CHAPTER 8
COLLABORATION STRATEGIES
OVERVIEW
Firms frequently face difficulty decisions about
the scope of activities to perform in house, and
whether to perform them alone as a solo venture
or to perform them collaboratively with one or
more partners
A significant portion of innovation arises not from
any single individual or organization, but from
collaborative efforts of multiple individuals or
organizations
Collaboration can enable firms to achieve more,
at a faster rate, and at less cost and risk.
However, collaboration also entails sharing
control and rewards, and may risk partner
malfeasance.
The advantages of going solo are compared with
REASONS FOR GOING SOLO
A firm might choose to engage in solo development
of a project for several reasons:
It
may posses all necessary capabilities and resources
for particular development project in-house
Firm may prefer to obtain complementary resources
from a partner, but there may be no partner available
that is appropriate or willing to collaborate
Might choose solo venture if collaboration will put its
proprietary technology at risk
If a firm seeks to have full control over the projects
development and returns
Solo development may provide more opprtunities and
renew the capabilities
REASONS FOR GOING SOLO
Availability of capabilities (does firm have needed
capabilities in house? Does a potential partner?)
Degree to which it possesses all of necessary capabilities
in-house and the degree to which one or more potential
partners have necessary capabilities
If a firm find that it lacks certain required capabilities
but there are also no potential partners with such
capabilities, it may be forced to develop the capabilities
on its own
In
1970s Monsanto developed powerful herbicide, but killed
plants unless applied very carefully. Needed to develop plants
that could resist herbicide to make it easier to apply and use
in larger quantities. Biotech industry still quite young and no
appropriate partners who had this knowledge. Monsanto went
solo.
REASONS FOR GOING SOLO
Protecting proprietary technologies (how
important is it to keep exclusive control of the
technology?)
Fear of giving up proprietary technology
Collaboration might expose the companys
existing proprietary technology to the
competitors
Abgenix
(who developed cancer drug) needed cash
and access to development and marketing capabilities
it did not have but would have to give up exclusive
control over the drugs developed if doesnt go solo.
REASONS FOR GOING SOLO
Controlling technology development and use (how important
is it for firm to direct development process and applications?)
Sometimes firm do not collaborate because they desire to have
complete control over their development process and the se of any
resulting new technology
This desire might be due to pragmatic reasons (e.g. High return
on new technology)
Or cultural reasons (cultural to be independent)
E.g.
Honda did not join the Alliance of Automobile Manufacturers which
was fighting against tougher fuel and emission standards
Pragmatic reasons: felt it would limit their discretion over its
development of environmentally friendly autos which Honda wanted to
be a leader in
Cultural reasons: Hondas culture emphasized retaining complete
control over the firms technology development and direction.
Honda President Yoshino its better for a person to decide about his
own life rather than having it decided by others.
REASONS FOR GOING SOLO
Building and renewing capabilities (is the
project key to renewing or developing the firms
capabilities?)
Partnership may save time and cost but would not help in
building and renewing new capabilities
Challenges to develop new skills, resources and market
knowledge
E.g. Boeing philosophy about development of the Sonic Cruiser
Transfer of knowledge from resources to another resource as they
might leave the organization or retire
ADVANTAGES OF COLLABORATING
Collaborating can offer the following advantages:
Obtaining needed skills or resources more quickly
Rapid access to complementary assets. If developed internally will
increase the cycle time. By collaboration partners may enter to
strategic alliance or license agreement
E.g. Apple made laser writer (printer), lack of technological expertise on
laser engine, collaboration with canon for expertise
Obtaining capabilities or resources from a partner rather than
building them in house can help firm in reducing asset commitment
and increase flexibility
By pooling of their technological resources and capabilities, Transfer
of knowledge between firms and the creation of new knowledge may
occur
Sharing costs and risks
Can build cooperation around a common standard e.g. Nokia,
Motorolla and ericsson made a WAP forum
Worldwide formation of strategic technology alliances is rising.
TYPES OF COLLABORATIVE
ARRANGEMENTS
There are numerous types of collaborative arrangements, each with its
own advantages or costs.
Strategic Alliances: formal or informal agreements between two or
more organizations (or other entities) to cooperate in some way.
To access a critical capability that is not possessed in house or to more
fully exploit their own capabilities by leveraging them in another firms
development efforts
Resource pooling when its a new market or have different capabilities
To share risk of venture, speedup market development and penetration
Large firms alliance with small firms : limited stake in smaller firms
development efforts
Small firms alliance with large firms : Tap larger firms greater capital
resources, distribution, marketing capabilities, or credibility
E.g.
Large Pharmaceuticals alliance with small biotechnology firms
Alliances enhance firms overall flexibility.
Establish
limited stake in venture
Increase stakes later or shift these resources to another opportunity
TYPES OF COLLABORATIVE
ARRANGEMENTS
Alliances help to learn from partners and develop new competencies
Alliance partners may hope to transfer knowledge between the firms or to
combine their skills and resources to jointly create new knowledge
However, alliance relationships often lack shared languages, routines and
coordination that facilitate the transfer of knowledge- particularly the
complex and tacit knowledge that leads to a competitive edge
Doz and Hamel note that a firms alliance strategy might emphasize
combining complementary capabilities or transferring capabilities.
It might also emphasize individual alliances or a network of alliances.
TYPES OF COLLABORATIVE
ARRANGEMENTS
Joint Ventures: A particular type of strategic alliance that entails significant
equity investment from each partner and often establishes a new separate legal
entity.
It can be formal or informal relationship
Carefully structured contractual arrangement which covers capital and other
resources to be committed by each partner
Licensing: a contractual arrangement that gives an organization (or individual)
the rights to use anothers intellectual property, typically in exchange for royalties.
Helps rapidly acquiring a technology that partner does not posses
E.g.
Microsofts licensing with other software houses for web browser and internet
utilities
For the Licensor, licensing can enable the firms technology to penetrate a wider
range of markets than it on its own
Licensing a technology from another firm is less expensive
Licensing agreements impose may restrictions which create hindrance initially
but can provide benefits in the later stages
Firms license technologies to preempt their competitors from developing their
own competing technology
TYPES OF COLLABORATIVE
ARRANGEMENTS
Outsourcing: When an organization (or individual)
procures services or products from another rather than
producing them in-house.
Common way of outsourcing is contract
manufacturers.
They help in manufacturing products process or both
Collective Research Organizations: Organizations
formed to facilitate collaboration among a group of firms.
E.g. Semiconductor Research Corporation or The
American Iron and Steel Institute.
This may take up different forms such as trade
associations, university-based centers, or private
research corporations
CHOOSING A MODE OF COLLABORATION
Firms should match the trade-offs of a collaboration mode to their
needs.
Solo Development
Pros
Slow
and expensive
Bear all cost and risk
Larger learning curve
Refining of its design, production or service process
Cons
Control
over developed technology
Leverage existing competencies
Develop new competencies
Little to no potential for accessing another firms knowledge
Suitable for organizations that have
Strong
competencies related to new technology
Has access to Capital
Not under great time pressure
CHOOSING A MODE OF COLLABORATION
Firms should match the trade-offs of a collaboration
mode to their needs.
CHOOSING AND MONITORING PARTNERS
Gaining access to another firms resources through
collaboration is not without risks.
It may be difficult to identify if the resources given by the
partner are good fit
Partner may exploit the relationship
Partner Selection
Resource
fit: Degree to which potential partner have resources that
can be effectively integrated into the strategy that creates value
How well does the potential partner fit the resource needs of the
project?
Are resources complementary or supplementary?
Strategic fit: Degree to which partners have compatible objectives
and styles
Does the potential partner have compatible objectives and styles?
Not knowing partners true objective and forging alliance with a
partner with incompatible strategy can result in conflict
CHOOSING AND MONITORING PARTNERS
Impact on Opportunities and Threats:
How would collaboration impact bargaining power of customers
and
suppliers,
Would it effect threat of entry?
degree of rivalry?
Complementary goods or substitutes?
Impact on Internal Strengths and Weaknesses:
Would
collaboration enhance firms strengths?
Overcome its weaknesses? Create a competitive advantage?
Impact on Strategic Direction:
Would the collaboration help the firm achieve its strategic
intent?
Does it help to close the technology Gap?
Are the objective of collaboration likely to change over time?
CHOOSING AND MONITORING PARTNERS
Partner Monitoring and Governance
Successful collaboration agreements typically have clear yet flexible
monitoring and governance mechanisms.
More resources put at risk by collaboration more governance structure are
likely to impose on partners
Many utilize legally bind contractual arrangements. Which helps
1.
2.
ensure partners are aware of rights and obligations.
Provides legal remedies for violations.
Contracts often include:
1.
2.
3.
4.
5.
6.
What each partner is obligated to contribute. including money, services,
equipment, intellectual property and so on.
How much control each partner has in arrangement. Partner has right to admit
new partners to the relationship or change the terms of the agreement
When and how proceeds of collaboration will be distributed. E.g. whether cash,
intellectual property rights, or other assets will be distributed and at what time
Regular review and reporting requirement.
Auditing procedure
Provisions for terminating relationship.
