Skilton, Finpro UK, Anneli Okkonen,
Finpro Italy, Katja Haukipuro, Finpro Belgium, and Ritva Huisman, Finpro UK-Benelux. 199 p.
132/2002 Technological Trends and Needs in Food Diagnostics. Gabriela von Blankenfeld-Enkvist,
Malin Brännback. 33 p.
131/2002 Elintarviketeollisuuden teknologiaennakointi ja tutkimuksen arviointi. Mari Hjelt, Totti Könnölä,
Päivi Luoma. 130 s.
130/2002 Lääkevalvonta bioteknisessä tuotekehityksessä. Outi Nieminen, Katrina Nordström. 35 s.
129/2002 Bioinformatiikka Suomessa. Katri Ylönen, Erja Heikkinen, Marjo Uusikylä. 43 s.
128/2002 Arktinen teknologia suomalaisten yritysten liiketoimintastrategioissa. 63 s.
127/2002 US Fitness Industry Market Overview and Entry Strategies. Val Arthur Kratzman. 73 p.
126/2002 Particle technologies in diagnostics. Harri Härmä. 29 p.
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