Selling Technological Knowledge: Managing the Complexities of Technology Transactions: A Study of Technology Transactions Reveals a Set of "Good Practices "For Managing the Process of Selling or Licensing Technology
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Technological knowledge has become a source of sustained competitive advantage for many firms operating in high-technology industries (Granstrand 1999). A key issue in the strategic management of technology is how to convert technological knowledge into economic value. This can be done internally, by incorporating technologies into new products and services that are then sold in the market, or externally, by selling technological knowledge itself, disembodied from physical artifacts, through one of several contractual forms, such as licensing agreements, joint ventures, and patent sales (Lichtenthaler 2005). Exploiting technology internally has long been the approach adopted by the most innovative enterprises (Chandler 1990). In the last decade, as a result of the diffusion of the Chesbrough's (2003) open-innovation paradigm and rising pressure to maximize returns from RD the value of global technology transactions has grown from the $35 to $50 billion range in the late 1990s to an estimated $100 billion in recent years (Arora and Gambardella 2010). However, extracting revenues from the sale of technology remains a challenge for most firms. The gap between the few pioneering companies that earn millions of dollars in royalties (e.g., IBM and Qualcomm) and the majority, which fail to achieve any significant benefits (Lichtenthaler 2005), is huge. The peculiarities of technological knowledge as an object of commerce present challenges throughout the process of technology sale; companies that are successful in realizing revenues from technology sales have developed a set of managerial solutions to address these challenges. We sought to understand the particular challenges presented by technology sale transactions and to analyze and identify the management practices of firms that do successfully sell their technological knowledge. To accomplish that, we studied 75 technology transactions undertaken by 30 high-technology firms in healthcare, ICT, and other industrial sectors. Peculiarities of Technological Knowledge Technology is knowledge of how to do things to accomplish human goals (Simon 1973). Technological knowledge that is novel and useful can be legally protected through intellectual property rights (IPRs) and, in particular, patents. Although unpatented technologies may also be subject to external commercialization, patents, of course, make technology sale easier to pursue. Technology and technological knowledge have a number of attributes that make its sale more complex than the commercialization of physical goods. First, technology is intangible it cannot be seen, touched, or physically measured. Second, it is highly idiosyncratic--its value cannot be stated in the abstract, but is peculiar to specific contexts. For instance, CAT scanner technology was much more profitable in the hands of General Electric than it had been when owned by EMI (Teece 1986). Although EMI invented CAT technology in the 1970s, General Electric was able to leverage its complementary assets as an established player in the electromedical industry to profit from the commercialization of the technology. It was the downstream assets controlled by General Electric, rather than the characteristics of the technology itself, that ultimately determined how much economic value the CAT scanner generated. Third, technology involves considerable uncertainty because it is subject to technical and market failure and its future cash-generation potential is unknown. For instance, in the pharmaceutical industry, on average only one drug is launched on the market for every 10,000 molecules that are screened. Despite achieving much technical success, Xerox failed to capture much of the value from its PARC technologies because it could not figure out which applications would be most valuable (Chesbrough 2003). …Keywords:
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IBM
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Diversification into high-tech: focus on market value External milestones remove commercial uncertainties Marry your technology resources to the market knowledge of current players Stories of promising but ultimately doomed attempts at technology-based diversification are all too common. The causes of failure are well known: forecast demand fails to materialize; sales and marketing efforts fall short; competitors rush in; the wrong partners are chosen; the new business proves so unlike the old that management loses its way. As a result, many companies have given up the idea of using technology-based diversification as a means of growth. A mounting body of evidence, however, is beginning to point a way to effective high-tech diversification. Recent research into leveraged buyouts and corporate acquisitions indicates that a strong synergy with the core business need not be a prerequisite for a successful acquisition.(*) Similarly, while most internal diversification efforts have ended in failure, some companies have thrived by building new technology-based enterprises to address markets outside their core business. Success has come to companies of all shapes and sizes, including: * Small companies moving out of their established markets, including aerospace companies such as Hi-Shear, which has developed a growing business in automotive braking cables and tensioners, and Acclaim Entertainment, a start-up formed by ex-aerospace engineers, which now generates more than $500 million in annual revenues in commercial entertainment markets. * Medium-sized entrepreneurial companies, such as Science Applications International Corporation (SAIC), which has achieved rapid growth by leveraging its expertise in defense systems into civil and commercial markets, and Thermo Electron, which has built a wide range of new businesses around a set of technology capabilities that have been systematically expanded from energy to medical, environmental, and industrial process applications. * Large traditional companies such as Corning, which has successfully entered new markets through a series of joint ventures, and Hughes Electronics, which has moved from defense electronics into commercial media markets through its new DIRECTV business. Companies like these suggest ways of beating the high failure rate in technology-based diversification. Diverse though they are, three principles are common to all: * Focus on value creation * Learn from and cooperate with the market * Manage like a venture capitalist. Any company deciding how to pursue growth through diversification should make an objective assessment of its ability to institutionalize these principles. Though there is no single organizational model for success, some companies are clearly streets ahead of others. Thermo Electron and SAIC, for example, can continue to pursue aggressive strategies to build new businesses because the three principles have become a natural part of their organizations thanks to the visions of their respective founders, George Hatsopolous and J.R. Beyster. Since the companies were formed in the 1960s, their leadership teams have focused on fostering entrepreneurialism. Individual business opportunities are not blocked by rigid operational or financial hurdles; instead, managers tend to just know which opportunities have the right profile. While no established company would readily be able to replicate their culture and characteristics, these dynamic, growing companies do provide insights into actions that can improve the chances of success in pursuing new business development. Focus on value creation Companies with little experience in building new businesses often harbor unrealistic expectations. A large company in aerospace, energy, or computing might well have business units with annual revenues in excess of $500 million. …
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I. Introduction Software patents have been controversial since the days when referred to the crude programs that came free with an IBM mainframe. Different perspectives have been presented in judicial, legislative, and administrative fora over the years, and the press has paid as much attention to this issue as it has to any other intellectual property topic during this time. Meanwhile, a software industry developed and has grown to a remarkable size, whether measured by revenues or profitability, number of firms or employees, or research expenditures. The scope of software innovation has become even broader, as an increasing number of devices incorporate information technology, requiring modern manufacturing firms outside the software industry to employ developers and programmers to ensure that increasingly diverse functions are performed more efficiently. Although inventors have consistently asserted their need for patents in order to compete with industry incumbents, patent protection has not been easily or consistently available for much of this period. Rather, the legal system has responded gradually to the burgeoning software industry by broadening the scope and strength of protection for software-related inventions in fits and starts. The explosive growth of the industry is largely attributable to demand generated by the efficiency of software solutions; the expansion of the venture capital industry over the same period largely explains the lack of industry concentration.1 The garage mentality can be explained by the fact that even some of the largest industry incumbents began with one or two (largely unfunded) inventors. Also, there is every reason to believe that increased patent protection has contributed to the ability of independent inventors and smaller firms to compete.2 Moreover, the ability to obtain patents on software always has been important to some of the industry incumbents, while others have exhibited little need for patents and displayed, in some cases, strenuous opposition to the patentability of software. The incumbents are a diverse group. Some produce only software; others have substantial hardware product lines. Some sell to other technology firms and others sell applications to end users in a broad range of markets. And some sell prepackaged software products, while others focus on services-custom programming, installation, or maintenance. Regardless of the sector in which they participate, the incumbents spend massive amounts on research and development (R&D)-about 14% of their annual revenues, more than $60,000 per employee.3 However, there are important patterns in patenting practices that raw data on R&D investments cannot explain. This Article examines the relation between patents and the different business models used by firms in the software industry. The analysis has four parts. Part II provides a brief retrospective on software patents, emphasizing the shifting role of patents as the industry grew into its modern form. Part III uses quantitative data about patent portfolios to discuss the role that patents play for incumbent firms in the modern era. We highlight the fact that business models explain much of the pattern of patenting practices. Part IV describes the use of patents in the three channels through which technology flows into incumbent firms-venture-backed firms, open-source developers, and independent inventors-all of which contribute to the development of technologies that might supplant or improve the products and services currently delivered by incumbent firms. Finally, Part V concludes with a brief discussion of present-day industry perspectives on software patenting. As incumbents are now leading the charge on patent reform on all fronts,4 we can expect that some change will occur. An understanding of the varying uses to which software firms put patents in their businesses provides a useful perspective on the types of reforms they advocate. …
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The Role of the Information Revolution in the Globalization of Business Despite protectionist and other trade-limiting measures and political constraints in some countries, the globalization of business is increasing rapidly, and the information revolution is playing an important part in that process. As Peter Drucker (1994, 100) states, Few things so stimulate economic growth as the rapid development of information, whether telecommunications, computer data, computer networks, or entertainment media. For example, instant fax and computer communications across borders, second-day package express, cellular phones, and local wireless loop systems have considerable impact on the efficiency of business operations. In today's global economy, even the larger high-technology companies are finding that technical leadership, by itself, is not enough to meet global competition. Most important is the ability to deliver a quality product, on time, at a competitive price, anywhere in the world. Today's trend toward quality assurance in manufacturing has evolved from producing zero defects products to achieving total customer satisfaction. As Peter Drucker (1994) once cautioned, nothing is as wasteful as producing perfect products that nobody wants. Thus, today's progressive companies begin with research of customer needs and wants, taking ease of use and serviceability into account as well as design preferences. To accomplish on-time delivery of a quality product at world competitive prices, a company needs a supplier and subcontractor base dedicated to the support of quality product development, product distribution, and after-sale service. All these activities are made much easier today with the worldwide availability of computer links, radio and fax communication, next-day express delivery, and retrieval of information from many databases. In this electronic arena, small and large companies alike can combine appropriate resources from anywhere in the world to reach target markets anywhere. These shared resources may include products, marketing, sales and distribution, research, engineering, technology transfer, finance, and various mutual support services. This ability to share resources is especially important to small- and medium-sized enterprises (SMEs) that previously lacked the complementary resources to participate in global markets. Growth of Strategic Alliances Perhaps the most important trend in integrating the world economy is the rapid growth of cross-border alliances between companies or in networks of cooperating organizations. Alliances can be long-term with strategic goals or shorter-term relationships formed for tactical purposes. Toshiba (the electronics giant) and Corning Glass (the world's leading maker of high-engineered glass) may each have more than 100 alliances around the world. Also, integration in the European Union is proceeding far more through alliances than through mergers and acquisitions, especially among the middle-sized companies that dominate most European economies. Networks of strategic and other alliances often span different countries but are tied together by common goals and are perceived as being local wherever they operate. One of the best examples of networking and cooperation between small- and medium-sized companies can be found in northern Italy, where industry clusters are beehives of activity in which ideas flow back and forth between manufacturers with complementary skills and resources. Thus, innovation is enhanced. Porter (1990) writes about these clusters, pointing out that they are often most successful in traditional sectors (such as shoes, apparel, and furniture) to which Italian firms have rapidly adapted new technology and marketing techniques. Porter added that Italy benefitted from a world shift from standardized, mass-produced products toward more customized, higher-styled goods. Italian firms also moved toward flexible production technology adaptable to smaller production runs. …
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OVERVIEW:Technology-intensive companies in the United States and Japan are increasingly turning to external sources for technology needed for new competitive products. Management techniques to fully exploit externally sourced technology are still evolving. So far, most of the activity has been confined to the tactical, business unit level for new products on a case-by-case basis. Some firms are convinced that sustained competitive advantage can be obtained through a strategic approach to technology outsourcing. The path to competitive advantage may be through the coupling of a balanced internal/external technology strategy with a broad portfolio of tactical management techniques.
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In the relatively short history of the biotechnology industry, new business models have emerged every few years. Some have been little more than short-lived marketing or investment-attraction devices, whereas others have had endured as viable options. Given the dramatic changes in the economic climate and potentially the regulations affecting biotechnology, is it time for a new business model?A SHORT HISTORYFirst there was the FILCO, or fully integrated life science company, business model. This model, employed by some of the first biotechnology companies, positioned firms to capture the revolutionary advances of biotechnology and to build large vertically-integrated companies. Companies like Amgen and Genentech were able to fulfill this endpoint, but many other companies were not so fortunate. Another early model was to improve existing products, rather than to build an entire franchise around discovering and commercializing new ones. This model is exemplified by Alza, which was founded to improve medical treatment through controlled drug delivery and focused on improving existing drugs rather than developing new ones. This same model is still employed today, and shares some similarity with the technology platform business model, where companies focus on developing technologies that can be sold to other R&D firms, rather than independently developing consumer applications.Newer business models did not replace the older ones, but rather enabled new firms to focus on the unique environment in which they were founded. Examples include the hybrid model that combined product development with a technology platform, which could be sold or licensed to others, and the no research, development-only model that as a derivative of the specialty pharmaceutical model, saw newly founded companies buying drug leads off of other companies to complete late-stage clinical trials. These models enabled new firms to meet the respective needs of risk-averse and cash-rich investors.WHERE ARE WE NOW?I've previously written that the global economic crisis has been (and still is) transformative for the biotechnology industry. The aforementioned biotechnology business models rose to prominence in conditions that favored them. For example, the hybrid model emerged in a funding drought and was favored as it enabled companies to build internal revenue streams while still maintaining the possibility to realize the upside of product sales.What are the factors influencing biotechnology companies today? In the United States, beyond the general economic climate there are still unresolved questions about the availability of early stage financing, the ability to recruit foreign workers, and – post-commercialization – data exclusivity, generic biologics and the potential for price controls. Internationally, some nations are still undergoing dramatic economic reorganizations, while others are making significant investments in building biotechnology R&D capacity.So, the question remains: Is the biotechnology industry ready for a new business model, and is there a business model that can accommodate the myriad domestic challenges faced by many countries while addressing the increasing globalization of activities?
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Voluntary forfeiture of intellectual assets--often, exceptionally valuable assets--is surprisingly widespread in information technology markets. A simple economic rationale can account for these practices. By giving away access to core technologies, a platform holder commits against expropriating (and thereby induces) user investments that support platform value. To generate revenues that cover development and maintenance costs, the platform holder must regulate access to other goods and services within the total consumption bundle. The. trade-off between forfeiting access (to induce adoption) and regulating access (to recover costs) anticipates the substantial convergence of and closed innovation models. Organizational patterns in certain software and operating system markets are consistent with this hypothesis: and closed structures substantially converge across a broad range of historical and contemporary settings and commercial and noncommercial environments. In particular, this Article shows that (i) contrary to standard characterizations in the legal literature, leading open software projects are now primarily funded and substantially governed and staffed by corporate sponsors, and (ii) proprietary firms have formed nonprofit consortia and other cooperative arrangements and adopted open licensing strategies in order to develop operating systems for the smartphone market. In June 2008, Nokia paid $410 million to buy out all other ownership interests in the Symbian operating system, (1) which was then the most widely used operating system in smartphone devices (2) worldwide. (3) That would be a fairly mundane corporate acquisition if it were not for the fact that Nokia immediately transferred responsibilities for managing, developing, and distributing the operating system to the Symbian Foundation, a nonprofit entity. (4) Even that transfer might be construed as a large but similarly unexceptional act of corporate largesse if it were not for the fact that Nokia, the world's leading handset maker, (5) invited telecommunications providers, handset makers, and other firms that compete with it to serve on the Foundation's board and other governing entities. (6) To cap off what was an exceptional sequence of events, the Foundation then spent two years clearing all third-party rights in the Symbian source code, (7) which it made publicly available in February 2010 without charge under an open license. (8) Even more surprisingly, however, this exceptional giveaway ultimately turns out to be fairly unexceptional. From the inception of the information and communication technology (ICT) industry, some of the most dominant firms have regularly ceded--that is, given away or distributed at nominal or below-market fees--some of their most valuable innovations to all interested parties, including customers and rivals. Examples include some of the industry's most important innovations: to name just a few, AT&T's forfeiture of transistor technology in the 1950s, (9) Xerox's forfeiture of Ethernet local area network technology in 1979. (10) and Intel's release of the Universal Serial Bus (USB) standard in 1995. (11) Dominant firms have developed some of the most fundamental building blocks of the digital economy at great cost and then have given away or distributed those innovations at a nominal or below-market fee, often accompanied by complementary support services and tools. The substantial incidence and magnitude of giveaway practices in certain ICT markets challenge conventional assumptions that firms will always elect to exert maximal legal and technological control over intellectual assets, subject solely to enforcement costs.12 Even--or rather, especially--the most dominant firms' self-interest will often compel downward adjustments from the level of control that is available as a matter of law or technology. Even more remarkably, this self-interested rationale most strongly recommends forfeiture in the case of a firm's most valuable intellectual assets. …
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Technology companies with high market capitalisation (often called unicorns) have been receiving a lot of attention and media coverage recently. In general, unicorns are IT-centric (software mostly, but also hardware). They are often rather young global companies that match unsatisfied demand with supply through the production (which can easily be scaled up) of innovative and usually affordable services and products. These are usually part of the mobile internet wave, and rely on connectivity (high speed networks, mobile and fixed), new devices (smartphones, tablets, phablets…) and the opportunities these bring. They are grounded in network effects, and demand-side economies of scale and scope. They depend on a strong favourable business environment, developing organically and building on fast expanding markets (emerging economies, middle classes). They are Venture Capital-dependent and the competition for funding can generate impressive (i.e. inflated) valuations. These companies can be disruptive for other sectors and firms. This report aims to document the phenomenon by investigating a qualitative sample of 30 companies that have recently been valued above the one billion dollar threshold. It identifies some of their characteristics and the lessons to be learnt. The report has two parts: Part I contains the overall findings of the investigation and some suggestions for policy makers. Part II contains a detailed account of the case studies on which the investigation is based. They are published as separate documents
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From an RD hence, Japan has to break away from its traditional behavior as a follower and innovate new technologies and markets. The other is a transformation from an industrial society into a highly information-oriented society. In order to actively contribute to, and to get benefits from, such changes, R&D management has to change in accordance with new missions. The Japanese industry, in high expectation of a prosperous information age, is hiring scientists and engineers (information technology engineers in particular), at a high rate. This is putting considerable strain on the engineer market. Although hardware productivity has improved considerably, software productivity is still low and the software industry finds itself in a dilemma of how to meet the market demand and improve productivity simultaneously. A similar dilemma exists among industrial R&D management. In this article, I shall present my view of Japanese corporate R&D and discuss current problems of promoting basic research, meeting rapidly changing market demands, and managing R&D effectively. R&D Investment Trends Since the 1974 oil embargo, Japanese industry has made every effort to change from a heavy consumer of energy and mineral resources to a knowledge-intensive industry using less energy and resources. Almost all industries have aggressively invested in modern computer-controlled facilities in order to improve productivity and reduce energy consumption. Also, most non-electronics companies have extended their business spectrum into electronics. Electronic components are taking over functions from mechanical components, and software is taking over functions from hardware. This trend has heightened R&D competition in electronics, especially in information technology, making it far fiercer than it used to be. This fierce competition is shortening product life cycles in every generation. Every competitor has to hire more engineers to develop, manufacture and market new products as quickly as possible. This is a kind of product development war. R&D management is demanding more engineers, but the supply is far short of the demand. The top corporate management demands an increase in R&D efficiency and, at the least, a halving of R&D time. The number of foreign engineers is increasing in Japanese industrial laboratories, but it is difficult to close the current gap between demand and supply. Also, a substantial improvement in Japanese R&D management is required in order to coordinate international R&D teams. Measuring R&D Productivity Many have tried to define and measure R&D productivity, but as yet there is no widely accepted definition and measure. R&D performance evaluation is mostly qualitative. Only at the final product development stage is the quantitative evaluation applied. At corporate laboratories, numbers of technical papers presented at academic conferences and published in scientific journals, numbers of intellectual property right applications, and numbers of technology transfers and of consultations to business divisions are often used to evaluate performance. However, the tangible value produced is still unknown and its measure is qualitative in nature. It will take a long time until measurable tangible values are produced. Technological value cannot be determined within an organization. It is determined by the market and by competition. Therefore, the value is created not only by scientists and engineers but also by the management. I emphasize that the technological value is created mostly by management. R&D outcomes are mostly knowledge and information. Consequently, R&D productivity depends largely on how broadly technology is applied. …
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Nearly every citizen of the country is made up of monetary service firms such as banks, insurance companies, rental companies and finance firms. Financial services companies help individuals and companies save, borrow and manage investment funds. Insurance companies traditionally offer financial products aimed at assisting consumers in improving their financial situation in the event of a loss. While the majority of state-owned insurance companies intend to grow their revenues, the majority of their valuable benefits and trust come from consumers. Traditionally, a cooperative brand's primary objective has been to increase sales and to identify the company's marketers and to do so in accordance with their marketing strategy, not through technology adaptation. While digitalization has become a buzzword in recent years, it is debatable whether it has improved the feasibility and problem-solving mechanisms in the industry, where it has resulted in the discovery of new revenue streams. While some businesses initiate the digitalization process, others sit back and wait for others to reap the benefits. Nonetheless, the majority of insurance companies in the SL context have not fully leveraged their strengths in the digitalization process; thus, this paper focuses on the initiatives that lead them to a better understanding of how they should leap over the fence and provide superior service to their clients; however, this is not the only mechanism; different researchers have varying arguments. The future is contingent on how accessible your services are to consumers; remaining behind and attempting to generate demand is no longer acceptable, as good dominant logic is no longer valid; service-dominant logic actively challenges conventional marketing strategies; thus, digitalization is critical to remaining competitive.
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