Technology Strategy

Collaborative Mode
Unit 05
 Collaborative Arrangements
● Collaborative Arrangement involve two or more firms in which the partners
hope to learn and acquire from each other the technologies, products, skills
and knowledge that are not otherwise available.
● The Partners may range from suppliers and customers to competitors,
unrelated firms or organisations in the public sector. Although such
arrangements are pervasive in the day-to-day operations of a firm, in matters
related to technology two special characteristics can be observed:
1. One of the major functions performed by collaborative arrangements is the
transfer of knowledge from one organization to the other. Unlike a supplier-
customer relationship, the transfer of knowledge requires that the individual firms
understand the operations of their partners much more intensely than in the case
of the supplier-customer relationship.

1. The choice of the partners is determined greatly by strategic reasons. Thus,

whereas firms may avoid competitors in their day-to-day operations, many
technology related collaborative arrangements are between competitors.
R&D Alliances :

R&D alliances represent the formation of collaborative arrangements between two or

more firms to conduct Research & Development.

Marketing Alliances :

Firms are also increasingly employing marketing alliances to exploit the outcome of
research & development through marketing channels. These alliances could take the
form of licensing or teaming up with the firms that have marketing expertise. For Ex. A
lot of drug developers are teaming up with domestic firms with mass distribution
expertise.
Collaboration between small and large firms

● Small Firms have been growing in importance as leaders in technology

development. However, because the ability of small firm, inter-firm collaboration
for innovation has become a major vehicle by which small firms overcome some of
these barriers
● Collaboration between large & small firms is becoming a very significant force in
many industries today.
Advantages of Inter-Firm Collaboration By
Size & Sector
Small Firms
Small-Large Firm Collaboration : Electronics
● To exploit new technology.
● Build company resources.
● Access to expert user.
● Open New Markets.
● Product Development.
Large Firms
Large-Small Collaboration : Electronics
● Access to people with right
combinations of skills to develop new
products.
● Increase company range, provide
customers with better service.
● Strategic decision to invest in a key
technology
● Gains Early look at technology and
equipment.
 Strategic Reasons for Collaborative Arrangements

Collaborative Arrangements are particularly useful for firms to accomplish

three strategic long-term objectives.

➔ Controlling the evolution of competitive domains.

➔ Acquiring knowledge
➔ Developing institutional links with other institutions.
 Controlling the evolution of competitive domains

Collaborative arrangements often emerge when a group of ally to compete with another group in an
attempt to influence environmental agents for favourable treatment.

Four major areas of collaborations have been common:

1. Dominant Design
2. Establishment of Standards
3. Co-operative Research to compete with other firms in technology development.
4. Obtain favourable treatment from the government.
 Knowledge Acquisition & Transfer

A second strategic objective that motivates a firm to pursue collaborative arrangements is the acquisition or
transfer of knowledge needed to operate in an industry or a particular value chain activity.
Thus, a Firm may attempt diversification into another industry , away from its base of operations, by
collaborating with other firms either through joint ventures, equity investments or acquisitions. Consider the
Following :
● When United Telecom (UTI) entered into a joint venture with GTE- what is known as Sprint - it was
with the specific purpose of obtaining the size required to operate in the emerging long-distance
telecommunications market.
● Procter & Gamble’s diversification into the biotechnology industry was implemented through a series
of acquisitions that enabled the firm to understand the dynamics of the biotechnology industry.
● Finally, 3M routinely invests in small firms to gain technology in the form of products and processes.
 Links to Environment

Firms have always understood that collaborative ventures are one mechanism by which they
can maintain links to people and information. Thus, large firms encourage their scientists or
senior science personnel to become active in advisory committees in Universities or
Government Agencies.

For Example, in the pharmaceutical industry, membership on the advisory committee in a

university enables a senior scientist to have close interaction with university professors,
thereby enabling them to cherry-pick the students from that particular university.
 Operational Reasons for Collaborative Arrangements

Operational or short term objectives focus the accomplishment of specific milestones or

objectives in a firm’s implementation of technology strategy through collaborative
arrangements with other firms.

1. Competitive Benchmarking
2. Time to Market
3. Extract operating efficiencies
4. Capture value from existing technology
 Competitive Benchmarking

Benchmarking Practices involve a firm’s importing the “best in the world” practices in a
specific value chain activity and institutionalizing these practices in a normal operating
procedures.

Ex. When General Electric wanted to benchmark its distribution system, it situated Wal-
Mart and L.L Bean. Presumably, such relationships enabled General Electric to
benchmark its operations against world class operators and thus begin a process of
continuous improvement.
 Time to Market

Firms are also using collaborative mode to cut the time to market. Reduction in time to
market is accomplished by using a variety of mechanism ranging from outsourcing to
joint development to equity purchase.

● For Ex. Major Pharmaceutical firms have begun to outsource some of the routine
operations involved in drug development (Ex. clinical trials for animal testing)
● In Joint development efforts, firms bring in both suppliers and customers to
develop a product, so that during scale-up and manufacturing, the time for
communicating the firm’s requirements to the outside entities is made much
easier and therefore much faster.
 Capturing Value from Technology
Development
● Spin-offs represent a mechanism whereby a firm can reap the value of technology
developed in house that does not fit with the corporate or business strategy of the firm.
In this case, a firm might take a key position in a new firm created by the people who
were involved in the development of technology.
● Transfer of Technology through projects such as turnkey projects or construction of
manufacturing facilities is another way by which firms have reaped the benefits of
technology developed in-house.
Collaborative Arrangements in Domains
of Technology Strategy
 Appropriation of Technology

● In the United States, the appropriation of technology has historically been accomplished through
in-house research and development; most of the joint R&D when it occurred, consisted of
contractual joint development of a new applied technology by two companies at different stages
in the value chain of the industry.

● Thus, if the manufacturer of the photolithography tool made by contractual agreement worked
jointly with a semiconductor device manufacturer and the larger firm was then purchased from
the former, photolithography tools would embody the jointly developed technology.
Deployment of Technology in New Products
 Inward Technology Licensing (ITL)

This refers to a contractual arrangement whereby one firm (licensee) obtains

the rights to use technology (in the form of patents, trademarks,
manufacturing, marketing & technical expertise) from another firm,
organisation or individual (the licensor). ITL has several advantages , as well as
disadvantages over internal product development:

ITL is a faster method of acquiring and upgrading internal capabilities, entering

new products, and filling product gaps.
A firm that uses ITL has a relatively lower degree of control over the
technology than in-house new product development. Thus, when a firm
licenses in a new product technology, the licensor may impose restrictions on
its use in such areas as export, purchase of raw materials, grant back
provisions, pricing, quality control & production limits.
 Joint Technology Development

● When firms want to have a technological lead over their competitors in new
product development efforts, they usually undertake joint development efforts pr
in house development as alternatives.
● Joint development efforts are very common in fast-changing industrial sectors:
electronics, computers, telecommunications & biotechnology.
● Joint Development efforts may takes place between firms pursuing
complementary products, as in the case of the joint venture efforts between IBM
and Microsoft in the early 1980s, or among competitors, as in the case of IBM and
Apple in recent years.
Differences between Inward Technology Licensing, Joint Development & In-
House New Product Development.

In-House New Joint Inward

Product Development Technology
Development Licensing

Control High Medium Low

Resource High Medium Low

Commitment

Strategic Flexibility Low Medium High

Risk Exposure Low Medium Low

 Deployment of technology in the Value Chain

As firms are faced with changes in technology that render traditional

technologies and competencies obsolete,they are undertaking joint efforts
with other firms to carry out many of the activities in the value chain.
 Logistic Alliances

Many manufacturers and vendors are employing logistic alliances as a way to

lower distribution and storage operating costs and to improve the quality of
customer service.

In Logistic alliances, the service provider usually assumes a certain amount of

risk through an agreement calling for a penalty, such as an automatic
reduction in revenues, if performance is worse than specified. On the other
hand, the agreements often include rewards for superior performance, such
as an automatic reduction in revenues, if performance is worse than specified.