EUREKA
THE TOOLBOX
Cross-Boarder Innovation
TABLE OF CONTENTS
INTRODUCTION
R&D PROJECTS
Specifics of R&D Collaborative Ventures
R&D PROJECTS
Cross Border Industrial R&D Cooperation
PATH TO THE MARKET PLACE
INTERNAL FORMATION PROCESS
Strategic Reasoning at the Start
INTERNAL FORMATION PROCESS
Expectation a the Start
INTERNAL FORMATION PROCESS
Finalising the Formation Process
THE PARTNERS
Partner Selection
THE PARTNERS
Interaction with the Partner
THE PARTNERS
Dialogue with Your Partners
THE WRITING OF THE CONTRACT
IMPLEMENTATION
Motivation of People
IMPLEMENTATION
Organisation and Distribution of Roles
IMPLEMENTATION
The Need for a Mediator
IMPLEMENTATION
Project Monitoring
PROBLEMS
Drawbacks and Pitfalls
PROBLEMS
Troubleshooting
DISSOLUTION/EVOLUTION
Should it end with this?
DISSOLUTION/EVOLUTION
Breaking up an Ongoing Cooperation (Divorce)
CLOSING REMARKS
BIBLIOGRAPHY
EXECUTIVE SUMMARY
INTRODUCTION
You are an industrial manager who contemplates entering into a collaborative partnership in industrial R&D. Alternatively you are asked by your management to elaborate the managerial details of such a partnership. Congratulations! You are about to embark on possibly one of the most educational and exciting experiences of your professional career!
The benefits of cooperation in industrial research and technical development have long been well known and appreciated. Technology transfer and innovation are also unimaginable without the opportunity to learn from each other and to inspire each other. Such learning is readily offered by cooperation.
Old and new, hostile and friendly methods in bilateral or complicated multilateral constellations can be observed and many initiatives exist today that support international cooperation.
Not all cooperative ventures are easy to manage and new possibilities of failure have to be considered in addition to the ones you are used to in in-house R&D. It might be a non-performing partner or cultural differences.
Such difficulties have been addressed by those previously or currently in collaborative ventures within e.g.EUREKA and their collective experience could take you carefully through the 'minefield' of managing your own project.
It is against this backcloth, that this little booklet has been put together. It is about how to avoid the potential pitfalls of cooperative ventures, through strategic and operational management actions, while increasing the chances of success of co-operation in industrial R&D.
It covers the specifics of cross border industrial R&D ventures, their pros and cons, the strategic reasoning when entering such ventures, motivation of personnel, monitoring and troubleshooting, not losing sight of the market and various options of how to finish or to continue. Legal and other more formal aspects are covered in other publications and are therefore not repeated here.
The goal of this booklet is to provide you with viewpoints, collected experience and humble advice on how to work with cooperative ventures in industrial R&D.
Cross border collaborative R&D projects offer great possibilities, though they require careful management. Use the advice available.
R&D PROJECTS
Specifics of R&D Collaborative Ventures
Among the various forms of collaboration employed by companies, R&D cooperative ventures are a special case. Perhaps the greatest challenge facing you as an R&D partner is that you must have an ongoing awareness of managing a very dynamic, difficult and risky - however, also extremely rewarding - process and simultaneously a formal inter-company partnership, in ways that do not go against the intention to successfully innovate. To be successful, partners must agree to the transfer and/or creation of skills, knowledge and tools, the sharing of which might require some changes in established policy.
Experienced R&D managers will describe a number of key factors for innovation success such as:
• a committed leader or 'champion'
• a project sponsor or sponsors
• clear ownership of intellectual property
• built-in flexibility, yet appropriate controls (milestones)
• easy and fast communications, within the company and the project
• effective R&D teams are learning andchanging continuously
These innovation roles and issues are quite straightforward, and yet, at times they can (inevitably?) conflict with traditional partnering logic, for example:
• The difficulty to find a champion who is willing to work in-between R&D teams and companies, and able to gain their confidence.
• Having a demanding sponsor in each partnering company can be like having too many parents. At the other extreme, sponsors may confine their support to projects that remain firmly within the boundaries of their own company.
• The question of ownership would make any manager think twice about R&D collaboration. Unless clarified, this can become a deeply contentious issue, especially when the joint innovation is successful.
• Built in flexibility is a sine qua non for innovation projects, and yet, the logic of partnering easily leads to contracts that could limit flexibility to the detriment of the project.
• Inter-firm communication - essential to innovation - is a major partnering task; yet, normal company specific information withholding rules have to be respected.
• Many innovations occur as a consequence of informal interactions with customers, suppliers, even competitors. Paradoxically, the systematic management of joint innovation projects among these same groups can quickly run into roadblocks.
• The effort required to manage the project, will critically depend on how well you haw clarified the relative R&D ambitions, including how the result should be exploited. If they are to be jointly exploited, you should drive the partnering towards integration beyond the joint R&D project. If partners are to exploit the fruits of their labours separately, this calls for an altogether different management.
Thus, many managerial partnership issues may impede the joint innovation process. You must accept this contradiction as a normal state of affairs requiring artful ways to avoid the hurdles.
R&D partnerships require a management that supports innovation, which by definition is a process of change. You will thus continuously have to clarify and resolve those partnership issues, which these changes generate, all in all a fascinating learning process.
In R&D ventures, you will sometimes find a rather unexpected partner constellation, seemingly unbalanced in size, culture and strength, a situation, which can be a most valuable asset, but one which requires managerial care. Multipartner constellations are usually of this kind. They may e.g. contain a group of competitors of an industrial branch collaborating to establish necessary standards, some specialised research units supplying knowledge, some subsuppliers concerned with the specific components and perhaps governmental bodies elaborating regulations. The power and chances of success of such a constellation - if properly managed - are certainly enormous, but if you want to belong to it, you should ask yourself:
• What is the exact role I should play?
• Is it really necessary to participate in the strategy making of the project?
• Or should I concentrate my resources on my core business, which is maybe just to be a qualified subsupplier.
Innovation means change and learning, collaboration needs rules. Management of collaborative innovation must balance this 'contradiction'. In multipartner constellations not all partners need to have influence on everything.
R&D PROJECTS
Cross Border Industrial R&D Cooperation
Pursuit of excellence is always a great challenge and pressures in terms of competitive production costs, spiralling R&D costs, increasing speed of innovation and the need for short pay back periods point the way to R&D collaboration. Firms are increasingly harnessing the benefits of cross border cooperation to maintain their competitive edge, to create new markets, or to develop new bench marks within existing markets. Mergers and acquisitions may be considered as the ultimate legal form of cooperation, but management buy-outs or completely new project companies should be thought of as equally natural consequences of a cooperative venture - both underline the benefits of working together.
The Benefits
• Impetus
Collaboration can breathe new life into an R&D project that lacks critical complementary assets such as financing, know-how or managerial observation
• Cost sharing
Sharing the financial burden with partners enables high cost projects to be scheduled earlier rather than shelved or deferred; also the political interest in such ventures may qualify the project for public support
• Risk sharing
Sharing the risk in a project often results in higher commitment and increased ability to overcome problems
• Technical resources
Jointly developed technology, expertise and resources avoid duplication of effort and can give the project a head start
• Critical mass
By operating with partners, achievements can be realised earlier and economies of scale introduced; the greater capacity available may lead to better technical advances, a chance to open new markets or to influence standards
• Market opportunities
Market intelligence is improved - as a fresh perspective of future product or technology needs in your partners and the international marketplace; also, your project can start simultaneously in at least two different market environments
• Contacts
Cross border cooperation provides improved opportunities to meet influential organisations with similar or related interests
• Recognition
Status gained from cooperation within a recognised initiative can be turned to a positive marketing advantage
• International sales
Initial cooperative ventures may create new opportunities and further collaboration; in practical terms, this may lead to new sales opportunities
R&D collaboration entails many more industrial benefits than just '1+1>2' as regards technical capabilities and resources.
PATH TO THE MARKET PLACE
You are concerned with industrial R&D. Even though there might be a need to start at the very basics of today's technological knowledge, industrial R&D is always market oriented. Your project might be very long term, very uncertain, maybe even quite basic or general for your company, and certainly, the path from developing a technology to having a successful product in the marketplace is never as straightforward as it is depicted in linear-flow-charts. Nevertheless, industrial R&D projects are by their very nature market oriented and are to be kept that way.
There is a subtle interaction between commercial conditions and technology development that ultimately leads to success. Just as R&D professionals seek to fill gaps in knowledge, all joint project participants should be reminded that they are also filling gaps in a market. The defined project is to target any such gap, but beware: the target is moving! What then is the advantage of pursuing the project in cooperation from a market point of view?
• An increasing number of emerging technologies are likely to be embedded in systems rather than in single products. Participants in joint R&D projects can often use their combined knowledge to work in parallel on new functions, giving them an edge over competitors.
• Participation on standard committees ensures that a new technology is in line with current and future standards or establishes a new standard. These are becoming increasingly important as benchmarks along which new technologies are developed. Such participation can better be afforded by a group of companies than a single one.
In some high risk projects, new scientific knowledge is developed directly for the market. There are enormous rewards for those who succeed on this path, enough to share with partners, who dared to share your risk.
However, a more common path is the product development cycle:
• incremental improvements, not breakthroughs, turning products over and over again
• starting improvements before the new model is out
• customising for more and more segments, making something more reliable or producing it more cheaply
Here, the objective is not to be a good starter of a new technical area, it is to finish quickly with (a) strong, marketable product(s). Technology development projects usually do not initially realise that the demand can emerge from more industries than the ones for which the development was intended. To consider both the upstream and the downstream opportunities for such new technologies, to then seek appropriate market channels and to exploit the possibilities, all this will again - from a resource point of view - be easier in joint projects than when you are on your own.
Sharing the analysis
There are many methods by which a joint R&D team can take its products to market. Since the sale of technical knowledge is not usually the objective of a company, most of what you will develop in a joint R&D project will be embedded in a product or system. Some critical factors to consider for new product introductions include:
• What are the immediate and obvious practical applications of the technology developed?
• What are the complementary resources available and/or required to support market activities?
• Is there a range of potential markets?
• What are the barriers to entering a market?
• Has the target been moving?
From experience, you will know how difficult these questions are to answer. Use the dialogue with your partners to improve the analysis, to identify possibilities, to decrease the risks of wrong judgements, and keep this dialogue alive all through the project. Simultaneously, you (or one of your partners?) may wish to keep an interesting market idea for yourself. Be aware of the implications such individual exploitation may have on your partnership.
Sharing the rewards
Presuming that the joint R&D efforts result in the introduction of a successful product, how do partners share the rewards? The answer is straightforward: do not wait until product introduction to determine the share of benefits! Consider the following rules of thumb:
• Are the rewards for each partner commensurate with their respective levels of input?
• How much does the bargaining power of one of the parent companies influence the rewards for each partner? Is this commensurate with actual effort?
• Have ancillary services (consulting, administration, fees) been included when considering the share of benefits to each partner?
• What is the relation of the equity contribution of the partners to future benefits? Is there a misfit? Need for revision?
There is no set rule for allocation of benefits. In the end, the benefits are distributed according to a metric that is agreed upon by you and your partners. Early agreement on benefits, coupled with a mechanism for revisions is likely to yield the most satisfying results.
All industrial R&D must ultimately aim at the market place. R&D cooperation opens the possibility of sharing the market analysis risk, the market risk and the market rewards with your partners as well. Agree early on what to share and how to balance effort, risk taking and rewards.
INTERNAL FORMATION PROCESS
Strategic Reasoning at the Start
Most R&D cooperation entails heavy investments in highly uncertain futures. The implication of this simple fact is not that cooperation should be shunned (uncertain futures should at least be preferable to no future at all); it is rather that entering into R&D cooperation should be preceded by serious strategic reasoning.
Strategic reasoning is asking yourself a number of questions which all fall under the heading:
'What is it that we are really aiming to achieve through this R&D cooperation?' The possible answers to such a question are countless, e.g.: 'qualifying for public support', 'gaining easy access to new markets', 'getting access to (or acquiring) technical competencies not currently available in-house', 'allowing further specialisation, say in production, by relying on others' expertise, say in marketing', or 'maintaining existing ties (personal or business) with external partners'. There are no 'wrong' or illegitimate answers - after all, you decide what is the appropriate strategy to pursue, even if your Board may tell you afterwards, which ones were wrong. Not the answer itself, but the fact that there is an answer and that it confirms or denies your assumptions, is the crucial issue.
Yet, some answers pave the way for successful cooperation better than others. Very narrow, pragmatic ones will not elicit the corporate 'stamina' needed to overcome the many contingencies any R&D project will be facing. As an example, wasted time and effort may be too high a prize to pay for public funding, covering only part of the costs in any case.
This leads us to suggest to you that the following types of rationale for entering into cooperative ventures leave the company better equipped to face future uncertainties:
• exploiting functional complementarities (e.g. between R&D, production and marketing), allowing partners to maintain high degrees of specialisation and focus of effort and to profit from a rational division of labour
• exploiting complementarity in technical competence (e.g. between informatics, mechanical engineering and biochemistry), allowing innovative cross-fertilisation across scientific disciplines and trained capacities
• capitalising on the economies of scale by
• pooling financial, physical and human resources
• utilising the cooperation for corporate development and learning (e.g. acquiring international experience, cooperative qualifications, skills enhancement), leaving the company in an improved general strategic position after the venture
• using the initial cooperation for surveying and accessing wider business contexts and networks for opportunities through the partners, thus discovering new possibilities for cooperation.
These examples suggest a variety of broad strategic rationales for cooperation. Some of them aim at circumventing company-specific limitations through cooperation (problem-driven cooperation); others aim at removing such limitations through cooperation (opportunity-driven cooperation). However, all of them represent serious strategic aims which would motivate full participation in the cooperative venture, thus increasing the likelihood of success.
The strategic reasoning at the start is not complete until you have considered the social dimension. Cooperation may expose your company to risks of being exploited by your partners. Thus, trust is an everrecurring issue. Trusting your partners means that you believe they will act in ways which are beneficial, or at least not detrimental to you. Such beliefs must be founded on answers to the following questions:
• Are your partners seriously motivated to cooperate? Some partners may have no intention of relaxing the pursuit of their own interests, even if this is done at your expense.