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UNIT I
INTRODUCTION 1.1 INTRODUCTION This unit starts with the technology opportunities available in this global world. Technology scale up strategy has to be undertaken to identify whether it is a suitable technology for the enterprise or it is better to import technology from outside. Comparative advantage is a mechanism to identify the strengths to select technologies. Strong technological and industrial capabilities in several areas could be of considerable relevance and utility to other developing countries. Transfer decision making, gives issues that are vital in technology transfer. Choice of technology helps in identifying the best technology. Effective choice is based on preselected criteria for a technology to meet specified needs. Customer diversity and competitive pressure in some segment of the commercial market may imply a broad capability to address a diverse set of customer demands. Conflict of interest deals with the implications of the different people involved. Culture Shock is the modification required based on cultures and practices of different countries. Technology transfer categories are the different types of transfer of technology. 1.2 LEARNING OBJECTIVES
The technology opportunities available in this global world
Technologies scale up provides a framework as to how countries have to use technology
Comparative advantage is a mechanism to identify the country’s strengths to select technologies
Transfer decision making , gives issues that are vital in technology transfer
Choice of technology helps in identifying the best technology
Customer diversity and competitive pressure address a diverse set of customer demands.
Conflict of interest gives the implication of various people involved.
Culture Shock is the modification required based on different countries
Technology transfer categories are the different types of transfer
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1.3 TECHNOLOGY OPPORTUNITIES An essential component of managing available technology, is recognizing the role that technology plays in the competitive success of a firm, and acting to ensure that the technology decisions and policies contribute to the firm’s competitive advantage. Very quickly a consensus was reached on the idea that a significant amount of this effort had to be directed toward improving the management of technology. The decline of U.S. industry during those two decades is widely perceived to have resulted not from an inability to develop new technologies but from the failure to manage available and emerging technologies in an effective and timely manner. Technology plays a pivotal role in the interactions among the individual, society, and nature. Technology advances have major effects on each of these entities and are in turn, influenced by them. Management of technology involves developing an understanding of these relationships and dealing with them in a rational and effective manner. The National Research Council (1987) ‘NRC’ workshop report identified industry needs in Management of Technology to be as follows: 1. How to integrate technology into the overall strategic objectives of the firm. 2. How to get into and out of technologies faster and more efficiently. 3. How to assess/evaluate technology more effectively. 4. How best to accomplish technology transfer. 5. How to reduce new product development time. 6. How to manage large, complex, and interdisciplinary or inter-organizational projects/systems. 7. How to manage the organization’s internal use of technology. 8. How to leverage the effectiveness of technical professionals. In 1987 a workshop organized by the Public Affairs Council of the American Association of Engineering Societies (1988) sought to build greater understanding and awareness of Management of Technology issues. The report of this workshop contrasted the widespread belief in the importance of technology management for U.S. industrial competitiveness with the corresponding absence of concrete steps to pursue relevant avenues of research and application. There was a definite need for a paradigm shift in how to manage in the new environment created by the emerging technology revolution.
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Perspectives on management of technology
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Table 1.1 External and internal environmental factors affecting the technology user. Factors affecting Technology user Economic Social Political
Ecological Natureimposed Technical Educational Psychological Personal health and Safety- related Cultural Moral, ethical, religious Institutional
General meaning
Economic viability in the short term and/or long term Factors dictated by the social needs of people affected by the technology in question. Factors imposed and/ on controlled by the policies and directives of political systems (s) in which the technology user. Ecology-sustaining facets that emphasize balance between natural and synthetic or artificial systems. Factors strictly imposed and/or controlled by the natural systems of the universe in a predictable or unpredictable manner Functionality at expected levels of performance, as defined by the user Level of education and training Proficiency in skills acquired Emotional and mental states Behavioral characteristics Perceptual conditions. Factors directly affecting the health, safety, and general wellbeing of individuals who will be affected by the technology in question Overall, general impact of culture (national and corporate) Moral, ethical, or religious standards prevalence-mandated or informally accepted Factors created as a result of institutional bureaucracies, policies and guidelines
One or more of these factors may be more important than the others, and for each type of technology under consideration. For example, in the acquisition phase of the TC, a developing-country enterprise, which has a limited for-eign exchange to buy sophisticated equipment, will consider the economic factor to be relatively more important. Accordingly, the company may opt for self-generation rather than transfer of technology, by designing and building machinery of its own. In a multinational company, external factors, including the political and cultural factors, sometimes may become more dominant in relative importance than the economic and technical factors. For example, prior to the 1990s, some Japanese multinational companies were wise to offer their technology and know how in India without demanding a 51 percent share, but rather settling for 45 percent, because of an understanding and appreciation for the political and cultural requirements 3
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prevalent and imposed by the Indian government. Thus, they gained entry to some vital markets well before others in the West did. Economic considerations frequently dictate that more effective and efficient technologies to be adopted; these may already be a part of the worldwide technological inventory, obtainable through any of several transfer mechanisms. The purchase and sale of technologies are now common events; technology has become a marketable commodity transcending national boundaries. Consideration of any array of possible technologies should thus be embedded in the strategic planning of organizations. Technology transcends manufacturing and service organizations through a set of enablers. These include technical and financial resources, environmental factors influencing the business, organizational structure, projects, and people (see TABLE 1.1). Therefore, issues falling under the scope of management of technology can be explored in their relation to one of the following five categories:
Methods and tools for effective management of resources.
The business environment and the ability to manage the interface between the organization and the external environment.
The structure and management of organizations.
Management of R&D and engineering projects.
Management of human resources under conditions of rapid technological and social change.
Another dimension of the matrix of technology enablers shown in TABLE 1.2 is the technology life cycle. This is the development of technology from the concept stage to the prototype, production, market, and after-market stages, as shown in TABLE 1.2. This cycle determines the birth, life, and death of technology. Table 1.2 Stages in new product/technology life cycle
1. 2. 3. 4. 5. 6. 7
Technologies Natural Resources (Materials ) Product Technology (Concepts & Design) Production Technology (Processes &Operations) Information Technology Marketing Technology (Traditional & Innovate ) Service &Customer Satisfaction Technology Safety&Environment Technology
4
1. 2. 3. 4.
Enablers Resources (Technical & Financial) Business Environment Structure and Management Of Organization Human Resources
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1.4 TECHNOLOGY SCALE UP Technology search strategy
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Very large companies have a special department or unit dealing-with technology transfer and licensing. Medium and small sized firms have no formaldepartment to take care of technology licensing. Acompany, big or small, may at one time or other, require transferring technology or import of technology from outside. The process of transferring technology either ‘in’ or ‘out’ is subject to both managerial and other resource limitations. Technology search strategy has to be undertaken by the unit to identify suitable technology within the enterprise or import of technology from outside to maintain growth and profitability of the company. The market conditions in any country are dynamic and can operate in a very ad hoc manner. It should be a major concern for companies to undertake search strategy to identify suitable projects or components for sustained growth. An effort to find a suitable new product and knowledge of the potential licensor of that product may lead to an early decision and successful implementation of the project. It is useful to define why new products are required, the type of product that is required, its stage of development and whether this product will fit with the existing skills and resources within the firm. The success of seeking a new product will also depend on, among other factors, their technology search strategy and whether the relevant factors are defined and employed at the outset. A schematic model of this process is shown in Figure 1.1 (Source: Lowe, Julion & Nick Crawford, 1984, Innovation and Technology Transfer for the Growing Firm,).
RECOGNITION OF A NEW PRODUCT NEED
STRENGTHS OPPORTUNITIES
WEAKNESSES THREATS
DEFINE PRODUCT AREAS DIVERSIFICATION/ EXTENSION
SEARCH FOR NEW PRODUCTS
EXTERNAL
INTERNAL
License Joint venture collaboration
Internal Audit and development
IDENTIFICATION OF NEW PRODUCT IDEAS
EVALUATE IDEA
ACCEPT /REJECT IDEA
Figure 1.1 Developing a search Strategy 5
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An audit of products, citing strengths and weaknesses, may be useful in identifying gaps in the portfolio that could be filled by the use of licensing. Recognition of Commercially Viable Products Any search strategy will identify a large number of potential licensing opportunities but many of them will be unsuitable or inappropriate for a particular firm at a particular time. For a firm with small research and development facilities, any product requiring substantial further development before marketing is likely to prove unsuitable as a potential licensing prospect. Products with a known track record, and substantial marketing and production back-up are likely to be least problematical for smaller firms. A perfect license may consist of a product that :
has good protection in the licensee market.
is sold under a well-known trade mark.
requires no changes in the licensee market.
for which there is a substantial demand.
is subject to an exclusive agreement.
has a good ‘fit’ with licensee operation.
is transferred under a ‘reasonable’ technology agreement.
has assured continued technical and managerial support.
Recognition of commercially viable products is clearly a function of the firm or its consultant. The major advantage of a licensed product over the one produced in-house is that the licensed product might have been tried and tested and found to be successful elsewhere. Hence some of the risks associated with the new product have been reduced to the benefit of the licensee. The major disadvantage is that the technology may be generally matured or even obsolete. Outward Licensing The licensor has to develop a search strategy based upon his knowledge of the market and the characteristics of his product, in identifying suitable licensees for his product. Following the search strategy the licensor will need to take into account the type of the licensee firm and its reputation, its market strength and production capabilities before making a decision. Personal empathy with licensee personnel is also an important factor. Transfer of technology under a license agreement comprises the culmination of a multistage process carried through by both partners to the agreement. Pre-transfer stages can be tabulated as below:
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Capacity Building
NOTES
Within the context of enhancing capacity building is a process which seeks to build, develop, strengthen, enhance and improve existing scientific and technical skills, capabilities and institutions in Parties other than developed country Parties, and other developed, particularly developing country Parties, to enable them to assess, adapt, manage and develop environmentally sound technologies. Capacity building must be country-driven, addressing specific needs and conditions of developing countries and reflecting their national sustainable development strategies, priorities and initiatives. It is primarily to be undertaken by and in developing countries in accordance with the provisions of the Convention. The purpose of capacity building under this framework is to strengthen the capacities of Parties other than developed country Parties and other developed Parties, particularly developing country Parties, to promote the widespread dissemination, application and development of environmentally sound technologies and know-how, to enable them to implement the provisions of the Convention. Capacity building under this framework should be guided by the principles established in the decisions related to capacity building. Capacity-building in developing countries Capacity-building for developing countries is essential to enable them to participate fully in, and to implement effectively their commitments : 1. Adopts the framework for capacity-building in developing countries 2. Decides that this framework should guide capacity-building activities related to the implementation 3. Decides to give immediate effect to this framework in order to assist developing countries to implement 4. Notes that areas for capacity-building identified are relevant to the preparation of developing country Parties 5. Requests the Global Environment Facility, as an operating entity of the financial mechanism, to report on its progress in support of the implementation 6. Urges the operating entity of the financial mechanism to adopt a streamlined and expedited approach in financing activities 7. Invites bilateral and multilateral agencies, and other intergovernmental organizations and institutions, to inform the Conference of the Parties, through the secretariat, of capacity-building activities conducted to assist developing country Parties with their implementation 8. Encourages bilateral and multilateral agencies, and other intergovernmental organizations and institutions, to consult with developing countries in formulating programmes and action plans to support capacity-building activities 7
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9. Requests the secretariat, in accordance with this framework for capacity-building, to undertake the following tasks: a) To cooperate with the operating entity of the financial mechanism, its implementing agencies and other entities for capacity-building, to facilitate the implementation b) To collect, process, compile and disseminate, in both printed and electronic formats, the information needed by the Conference of the Parties or its subsidiary bodies to review the progress in the implementation of this framework for capacity-building, drawing in particular on information contained in: i. National communications of developing country Parties relating to capacity-building activities; ii. National communications of Parties on activities and programmes undertaken to facilitate capacity-building in developing countries related to the implementation iii.Reports from the Global Environment Facility and other agencies; (c) To provide reports of the Parties on activities to implement 10. Decides that the Subsidiary Body for Implementation will regularly monitor the progress of the implementation 11. Decides to conduct a comprehensive review of the implementation every five years thereafter; 12. Invites Parties to provide information through national communications and other reports to enable the Subsidiary Body for Implementation to monitor progress in the implementation 13. Recommends that the Parties, adopt a decision containing a framework on capacitybuilding that reaffirms the framework annexed to the present decision with additional reference to priority areas for capacity-building relating to the implementation 1.5 COMPARATIVE ADVANTAGE Internationalisation of technologies and production is becoming a common phenomenon for attaining and retaining global competitiveness. At the same time, regional and subregional trade blocks are being formed. Formation of SAARC is an example. India can and should take advantage of its comparative advantages over other developing countries, particularly in the context of our need of promoting exports of high value added products and services. We have established strong technological and industrial capabilities in several areas which could as well be of considerable relevance and utility to other developing countries. A beginning has been made in exporting our technologies directly and indirectly to other developing and also to industrially advanced countries by sending experts and skilled manpower abroad, establishing joint ventures, undertaking turnkey projects, licensing of knowhow, providing training to foreign personnel etc. Core competence Fundamental concept in the formulation of a technology strategy is core competence. This is the inner strength upon which a strategy should be built. An organization’s core 8
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competence could be in a technology, a product, a process, or the way it integrates its technological assets. An example of a technical core competence is the creation of a product or service with unique value to customers. An organization may have core competence in marketing with its ability to access and serve market in a unique way. Another example of core competence is an organization infrastructure that permits managing operations in a uniquely efficient and effective way. Core competence may also be the human knowledge or skill of an organisation’s employees.
NOTES
Boeing, giant builder of airplanes, has many successful production and business activities. However, it considers its core competencies to be in large-scale system integration, efficient design and knowledge of its customers. Honda’s core competence is not in car manufacture, much as it is in motors. Core competencies are collective sets of knowledge, skills, and techniques that the company applies to add value for its customers. This is what determines the core competitiveness. A company can improve its competitive abilities by continuously learning and having capabilities that (a) cannot be easily duplicated by its competitors, (b) create new services for its customers, and (c) generate alliances and relationships to provide its customers with cost and value advantage. Prahalad and Hamel propose that the core competencies of an organization “are the collective strengths of an organization, especially how to coordinate diverse production skills and multiple streams of technologies.” They use a number of case studies to illustrate competence is about the harmonization of technology as well as about the organisation work and the delivery of value. The core competencies of an organization are usually converted to core products which in turn may be embodied in one or more end products. The perceived value of an end product in the organization relates the product to its unique or specific competence. Prahalad and Hamel used a tree analogy to illustrate the idea of core competencies in a corporation. The roots are the competencies of the corporation, the trunk represents core products and the small branches represent business units, and the leaves are the end products. Indeed competencies are the roots of competitiveness. The tree provides nourishment to keep the tree alive. It is incumbent upon management to identify the organization’s core competencies. The following common characteristics of core competencies may help to identify the organization’s core competencies. Distinguish areas of competencies from the multitude of its other activities: 1. They provide the distinctive advantage of the organisation. 2. They are difficult for competitors to imitate. 3. They make a significant contribution to the end products offered by the organization. : 4. They provide access to a wide variety of markets. 9
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To capitalise on strength, a company should strive to exploit its core competencies. 1. Specifically must clearly identify the following:
What it does best.
What it can do that no other company can do better.
What will permit it to achieve best-in-the-world status in regard to what it does,
2. Develop its plans to fully exploit its capabilities. Exploitation of Competencies
Build barriers to competitors’ entry into the company’s areas of competencies
Overcome temptation for short-term gains rather than long-tern positioning.
Technology and the concept of core competence Products produced by any company either are based on a set of technology and the set of competencies within the company or are dependent on technology and other companies. It is essential that each of these technologies to be identified and prioritised appropriately as to their relative importance to the company’s activities in a company (or in a product) consists of three layers. Core competence represents the, distinctive technologies, then the middle circle is the basic technologies, the outer circle, external technologies. Ford (1988) defined these as: Distinctive technologies: Those technologies in which the company’s sure of their distinctive competence. Basic technologies: Those survival technologies on which the companies depend and without which it would be excluded from its markets. Basic technologies necessary for a company to stay in business but do not differentiate it from its competitors. External technologies: Those technologies which are supplied by other companies. These types of technologies are usually available to the market at large. Distinctive technology is what gives an organisation its unique competitive situation in the marketplace. Organisations must protect it, nourish it, and capitalize the fact that they have something desirable that others do not have. However, distinct technology may not be in a form that permits its commercialisation. For example company holding a patent for a product design that constitutes a distinctive technology has no way of reaching a consumer without the support of basic technologies. This includes production technology, such as manufacturing, or logistic technologies, like transportation and delivery. Manufacturing is the survival technology, without which the company’s product will not be produced and reach the market. To complement its technological needs, the company may decide to develop its own manufacturing operation and control its survival technologies too. Alternatively, the company maybe able to contract out, engaging another company to 10
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manufacture a product on the distinctive design for which it holds the patent (i.e., outsource its manufacturing operation). Managers can make this decision on the basis of economic criteria and market conditions.
NOTES
Basic technologies are technologies widely available to many organizations. They are essential for the development of a product but do not give it a distinctive advantage. External technologies provide a third level of technological need but they are not critical to the company’s survival. They have a much lower impact on the company’s competitive standing. External technologies usually are more economically supplied by an outside vendor. Manufacturing technology requires developing technology-based strategies to deal with the entire value chain. Value chain The value chain, also known as value chain analysis, is a concept from business management that was first described and popularized by Michael Porter in his 1985 bestseller, Competitive Advantage: Creating and Sustaining Superior Performance. A value chain is a chain of activities. Products pass through all activities of the chain in order and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of added values of all activities. It is important not to mix the concept of the value chain with the costs occurring throughout the activities. A diamond cutter can be used as an example of the difference. The cutting activity may have a low cost, but the activity adds to much of the value of the end product, since a rough diamond is significantly less valuable than a cut diamond. The value chain categorizes the generic value-adding activities of an organization. The “primary activities” include: inbound logistics, operations (production), outbound logistics, marketing and sales (demand), and services (maintenance). The “support activities” include: administrative infrastructure management, human resource management, information technology, and procurement. The costs and value drivers are identified for each value activity. The value chain framework quickly made its way to the forefront of management thought as a powerful analysis tool for strategic planning. Its ultimate goal is to maximize value creation while minimizing costs. The concept has been extended beyond individual organizations. It can apply to whole supply chains and distribution networks. The delivery of a mix of products and services to the end customer will mobilize different economic factors, each managing its own value chain. The industry wide synchronized interactions of those local value chains create an extended value chain, sometimes global in extent. Porter terms this larger interconnected system of value chains the “value system.” A value system includes the value chains of a 11
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firm’s supplier (and their suppliers all the way back), the firm itself, the firm distribution channels, and the firm’s buyers (and presumably extended to the buyers of their products, and so on). Capturing the value generated along the chain is the new approach taken by many management strategists. For example, a manufacturer might require its parts suppliers to be located nearby its assembly plant to minimize the cost of transportation. By exploiting the upstream and downstream information flowing along the value chain, the firms may try to bypass the intermediaries creating new business models, or in other ways create improvements in its value system. The Supply-Chain Council, a global trade consortium in operation with over 700 member companies, governmental, academic, and consulting groups participating in the last 10 years, manages the de facto universal reference model for Supply Chain including Planning, Procurement, Manufacturing, Order Management, Logistics, Returns, and Retail; Product and Service Design including Design Planning, Research, Prototyping, Integration, Launch and Revision, and Sales including CRM, Service Support, Sales, and Contract Management which are congruent to the Porter framework. The “SCOR” framework has been adopted by hundreds of companies as well as national entities as a standard for business excellence, and the US DOD has adopted the newly-launched “DCOR” framework for product design as a standard to use for managing their development processes. In addition to process elements, these reference frameworks also maintain a vast database of standard process metrics aligned to the Porter model, as well as a large and constantly researched database of prescriptive universal best practices for process execution. Value Reference Model A Value Reference Model (VRM) developed by the global not for profit Value Chain Group offers an open source semantic dictionary for value chain management encompassing one unified reference framework representing the process domains of product development, customer relations and supply networks. The integrated process framework guides the modeling, design, and measurement of business performance by uniquely encompassing the plan, govern and execute requirements for the design, product, and customer aspects of business. The Value Chain Group claims VRM to be next generation Business Process Management that enables value reference modeling of all business processes and provides product excellence, operations excellence, and customer excellence. Six business functions of the Value Chain:
Research and Development
Design of Products, Services, or Processes 12
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Production
Marketing & Sales
Distribution
Customer Service
NOTES
1.6 TRANSFER DECISION MAKING Dimensions of technology transfer The time and resources required to transfer a given technology depend upon :
what is actually transferred
the mode of transfer
the absorption capabilities of the recipient enterprise
the capabilities and motivation of the supplier enterprise and
the technology gap between supplier and the recipient (Fig. 6.10, Source Asian Productivity Organization, Tokyo, 1976).
Features of technology package The technology package consists of three principal elements namely, product design, production technique and management systems. Product design may range from simple items to highly complex (e.g., automotive) parts. Production techniques and plant layout include blueprints and flowcharts, formulas and recipes, process sheets, fabrication instructions, tools and fixture designs, operational procedures and material specifications. Management Systems consist of various plans, layouts and technical control systems (along with related marketing and financial controls). Included are plant design and layout, quality control and testing, material procurement, inventory control, equipment maintenance and repair and machine loading techniques. The three principal categories of technical information or know-how inherent in technological systems are general knowledge, system-specific and firm-specific knowledge. These various categories of knowledge may be in the form of written materials or may be embodied in technical assistance, on-the-job training or built into fabricating or processing equipment. General Knowledge refers to information common to industry such as blueprint reading, tool and fixture design and fabrication, welding techniques etc. System Specific Knowledge refers to information and industrial capability within a firm that gives it a competitive advantage over rival firms. This knowledge and know-how may consist of special solutions or procedures to a problem, acquired in the previous manufacturing experience in related product or process fields. 13
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Firm Specific Knowledge differs from system specific in that it cannot be attributed to a particular production item and usually results from the firm’s overall activities in such areas as grey-iron casting or their material fields. This technical knowledge or know-how goes beyond the general level possessed by the industry as a whole. Analysis of alternate technologies For any given value-chain activity, then, there are alternate technologies— alternative ways of doing it. There are new and old, laborintensive and capital intensive, appropriate and inappropriate, and unknown technologies yet to be developed. For example, let us take the inbound logistics activity known as inbound materials handling—the movement of material goods from where the supplier gives them over to the firm to when they enter into operations. There are a wide range of alternative ways to do these activities—alternative technologies that might be used, including manual labor, manual labor supplemented by tools (hand carts), conveyor systems, forklift trucks, automated guided vehicles, robotic loaders/un-loaders, stacking cranes, and pneumatic hoses. The nature of the inbound material would, of course, limit the feasible use of some of these technologies, but an input/output analysis of inbound materials handling utilising forklift trucks vs. conveyor systems technologies would point out the differences in inputs required, intended outputs achieved, unintended outputs produced, and the efficiency of the conversion process. One could look similarly at the inbound materials storage or the inbound materials inspection activities. The Business Environment Organizations operate in a socio-techno-economic environment and interact with it. Within the context of technology management, interest is primarily focused on technological logical factors, activities, and plans. How do external factors affect the creation and introduction of technological change within an organization, and how do technological changes that take place within an organization influence the environment? The introduction of a technological innovation in the marketplace, particularly when it has been widely adopted through the processes of transfer and diffusion, impacts a society, its economy, and the natural environment to varying degrees. The effects may have varying levels of acceptance and/or desirability based on the prevailing value systems of the society. Enabling environment Enabling environment is the expression that encompasses government policies that focus on creating and maintaining an overall macroeconomic environment that brings together suppliers and consumers in an inter-firm co-operation manner. For promoting successful,
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sustainable transfer of environmentally sound technology, a context that implies multi-faceted enabling environments in both developed and developing countries is needed.
NOTES
Enabling environment for transferring technologies includes: a) National institutions for technology innovation b) Involvement of social and managing technologies in a macroeconomic policy framework c) Underpinnings of sustainable markets for EST d) National legal institutions that introduce codes and standards, reduce risk and protect intellectual property rights e) Research and technology development f) Means for addressing equity issues The following sets out the initial scope of the needs and areas for capacity building of Parties, other than developed country Parties and other developed Parties, particularly developing country Parties, for the transfer of, and access to, environmentally sound technologies and know-how: a) Implementation of regional, subregional and/or national capacity-building activities related to the transfer and development of technologies b) Enhancement of the awareness of financial institutions, public, private and international, of the need to evaluate environmentally sound technologies on an equal footing with other technology options c) Provision of opportunities for training in the use of environmentally sound technologies through demonstration projects d) Enhancement of skills in the adoption, adaptation, installation, operation and maintenance of specific environmentally sound technologies and a broadening of understanding of methodologies for evaluating alternative technological options e) Strengthening of the capacities of existing national and regional institutions relevant to technology transfer, taking into account country- and sector-specific circumstances, including South-South cooperation and collaboration f) Training in project development and the management and operation of climate technologies g) Development and implementation of standards and regulations promoting the use, transfer of, and access to ESTs, taking cognizance of country-specific policies, programmes and circumstances h) Development of skills and know-how in conducting technology needs assessments i). Improvement of knowledge on energy efficiency and the utilization of renewable energy technologies.
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1.7 CHOICE OF TECHNOLOGY Technology choice has important implications for growth and productivity in industry. The use of technology is always tied to an objective. Because various types of technologies can be used to achieve an organisation’s objectives, the issue of choice arises. The concept of technology choice assumes access to information on alternate technologies and the ability to evaluate these effectively. Moustafa (1990) asserted that effective choice is based on preselected criteria for a technology’s meeting specified needs. Further, it depends on the ability to identify and recognise opportunities in different technologies. The expected outcome is that the firm will select the most suitable or “appropriate” or “alternate” technology (AT) in its circumstances. The concept of AT has been a subject of debate for many years. Stewart (1987) contrasted two general views. First, welfare economics defines AT as a set of techniques for making optimum use of available resources in a given environment. Second, social scientists and those working in AT institutions associate AT with a specific set of characteristics. According to Stewart, the characteristics defining AT normally include “more labour-using, less capital-using, less skill-using, making more use of local materials and resources, and smaller in scale.” It is also sometimes emphasized that AT should not affect the environment negatively and that it should fit in with the socioeconomic structures of the community. The suggested characteristics are too numerous, which implies that a technology can be appropriate in some ways and inappropriate in others. Kaplinsky examined the trade-offs involved in the choice of technology and found that mechanized production can, at times, turn out an inexpensive, higher quality product for consumers, whereas normal production of a lower quality and higher cost product generates more employment (ATI 1987). This illustrates the dilemma involved in evaluating technology and raises the question, Appropriate for whom? Is it concerned with the gaps in knowledge, skills, or resources that hinder effective choice of technology at the enterprise level. In this context, the term appropriate is used loosely to mean technology that is most advantageous to the enterprise’s purpose and circumstances. Implementing technology programmes
Integrate technology into the firm’s strategic objectives
Taking a proactive stance in introducing new technologies with greater emphasis on cycle time
Increasing the productivity and performance of the firm’s technical community
Understanding the interdisciplinary needs in project management
Analysing the resources and infrastructure to effectively select the technical scope of the work effort 16
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Strategic, operational, and management issues
NOTES
The underlying elements of any organisation include its purpose or purposes, its vision, its objectives, its strategies, its operations (doing the work to achieve its purposes, vision, and objectives), and its management of the process from purposes to customer satisfaction. A view of Management Of Technology(MOT) from the perspective of strategy, operations, and management shows the extent to which MOT in reality is congruent with managing the enterprise. Strategic Issues The strategic issues of MOT require greater attention by managers involved in developing business unit strategy. Consider the following strategic issues:
Understanding the scope of managing technology
Managing technology—different levels
Technology managers—who manages technology?
Adding value with technology
Developing a technology policy
Bridging the gap between technology policy and results
Precursors to technology strategy
Including technology in business strategy
Rationalizing strategy and operations
Managing the decision-making processes
Systems thinking—the imperative
Negative impact of single-issue management
The role of technology in achieving competitive advantage
Managing technology in a dynamic environment
During the strategic-planning craze, technology was essentially ignored. Elaborate strategic plans were developed without any strategy. Volumes were prepared but were seldom reviewed after approval. Strategic-planning processes yielded volumes of data instead of information, an interjection of operational detail but insufficient as an operational plan and prepared on a basis of at least questionable, if not false, assumptions. Those assumptions included the assumptions of a static rather than a dynamic environment, were based on a questionable premise of an annual event, dealt with data rather than information, focused on analysis without comparable emphasis on synthesis, failed to translate the strategy in meaningful terms throughout the organisation, and ignored technology that affects over 75 percent of the sales value of production. Can technology continue to be ignored in the process of developing
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a strategy? Is there a viable technology strategy? Is the process of including the technology issues in business strategy essential? Absolutely, yes. Operational Issues The operational issues of MOT present a similar vast array of topics that must be defined in the context of the business. It is even more extensive than the list of strategic issues. Consider the following major categories of operational issues that must be resolved:
Idea and concept generation
Forecasting
Evaluating
Justifying investments
Planning management
Managing the project management process
Managing discontinuities
Descriptions—how, where, and why
Resolving problems and exploring opportunities
System cycle time management
Technological intelligence
Innovation
Entrepreneurship
Technology transfer
Information
Functional integration
Investing in research
Organizing for effective product development
Market-pull and/or technology-push
Introducing new processes
introducing new products
Selecting, monitoring, and terminating projects
Integrating technology, products, and markets
Linking purposes, objectives, and strategies
Focusing on value-adding activities
Resolving the information paradox
Effectiveness, efficiency, and economic use of resources
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Analysis followed by synthesis determines results.
Differentiating the means and the ends
Eliminating the barriers to effective management of technology
Developing and using business unit technology plans
Organizing and allocating resources
Developing as-is profiles ( the plus/minus analysis )
Closing the gaps from competence to capability to competitive advantage
Implementing activity – based management
Implementing the project approach at all levels
Auditing research, development, technologies, and potential new products and processes
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1.8 CUSTOMER DIVERSITY AND COMPETITIVE PRESSURE That defense contractors also serve some segment of the commercial market may not imply a broad capability to address a diverse set of customer demands. For example, defense contractors may conceivably be occupying specialized niches in commercial markets that are substantially different from those commonly filled by companies without the shelter of defense contracts. In this section, we address several questions about customers and competitive conditions in the MDG sector. First, we ask how many different customers defense contractors ordinarily serve and how that diversity of customers compares to that of plants operating in strictly commercial markets. Second, we investigate whether defense contractors are more dependent on sales to a small number of leading customers than are establishments with no defense contracts. Third, we consider whether defense contractors serve only a specialized niche in competitive environments that are more benign; that is, characterized by fewer rivals and less aggressive actions by competitors than those experienced by enterprises that are exclusively engaged in commercial transactions. In our 1991 survey, we asked the plant managers to tell us how many different customers purchased products made by their plants in the previous year (1990). As Table 1.3 indicates, plants in this sector serve over 300 customers, on average, and there is no statistical difference in the number of customers reported by defense contractors as compared to enterprises serving strictly commercial markets. However, a substantial number of plants in both groups are niche producers, serving only a small number of customers. Fifty percent of defense contractors and their commercial counterparts have 30 or fewer customers. Moreover, establishments in the MDG sector depend on a small number of key customers, selling 60% of their total output, on average, to their largest three customers in 1990. The point is that on the whole, defense contractors have as diverse a customer base and are as dependent on a few key customers as non-defense establishment are.
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Turning to the specific features of the product markets for machining output from these plants, we learn that custom-built products are the norm for this sector. The typical plant produces nearly half (46.9%) of its machining output in small lots of only one to nine items. Moreover, we find no evidence that defense contractors are more specialized in marketing highly customized machining products than are establishments making products solely for commercial customers. In fact, we find the opposite: Strictly commercial Table 1.3 Selected characteristics of customers and product markets of plants in the MDG sector Group means are shown for defense contractors, for plants with solely commercial customers and for the overall sample.
Customer and market characteristics
Plants with Defense contacts
Plants with solely Commercial customers
281.7 1476.5 30
346.2 8200.8 30
60.7% 25.4
59.5% 28.5
0.1% 26.8 889
40.0% 36.7
53.6% 39.2
46.9% 38.6 959
43.1%
56.2%
49.7% 959
Number of customer for machining products products in 1991 Mean Standard deviation Median Number of plants
1990 sales revenue coming from the plant’s top three customers Mean Standard deviation Number of plants Machining output in small lots (one to nine items) Mean* Standard deviation Number of plants Plants with 50% or more of machining output in small lots Mean (%=yes)* Number of plants
All plants
314.5 5944.3 30 920
*p = 0.0001 plants produce significantly more of their output in small lots (P = 0.0001); and compared with defense contractors (43.1%), a greater share of plants with no defense contracts (56.2%) specialize in customized products, making 50% or more of their total machining output in batch sizes of fewer than 10 items.
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In assessing the competitive environment, we considered several indicators, including the number of competitors and the extent to which rivals are particularly aggressive in competing for the same customers in terms of price, quality, or service. On average, we find that defense contractors report having a significantly larger number of competitors than do enterprises that have no defense contracts (P = 0.0008). But, as is shown, a substantial share of both types of plants operate mainly in markets with few competitors. Fifty percent of defense contractors report six or fewer competitors; the median for nondefense enterprises BY this, sector is five or fewer competitors. In the MDG sector, the competitive environment for half of the enterprise in strictly commercial product markets consists of only a few rivals rather than the many sellers assumed to prevail in commercial markets. Groups means are shown for defense contractors, for plants with solely commercial customers, and the overall sample.
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In sum, many of the features thought to be peculiar to the defense contracting relation also apply to a substantial share of the strictly commercial producers in this sector: a high dependence on a small number of customers, an evident willingness to custom-build products, and very few competitors. In the 1991 survey, we asked about four different actions of competitors over the preceding 2 years. The most common competitive pressure came from price reductions offered by rivals to important customers. Nearly threefifths (59.3%) of plant managers in the MDG sector reported that competitors had undercut their prices sometime during the previous 2 years. Offering new services or assistance to customers is another common way in which companies attempt to win business away from rivals in this sector. Less common are reports of predatory actions by rivals to discourage distributors or customers. And even though product quality has been touted in the business press as an important competitive pressure, few plant managers reported that their rivals were out competing them in quality. Overall, we find no indication from these data that defense contractors are especially are insulated or sheltered from competitive pressures experienced by companies operating in strictly commercial product markets. Indeed, in terms of two of the four indicators measuring the severity of competitive pressures, defense contractors experienced a significantly higher incidence of aggressive actions from competitors than did non-defense enterprises. Price undercutting behavior (P = 0.0001) and targeted attacks by competitors to undermine their ties to customers and distributors (P = 0.02) were more were more FREQUENTLY experienced by defense contractors than by other manufacturers. Heightened rivalry among contractors for declining Pentagon orders may be part of the explanation for these differences, as might procurement reforms undertaken after the 1984 Competitiveness in Contracting Act that were designed to deliberately introduce greater price competition in defense contracting.
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Any technological change that affects the public at large and/or the natural environment becomes an issue for the potential exercise of public power at different institutional levels. Legislative, administrative, and regulatory machinery can be set in motion to counteract perceived or potentially undesirable consequences or to facilitate the widespread adoption of changes expected to promote the public welfare. The involvement of public power entails the careful assessment of technologies that are of societal concern and the evaluation of risks associated with public exposure to them. Organizations themselves must be aware of potential public concerns regarding the product that they are about to market and the processes they plan to introduce in their production and operation systems. The ultimate measure of the success or survival of a corporation is the market performance of its products and services. It is incumbent upon organizations to translate market indicators to strategic decisions and operational plans. Another important environmental factor that influences business strategy is competition in the marketplace. No corporation can afford to ignore what its competitors are doing, especially with regard to technological opportunities. In order to remain competitive, a firm must anticipate and evaluate technological opportunities before other firms attain an insurmountable competitive edge. These considerations are reflected in technological plans that must be incorporated into the strategies and plans of the business firm. The following are considered priority issues. The Integration of Technological and Strategic Plans Technological involves decisions affecting the selection of R&D projects, the allocation of resources, and timetables for successful implementation. It also involves choosing the technologies to be incorporated into the production process and evaluating whether they should be produced internally or purchased. Each of these options must be addressed in the strategic plan. Does methodological guidance for managers and planners regarding rational and efficient means of discharging this responsibility exist in the corporation? If not, it should be developed and applied. The Impact of Third Parties on Technological Change What are the effects of third-party regulations (e.g., judicial decisions, legislative and regulatory actions, decisions regarding insurance risks and liability) on the firm’s decisions to pursue and implement particular technologies? While there is general acceptance of the proposition that each of these factors affects a firm’s utilization of some technologies and its market policy toward some questionable products, there is not enough understanding of the underlying relationships to provide management with guidance on anticipating and taking timely actions.
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Increasing the User’s Influence in the Selection and Application of Technologies There is a need for more understanding of the feedback mechanism between the users and the producers of a technology and for means of strengthening user influence in the selection and application of technology. Businesses may then address the actual needs of the marketplace so that products having little or no potential market are not produced under the push of science and technology. The consumers and the public at large have a stake in newlydeveloped technology and they influence its acceptance in the marketplace.
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Decreasing Social Resistance to the Introduction and Adoption of Technology in the Workplace Given the prevailing tendency to resist changes that influence work rules and organizational structure, plans to introduce new technological systems to the workplace may cause apprehension and opposition. To overcome these difficulties management must develop adequate insights as to the factors underlying such opposition and must develop strategies for dealing with it constructively. Distributing the Benefits from New Technologies to Gain Acceptance Adoption of new technologies is easier to accept if their benefits are shared or rationally ex plained. For example, a technological solution such as automation may lead to a reduction in the labor share of the total manufacturing cost of a product. Rationalization may emphasize that the lower production cost reduces the incentive for offshore facilities and thereby increases the availability of manufacturing jobs in the United States. Other Areas of Concern to the Firm Other issues worthy of consideration in developing firm-specific methodologies to guide managers in dealing with technology include: Ï% Potential obstacles to and benefits of inter firm cooperation. Ï% Appropriate strategies and time points for the transition from cooperation to competition in inter firm technological alliances. Ï% The impact of technology on the quality of life, health, and safety. The Structure and Management of Organizations Rapid technological change accompanied by intense global competition creates considerable problems in structuring and managing organizations in every sector of the economy. In industries such as manufacturing, where installations of highly sophisticated information and communication systems, computer-based manufacturing, and direct linkage to customers are widespread, it is necessary to staff these systems with highly skilled personnel. Empowering employees for decision making improves productivity and reduces the time needed to respond to markets or customers’ demands. These are factors that tend to decrease the need for hierarchical organizational structures and support shallower, or “flat,” structures. Computer-integrated information and manufacturing systems allow close, real-time coordination and cooperation among departments charged with separate 23
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functions. However, new opportunities for cooperation raise questions regarding organizational structures designed along functionallines. The existence of in-house R&D activities and the necessity of coordinating them with the production and marketing functions at early points in the design and development stages make it imperative that the organizational structure permit effective integration of these activities. Some organizations may opt for the use of outside sources for their R&D and may out source many components of their products. In technologically dynamic companies, the installation of technological gatekeepers, the encouragement of internal entrepreneurship, and the increase of joint ventures in both R&D and production have major consequences for organizational structure, all of which need to be addressed rationally. Reexamination of the effect of organizational change on technological creativity and the internal dynamics of the organization is also needed. In some organizational structure interacts intimately with the technological posture of an organization and provides an array of topics for reflection by modern managers. The following topics are viewed as priority issues in the area of organizational structure. Factors Leading to Reorganization of Technological Activities in Firms The question reorganization is usually considered in terms of centralization versus decentralization Dynamic technological imperatives necessitate the investigation of other issues and forms of reorganization. Shuffling organizational arrangements may be an inadequate way of dealing with more fundamental technical or managerial problems. Tradeoffs may exist between organizational structures that are efficient in motivating and carrying out technological advances and those that favor current production modes and activities. Organizational structures that are responsive to industrial and technological requirements may be industry-dependent and therefore must be examined in this context Proposing improvements to organizational structures requires a better understanding existing motives and practices in restructuring organizations. Evaluating the Impacts of Reorganization on Technical Activities Reorganization may directly impact the technical activities (e.g., research, development, and manufacturing engineering) of a firm and also the interaction of these activities with production and marketing. The issues raised here address the set of possible tradeoffs incurred when reorganization of the firm occurs. Evaluation of the perceptions and expectations regarding the benefits and costs of reorganization, and an objective ex post evaluation of the results of the reorganization, should be a part of any reorganization effort. The Effects of Different Organizational Structures on the Efficiency of the Product Development Cycle The key issue here relates to the timing and organization of R&D, design engineering, and the various groups involved in the product development process. Coordination among R&D, design engineering, manufacturing
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engineering, operations, and marketing groups is a critical ingredient for success. Some of the issues to consider are:
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1) Determining which interfaces are helpful. 2) Identifying what kinds of interfaces impede higher levels of innovation. 3) Considering differences in arrangements among basic technologies or industries. Facilitators and Inhibitors of Technological Innovations and Transfers with in Organizations There are two issues to consider. The first is the organizational arrangements and incentives that facilitate the transfer of technology within organizations, as opposed to those that seem to encourage the secrecy and insularity of teams, groups, and divisions. For example, internal entrepreneurship (intrapreneurship) is a two-edged sword: Technological advances may well be achieved, but the strong “ownership” of the information developed may prevent the rest of the organization from benefiting from it. The second issue to consider is insight into the organizational factors that encourage and support, as well as those that hinder, the effective performance of technological gatekeepers, internal entrepreneurs, and others who are committed to bringing about innovations. Documentation of the Decision Processes Leading to Organizational Changes Keeping a record of the decision-making process itself is a good practice. It can be used in guiding future actions. Project Planning and Management Complex R&D projects require the mobilization of substantial resources and the coordination of activities in different laboratories and sometimes in different countries. The management of such projects constitutes a formidable task that demands considerable skills. Comparable challenges exist when a new industrial product is designed, developed, and marketed. The entire process involves people from several departments and disciplines in one or more laboratories, firms, and/or institutions. Scientists, specialists, and engineers must collaborate to carry the product from concept to “launch,” yet organizationally they belong to separate parts of the enterprise or even to another organization. In large projects, where several firms and institutions are involved, the project manager’s difficulties are obviously compounded. R&D and engineering projects have other characteristics. Projects are carried out by highly trained, highly motivated professional staff; mostly, they are one-of-a-kind undertakings involving considerable uncertainty and risk. Project managers therefore need tools and techniques that will help them better grasp the intricacies of the relationships among various components and will also equip them with capabilities for skillfully handling human problems. The mechanics of project management involving the 25
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scheduling of tasks and the allocation of resources are well explored; many software systems are available to help project managers. However, there should be a mechanism that provides them with rapid feedback about the process, particularly about early warning signals regarding potential failures. There is also a need for improved understanding of the human components of the project management process: how to select people with different skills and training and how to enable them to operate in a multidisciplinary and multicultural environment. These are issues requiring special skills. The majority of project managers are engineers promoted to managerial positions, and they need training in people-related skills. Such managers primarily rely on their personal aptitudes and the skills they acquire on the job, with little or no formal training. Engineers and scientists must be encouraged to learn and develop “people” skills. They should be given professional training in this area for later use as either a team member or a team leader. Such investment in employees is beneficial to any organization in the long run. One of the important tasks of organizations is to select only R&D projects that may have some potential for future exploitation consistent with the firm’s growth strategy. There is a need for practical and powerful selection methods. R&D projects that are part of the innovation process pose a challenge to management, which must reconcile the visions and ideas originating among the organization’s scientists and engineers with the views and plans of upper management and then translate it all into a workable program. Understanding the internal dynamics of these relationships is important. Attention to the following items deserve special attention. Project Portfolio Selection Organizations frequently have several, and occasionally a large number, of ongoing projects. Not only do these projects need to be constantly monitored and evaluated for their potential usefulness to the organization, but their utility must also be compared with new opportunities. The reexamination and reevaluation of priorities are thus an important part of the management of R&D. There is a concomitant need to develop easy-to-use decision-support systems for managers so that they can focus on the content rather than the mechanical aspects of project management. Initiation of Innovative Ideas in Organizations: Top Down or Bottom Up? In organizations with long-term business strategies, it is expected that strategic decisions and operational plans, when communicated from upper management, will be translated into focused programs and projects. However, such instructions may not fit well with the ideas and aspirations of scientists and engineers in the innovation chain. Consideration must be given to: 1) Creating a balance between these divergent views. 2) Understanding the dynamics of this balance. 3) Finding and evaluating existing patterns and identifying their impact on organizational performance. 26
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Human Problems in Project Management Project management continues to grow in importance, domestically and internationally, in public and private organizations. Although many capabilities have been developed for scheduling and monitoring, much needs to be done to help project managers in selecting personnel and in coping with the problems created by the multidisciplinary and multicultural background of the professional project staff.
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Postmortem Analyses of Projects It is important to conduct postmortem analysis of projects, both those with successful and those with unsuccessful outcomes. Understanding the commonalities and divergences among projects with similar outcomes can be helpful to decision makers. It is also necessary to understand the interfaces between a project and the rest of the organization, and between the project and the extern environment, and their effects on the success or failure of the project. 1.9 CONFLICT OF INTERESTS Management of Human Resources Recent advances in communications technology, transportation systems, and computer based information systems and new developments in computer-integrated manufacturing and office automation have drastically altered the character of modern manufacturing and service enterprises. The spatial, as well as temporal, characteristics of the workplace have been undergoing significant changes. Work locations, the scale of operations, the critical time factor, skill requirements, and operational parameters resent a core of issues associated with the management of future organizations. The incremental technical obsolescence of the professional staff, insufficient past training, and the inexperience of even skilled labor in handling newly implemented tools and equipment create continuing problems for management and workers alike Professional staff must keep abreast of recent developments in scientific knowledge and technological innovation through a variety of means, such as books and journals, professional meetings, and continuing education programs. Management must anticipate in the skill requirements of new technologies scheduled for implementation and try to match existing skills to them or seek, through retraining and relocating measures, to minimize operational disruption and redundancy. Cost accounting methods, productivity evaluations, and operational procedures must be revised to meet the needs of new and changing situations. The reexamination of the performance characteristics of human resources is also required. In technologically dynamic corporations, highly trained professionals are needed to evaluate newly implemented technological advances and those that could become a reality in the near future. The motivational reward systems of corporations should be designed to encourage and support the activities of technological gatekeepers and internal entrepreneurs who will 27
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take the lead in stimulating corporate awareness of new technological opportunities and their efficient applications. The biggest challenge for organizations is harnessing and fully utilizing the capability of employees. Therefore, recruitment, selection, training, proper placement, teaming, and motivation of employees have been priority issues for organizations. These activities assume even greater importance in the face of the continuously changing business environment. Alarmists tend to cast a shadow on the value of the fast pace of technological change by claiming that technology may replace people and threaten the social structure of society. The fact is that technological advances have always contributed to economic growth and the betterment of human lives. Technology may create a temporary displacement of a certain type of labor, such as manual labor, but people can be retrained to assume higher-level tasks, such as those requiring mental or service labor. What is needed to effect smooth transition is a commitment by organizations to their employees. The U.S. Economic Report to the President, released in February 1994, asserted this fact: Since the dawn of the industrial revolution, alarmists have argued that technology and automation threaten jobs. Such claims are still heard today. But history shows that they have never been right in the past and suggests that they are wrong again. Time after time, in epoch after epoch and country after country, technological advance has produced higher wages and living standards, not mass unemployment. This is exactly what we expect to happen again in the 21st century. And the government should be helping this process along, facilitating growth and change, not impeding it. This quotation underlines the overall benefit of technological progress from a national perspective. From an organization’s perspective, special attention should be accorded to the following points. The Effects of Technological Change on the Skill Requirements of the workforce The introduction of new and advanced technologies into the workplace immediately results in different skill requirements. The magnitude and nature of the changes will be influenced by the economic sector and the type of industry involved. Matching and Training the Skilled Workforce to Meet the Requirements of New Technologies Once the decision to adopt a new technology has been made, management must determine, before implementation, the skills necessary to run the new installations efficiently and effectively. Management must also develop operational plans to accomplish the transition with minimal disruption to operations and minimal adverse effects on the existing workforce. Reliable, perhaps industry-dependent, data can guide management in its decisions about how much change the workforce can handle and the types of reeducation, retraining, and relocation that are needed.
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Obsolescence of Professional Staff and the Continuing Need for Professional Development Activities The growth in scientific knowledge and the escalating rate of technological change renders obsolete the training that professional staff acquired during their formal education or prior work experience. There is a growing need for continuing education for the professional staff. Reliable data and necessary strategies must be developed to determine how to meet the needs of the organization under various circumstances.
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The Role of Technological Gatekeepers and Internal Entrepreneurs In view of the rapid nature of technological change, organizations must find ways to determine, choose, adopt, and implement appropriate technologies. The role of an organization’s technological gatekeepers and internal entrepreneurs in the successful identification, implementation, and utilization of new technologies is essential and must be thorough understood. Social Consequences of Technological Change Technology is the most important source of change in human experience. Its impact on our daily lives, socioeconomic structure, political system, and employment necessitates a thorough understanding of its implications and the development of reliable predictive models. Industry should determine what social-support structures within organizations, particularly high-technology organizations, exist or should exist to assist the following groups in coping with the demands of new or changing technologies:
Working couples, single parents, or individuals with extended family obligations.
Workers and professionals with changing or interrupted careers.
Workers and professionals displaced by technology.
Other Areas of Importance Management should consider the implementation of
Reward and incentive systems for engineers, scientists, and internal entrepreneurs
in corporations (e.g., evaluation and use of a “dual-ladder” reward system).
Measures to facilitate the transition from technical specialist to technical manager
Measurement methodologies related to professional, human, and worker-machine interactions.
Management Issues The management issues include the fundamentals associated with managing any organisation. The following list provides some broad categories:
People – related
Developing competent personal
Overcoming objections and resistance to change
Competencies and capabilities
Productivity and performance
Specialization and segmentation 29
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Providing and balanced environment
Educating the organization
Focusing the organization
Integrating business functions
Achieving gains from technology management
Facing realities
Does management penalize manufacturing in some way for not meeting a 10 percent reduction target, or do they recognize the group’s performance? It is unfortunate that top management does not realise that there is a certain amount of game playing in all cost-reduction or improvement programs. Manufacturing knew that costs could be reduced by 3 percent without any great amount of extra effort—no new thinking, just more of the same. Managers should not be averse to setting difficult targets provided they do not become overly concerned about some arbitrary targets but look for the actual realistic gains. The issue of raising expectations requires serious attention. Consider the situation associated with raising the expectations of engineers and scientists. Only one question needs to be answered to demonstrate that these professionals spend probably less than 50 percent of their time in their professional endeavors. The other 50 percent involves routine work well below their level of expertise. Decisions regarding this topic as well as others must be made consciously. Assumptions must be validated and qualified. Information should not be accepted without questioning the validity and the integrity of the assumptions. Now consider linking these operational issues with the strategic issues and subsequently with the management issues. What results is a continuum from strategic to operational to management, to strategic or operational, and so on in a continuous feedback loop. A change in one requires a change in the other. You may argue that strategy is a management issue. It may have been at one time, but people at low levels in the organization make strategic technology decisions. A relatively young engineer can make some major technology strategic decisions in the product or process development area. A young marketing or sales representative may provide creative input for future market development, new-product requirements, or needs of customers. 1.10 CULTURE SHOCK The technology transfer step results in the transfer of a technology from its development to product development and manufacturing. It can be considered as part of a component or module in a product or a product itself for derived demand, or it may be used to support or implement a process.
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There are two major concerns in technology transfer viewed in two dimensions: technology and people. The first dimension is “the problem of transferring information about physical phenomena, equipment, analytical and manipulative techniques, terminology, etc. associated with the technology.” The transferal of information can introduce ambiguities in specifications, misinterpretations of meaning, and lack of onthe-job training to understand the technology and its interdependencies and architecture. The second dimension “concerns the feelings and attitudes in both organizations [of] R&D and product development engineering [regarding] the two sets of people with different skills, values, and priorities to become successful in passing the baton from one to the other.” This is often a problem in management style and practice. Funding is needed in the technology transfer process to support the transfer of critical technology for inclusion in a product or process. For example, there is “an important property of technological innovations for full-scale production settings that remain to be considered and that is the impact of learning effects on unit production costs and pricing of an innovative product.”
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The Payoff The payoff of a timely technology can make a firm gain a market edge by lowering price, even with a strategy that places it below production cost. The expectation is that increased sales would ensure future cost reductions from increased volume of output due to increased sales. Technology analysis: a foundation for technological expertise Technology analysis, a new field of inquiry seeking is a comprehensive approach to technology. MOT focuses on three levels within the organisation:
Individual products and processes, i.e., management concerned with issues at the nuts-and-bolts level
Functional areas (e.g., operations) and corporation wide concerns (e.g., quality and productivity)
Strategy, i.e., selecting a corporate destiny and guiding the corporation through a turbulent technological landscape
To effectively manage technology, all corporate managers must have a certain level of technological literacy. This does not necessarily mean in-depth expertise but a comfortable familiarity with the whole gamut of technologies. Technology analysis provides the tools for thought for achieving such a comfortable familiarity. Six basic tools cover the essence of technology analysis:
A standard format for viewing and describing individual technologies
A classification of technologies 31
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A table of technological interactions
A cascade of trends describing technological change
A chart of technological breakthrough zones
A profile of social preferences with respect to technology
1.11 TECHNOLOGY TRANSFER CATEGORIES :INTERNATIONAL-CROSS INDUSTRY-INTERFIRM- INTRAFIRM A user of a technology does not have to be its creator or inventor. In fact, most inventions are created outside the firms that benefit from them. Innovation may also occur outside a firm’s boundaries, and even if it happens within the firm, it may be confined to one department or division. Transfer of technology is a process essential for the wide application and utilization of technology by one or more users. In this chapter we introduce types and channels of technology transfer. We discuss some cases of international technology transfer, present examples successful national programs of technology transfer, and examine a model of intra firm technology transfer. Definitions and classifications Technology transfer is a process that permits the flow of technology from a source to a receiver. The source in “this case is the owner or holder of the knowledge, while the recipients is the beneficiary of such knowledge. The source could be an individual, a company, or a country. Jain and Triandis (1990) define technology transfer as a “process by which science and technology are transferred from one individual or group to another that incorporates this new knowledge into its way of doing things.” The National Aeronautics and Space Administration (1995) defines it as “the process of providing the technology developed for one organizational purpose to other organizations for other potentially useful purposes.” Technology transfer can be divided into the following categories:
International technology transfer, in which the transfer is across national boundaries and countries.
Regional technology transfer, in which technology is transferred from one region of the country to another, for example, from Florida to Alaska.
Cross-industry or cross-sector technology transfer, in which technology is transferred from one industrial sector to another. An example is the transfer of technology from the space program to commercial applications.
Inter firm technology transfer, in which technology is transferred from one firm to another. An example is the transfer of computer-aided design (CAD) expertise computer-aided manufacturing (CAM) machines from a machine tool manufacturing firm to a furniture-producing firm. 32
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Intra firm technology transfer, in which technology is transferred within a firm from one location to another. An example is the transfer of technology from a company’s California division to its Miami location. Intra firm transfers can also be made from one department to another within the same facility. For instance, if one department uses sophisticated computer technology and another relies on manual work—an imbalance that could hinder the company’s operation— technology transfer can balance the system by providing full use of computer technology throughout the firm.
REVERSE ENGINEERING AT COMPAQ Reverse engineering was used by Compaq computer Company to develop its first PC clone. Compaq’s founders had all the components needed to build a PC except for one piece of technology— a ROM-BIOS chip (read-only memory chip, which stores the basic input / output system computer code). This technology was owned and projected by IBM. The IBM chip was not for sale, so Compaq hired some competent engineers and computer programmers asked them to reverse-engineer the product (Cringely, 1996). They were successful, and Compaq was able to introduce its IBM- compatible PC at a lower cost than an IBM PC. The
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Product was an instant hit and launched the company’s successful entry in to the PC market. Compaq selected the niche of portable computers to make its entry in to the market. Compaq’s strategy of cloning an IBM computer gave it access to all the software written for the IBM PC. Its strategy for entering the portable market gave it a special niche with little competition. Its lower price gave it an advantage with the customers and with the computer dealers, who could increase their margin of profit. According to Cringely, Compaq set a start-up record, selling 47,000 computers worth $ 111 million in its first year.
International technology transfer The technological production base previously confined to the industrialize nations of the West and the North has recently spread to a large number of other countries. Developing countries have realized that industrialization is the only means of reaching socio- economic parity with Europe and the United States. For many Asian countries, technologies imported from industrialized countries provided the initial base for industrial development. Starting with industries requiring low levels of skills, developing countries are gradually introducing industries requiring both growth of high-tech skills and more technological capability. (NICs) are equipped with an appropriate industrial and technological base. They have become highly competitive in world markets. In some instances, they enjoy the support of government-instituted fiscal and economic measures to remain competitive in the global arena. They may also possess other advantages, such as lower wages or the availability of natural and human resources. As a result, exports from the Pacific Basin and some developing countries have successfully penetrated the domestic markets of industrialized nations, particularly those of the United States. 33
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In the majority of cases, the migration of technology occurred through international technology transfer, through mutual cooperation agreements, or through direct purchase from the United States, Germany, Japan, and other industrialized countries. In several cases, it occurred through the establishment of overseas manufacturing facilities bymultinational corporations. U.S. corporations have frequently chosen to invest in production facilities in other countries to take advantage of lower labor rates and closeness markets. . The migration of technology and production facilities from the United States to Japan and other Asian countries in the 1970s and 1980s occurred because of a lack of competitiveness in U.S. manufacturing. Migration occurred in a set of mature technologies such as consumer goods and automobiles. The crucial element resulting in the loss of U.S. competitiveness has been not the weakness of technologies but a managerial attitude that failed to commercially utilize the technologies in a timely and effective manner (Hayes and Abernathy, 1980). Many people believe that weak investment in manufacturing R&D, the short time horizon of managers, poor quality, and lack of focus on technology transfer have all contributed to the problem (Berman and Khalil, 1992; Szakonyi, 1992). Most countries are pushing hard to develop their technological base and to convert their knowledge into value-added products and services. Newly industrialized countries and developing countries continue their push for technology transfer. They are becoming keenly aware of the importance of technology for economic development. The have seen evidence in the huge success achieved by the Tigers of Southeast Asia—Singapore, Malaysia, Indonesia, Korea, Taiwan, and Hong Kong. In spite of some setback these countries have achieved major economic gains. Asuccessful technology transfer effort spurs economic growth. Many models have been used to effect the transfer process with varying degrees of success. The Tigers have targeted niches of technology and turned them into world-class products able to compete in global markets (Engardio and Gross, 1992).Avoiding head-to-head contests for technology supremacy, the Tigers prefer to target niches where they can quickly turn technologies into world-class products. The Singapore Model Many lessons can be learned from the success of Singapore’s effort for economic development. Factors contributing to its success can be extracted from a speech by Prime minister Lee Quan Yu during the African Leadership Meeting held in Singapore in November 1993. The prime minister enumerated the essential basis for development. Some of his points are paraphrased below: 1. Establish/maintain a clean, effective government that is well respected by the people (Officials must have a philosophy based on understanding and appreciating the development process.) Eliminate corruption and reward officials adequately to protect them from corruption. 2. Avoid internal squabbles for national unity. 34
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3. Build on areas of strength (e.g., agriculture or availability of labor force).
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4. Encourage savings to increase investment while avoiding external debt. 5. Encourage family projects and local industry to create economic opportunities, and keep people from emigrating to large cities. 6. Do not waste funds on huge projects. 7. Encourage investment by both small investors and multinationals. 8. Promote education. 9. Develop effective strategies for technology transfer. Singapore built its strategy around becoming a regional business services hub in the Southeast Asia region. It serves as a regional marketing and technical support center, a regional financial and business center, and a regional headquarters for multinational companies (MNCs). It also selected niche industries for specialization, including electronics computers, ship repair and maintenance, petroleum refining, and aerospace maintenance and repair (Wong, 1995). Technology transfer in Taiwan Taiwan’s approach to technological development and technology transfer is another success story. In Taiwan, industrial technology R&D is enhanced by a nonprofit corporation known as the Industrial Technology Research Institute (ITRI). This institute conducts technical R&D on targeted projects directed and funded by contracts from the Ministry of Economic Affairs, a central government agency. The research results are then applied to assist or guide the private sectors either through technology transfer or technology expansion (Chen, 1990). Taiwan has located ITRI next to two of its top universities in science and technology: the National Tsinghua University and the National Chiao-Tung University. A targeted project for technology transfer can draw upon the scientific and technological expertise of the faculty of these two fine institutions. The participation of the private sector through the investment and business planning of industrial facilities completes the team of players needed to spur industrial development. To facilitate the transfer further, an industrial park is located in close proximity to permit a project incubated in ITRI to be spun off to a privately owned facility in the industrial park. Such collaborations among government agencies, nonprofit corporations, and private industries have been very successful in transferring industrial technologies within Taiwan, especially in areas of high risk or crucial importance. Taiwan also relies heavily on its well-educated nationals who are trained overseas. Incentives are provided to induce them to return home, thereby bringing technology to Taiwan. Technology transfer through people is a very effective transfer mechanism. Figure 11-3 depicts the return flow of Taiwanese trainees between 1985 and 1992. Examples of technologies 35
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successfully transferred are integrated circuit manufacturing, personal computers, and automation technologies (Chen, 1990). U.S. NATIONAL TECHNOLOGY TRANSFER The United States is by far the most intensive technology-producing country in the world. U.S. leadership in science is evident from the nation’s large number of Nobel Prize winners in science, more than twice that of each of its closest competitors, the United Kingdom and Germany. The creation of technology in the United States is also superior. The space technology, the defense technology, and the technology available within industry are unmatched by any in the world. How is it, then, that U.S. competitiveness declined in the 1970s and 1980s and that the nation has a huge deficit in its balance of trade? The answer lies within the fundamental principles of MOT. A major factor in competitiveness and wealth creation is how technologies are spun off to commercial and service enterprises. Transferring technology from where it is created to where it can be used effectively is at the heart of this issue. Having realized this fact, the U.S. federal government has made technology transfer a significant activity (National Aeronautics and Space Administration, 1995). The government has also moved to shore up its technology policy through effective partnering and joint investment in technology with the private sector (Brody, 1996). The National Aeronautics and Space Administration (NASA) has been very active in promoting technology transfer and has created a national network of Technology Transfer Centers. It established procedures for reporting new technology innovations and publishes the information in its Techbriefs magazine. It has developed guidelines for partnership agreements and sponsored several university-based Technology Transfer Centers to effect technology-based economic development locally and regionally. The Southeast Region Technology Transfer Centers located at the University of Alabama, the Georgia Institute of Technology, the University of Florida, and several other academic institutions are examples of technology transfer centers working to link industry users to technology procedure. The post-cold war era sparked a great interest in the transfer of technology from national and defense-related laboratories to the private sector. The federal government operates more than 700 laboratories with an annual budget of over $25 billion (Bloch, 1992). As military budgets decline, many government laboratories must find a new mission or go out of business. One survival strategy is to become more self-supporting through the sale and transfer of technology to the private sector. This was not previously an integral part of the mission of most of these laboratories, and switching to a new form of operation requires a change of organization culture. It also requires a systematic, proactive technology transfer effort. Perrin (1990) noted that the Department of Defense (DOD) spent over $70 billion in R&D and employed 70 percent of the engineers and 38 percent of the scientists 36
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working for the federal government. However, utilization of the developed technologies by secondary applications was minimal. Perrin described a proactive approach to the transfer of DOD technologies to solve civil problems. This approach, based on the use of transfer agents rather than passive efforts such as literature dissemination, proved successful upon implementation. Perrin enumerated
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NASA National network The national network of Technology Transfer Centers and offices sponsored by NASA is dedicated to the timely transfer of scientific advances and technologies resulting from NASA’s aeronautics and space programs and other federal R&D to practical applications throughout the U.S. economy. NASA field centers: Each of NASA’s field centers has a Technology Transfer Office to coordinates and manage a full range of technology transfer activities, including new technology reporting, technological assistance, cooperative projects, and industry outreach. Regional Technology Transfer Centers: The NASA Regional Technology Transfer Centers (RTTCs) are staffed by technology transfer experts offering technical consultation services and linkage to other experts in the field. The RTTCs provide services to industry within their designated regions and assist industry clients to locate, assess, and commercialize technologies from NASA and the federal R&D base. National Technology Transfer Center: The National Technology Transfer Center (NTTC) serves as a national clearinghouse/gateway for federal technology transfer and provides services and assistance in training, planning, and outreach. Earth Data Analysis Center: The Earth Data Analysis Center (EDAC) provides technology transfer services in support of the distribution and transfer of remote sensing/ geographic information systems data and technology. Technology Application Team: The Technology Application Team (TAT) works with industry to identify and solve critical problems with existing NASA technology and to develop cooperative projects and relationships that address technological needs of national or industry wide significance. Computer Software Management and Information Center: The Computer Software and Management and Information Center (COSMIC), operated by the University of Georgia, is NASA’s technology transfer program for collecting and documenting computer software technology produced by NASA and distributing it to U.S. private, government, and academic organizations. Center for Aero Space Information: The Center for Aero Space Information (CASI) maintains mailing lists and distributes NASA technology transfer publications, including the
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annual Spinoff report. CASI provides responses and referrals to inquiries about technology transfer. CASI also provides centralized technology transfer documentation support for all NASA centers. Source: National Aeronautics and Space Administration, 1995. The advantages of the active transfer process as follows:
Conveys timely information on current and planned developer and user programs.
Provides real-time feedback and criticism on specific technology or problem items
Allows the transmittal of ancillary information and know-how that is not available in formal literature or reports.
Permits the transfer agents to manage and control in a user-need or applied direction.
Requires a relatively small expenditure of effort and time relative to the results obtained.
The accompanying box lists a number of U.S. government initiatives undertaken to mote technology transfer. Examples of success in transferring technology from a federal laboratory to the private sector are many. Wood and EearNisse (1992) described one such transfer from Sandia National Laboratories, a federal U.S. FEDERAL GOVERNMENT INITIATIVES FOR TECHNOLOGY TRANSFER The U.S. federal government has addressed the issue of technology transfer from federal laboratories by implementing three legislative acts: *. The Stevenson- Wydler Technology innovation Act of 1980 (P.L. 96-480). *. The Technology Transfer act of 1986 (P.L. 92-502) *. The National Competitiveness Technology Transfer Act 1989 (P.L. 101-189) These acts resulted in the establishment of the Office of Research and Technology
Applications (ORTA) with technology transfer overview responsibility for the Federal Laboratory Consortium (FLC). Mechanisms for corporative research and development agreements (CRADAs) were established between (a) federal laboratories and (b) private enterprises, universities, state and local governments, foundations, nonprofit institutions, and consortia of such organizations. As a supplement to these acts Congress has created the National Technology Transfer Center to augment existing technology transfer mechanisms. Source: Wood and EarNisse, 1992.
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laboratory, to Quartex, Inc., a small, private sector business that commercialized the technology. A shareholder of Quartex learned that a new quartz resonator force sensor had been invented by an employee of Sandia National laboratories. Quartex invited the inventor to join its staff and be part of a team that would bring his invention to market. Quartex assumed all obligations to file and maintain patents. The waiver process followed a guideline that stipulated a balance between technological commercialization and the preservation of government access to tax-supported inventions.
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There are barriers that exist in such a transfer endeavor, including the cultural gap between industry and government laboratories, legal issues, and the need to formulate an innovate business structure to permit a smooth transfer. Wood and EarNisse (1992) mentioned the following factors as contributing to the successful technology transfer project from Sandia to Quartex: 1. Technology transfer fit for Quartex’s strategic planning. 2. Sufficient proprietary rights from Sandia to Quartex to justify the risk of investment. 3. Potential for additional proprietary coverage for the technology through improvement patent and new technology. 4. A landmark invention. 5. Diverse market applications for the technology. 6. Incentives for sustained technology transfer and support by a product champion. 7. Required resources within Quartex for product commercialization. Intrafirm technology transfer A firm attempting to transfer technology from one site to another or from one division to another must approach the transfer process in a systematic and deliberate manner. For the transfer to be successful, infrastructure, including facilities, equipment, and personnel, must exist or be developed. In addition, a transfer team may be needed to orchestrate the transfer. Arthur Squires calls these teams the “Maestros of Technology (Bowser, 1987). In fact, complicated transfer projects may require two teams, one at the source and one at the receiving end of the technology. Each team is led by a “champion” and consists of a number of specialists, depending on the complexity of the technology and the size of the project. All communications regarding the transfer [marketing, quality assurance (QA), production, etc.] are channeled through, the transfer-team leaders. Beruvides and Khalil (1990) developed an intra firm technology transfer model based on experience gained from an actual project involving the relocation of an existing production facility. The model is shown in Figure 1.2. In this model, the project starts when a company decides to acquire new technology through the purchase of a smaller entrepreneurial company located thousands of miles 39
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away. In order to facilitate communication and consolidate operations, the company decides to transfer the entire production facility, including technology and operations, to its headquarters facility. This calls for an organized process of intra firm technology transfer. The proper infrastructure must be created to permit the transfer, and a competent team must be assembled to execute the transfer process. In this particular case, the team comprises two separate groups: one at the headquarters and one at the acquired company location. Although these groups are in different locations, they should recognize that they are on the same team with one line of communication that permits open communication. The remaining requirements of the transfer process are indicated on the flowchart in Figure 1.2. The transfer team is involved in developing schedules and budgets and preparing the new site. Before the transfer, the employees for the new site are selected and given training, at the facility of the acquired company, in the technology being transferred. This culminates with turning over operations to the employees at the new site to ensure a smooth transition. An appropriate amount of inventory of the product is built up as a reserve against delays or inefficiencies during the transfer. At the optimum time, parallel production facilities are set up, with half the equipment at the old site and the other half relocated to the new site. This ensures continued production throughout the transfer project, an important criterion desired by the company. Once the new site is qualified and the product specifications are achieved at the new site, the remaining production equipment is relocated to the new site. Full production begins at the new site, quality is monitored and the transfer team is disbanded. Several useful guidelines for setting up a transfer team are recommended by Beruvides and Khalil (1990): 1. The smaller the team, the better. 2. People work best in an atmosphere of trust and healthy competition. 3. Building teamwork and motivating the team members are critical. 4. The chain of command and communication channels should be well understood by all. 5. Success is largely dependent on the quality of the people selected to perform the tasks.
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Figure 1.2 Intrafirm Technology Transfer Model Technology continuously flows across boundaries of countries, regions, companies, and departments within organizations and among individuals. The transfer of technology from one entity to another is effected through channels of technology flow. These may be general channels of contact among individuals and institutions or organized programs designed for the orderly and systematic transfer of technology. Efficient and effective technology transfer requires the formulation of a strategy and the creation of mechanisms of transfer. These mechanisms can be Technology Transfer Centers, information exchange networks, or organized projects that utilize special teams to effect the transfer. On the macro level of nations, newly industrialized countries such as Taiwan Singapore have followed a special niche strategy to become competitive in world markets. They have concentrated cm acquiring Technologies in which they can gain a comparative advantage over other world competitors. Taiwan relied heavily on its nationals, trained overseas, to 41
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transfer the technology. Acquiring knowledge through people can be a very effective means of transferring technology. The transfer of technology is not, and should not be, a one-time activity, It is a continuous process with follow-up activities. For the technology to take root within receiving entity of the transfer, it must be nurtured. This requires a program to training reinforcement, and R&D to keep the technology alive and make it grow in its new grounds. Unsupported technology can fade into obsolescence quickly. In the United States, a significant number of technologies are created for space and defense-related applications. Efforts are under way to transfer these technologies to the commercial sector, where additional wealth can be created. Technology Transfer Centers are capable of linking government sites and centers of knowledge such as universities and research institutes of knowledge with industry and public sector enterprises. Summary
The technology opportunities available in this global world
Technologies scale up provides a framework as to how countries have to use technology
Comparative advantage is a mechanism to identify the country’s strengths to select technologies
Transfer decision making , gives issues that are vital in technology transfer
Choice of technology helps in identifying the best technology
Customer diversity and competitive pressure deals with the different customer demands
Conflict of interest gives the implication of various people involved
Culture Shock is the modification required based on different countries
Technology transfer categories are the different types of transfer
Review questions – 1. What are the technology opportunities available in this global world? 2. What do you understand by Technology scale up ? 3. Explain the Comparative advantage in Technology transfer? 4. What are the Transfer decision making issues? 5. Give the choice of technology available. 6. What are Customer diversity and competitive pressure? 7. Enumerate Conflict of interest in technology transfer? 8. What do you understand by Culture Shock? 9. Give the Technology transfer categories.
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UNIT II
TECHNOLOGY FLOW 2.1 INTRODUCTION This unit starts with the technology process mapping and its different phases. Technology is intangible and it flows easily across boundaries of countries, industries departments or individuals, provided that the channels of flow are established. Technology transfer modes have been categorized basically as being passive or active, which refers to the transferor’s role in the application of technology to the solution of the user’s problem Technology upgradation explains how technology has to be improved for better efficiency. Technology modernization tells the need for modernization in this competitive world. Adoption and of new technologies elaborates on how alternates are available .Absorption process gives the methodology by which technology is absorbed. Relocation issues give the salient difficulties in transferring technology. 2.2 LEARNING OBJECTIVES
Technology process mapping and its different phases
Technology flow channel establishes different channel flows.
Technology transfer modes are characterized.
Technology upgradation explains how technology has to be improved for better efficiency. Technology modernization tells the need for modernization in this competitive world.
Adoption and of new technologies elaborates on how alternates are available.
Absorption process gives the methodology by which technology is absorbed.
Relocation issues give the salient difficulties in transferring technology.
2.3 TECHNOLOGY PROCESS MAPPING Technology flow process Adaptation phase: Virtually every enterprise ends up adapting an acquired technology for its particular needs. Of course, if the homework is done correctly, the transition from acquisition to adaptation becomes much smoother and less expensive. Conversely, if sufficient time and effort have not gone into studying the relevance of a particular technology to a company’s 43
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present needs, a great deal of rework and adaptation result. This not only frustrates the people acquiring the technology but also, and more importantly, slows down the assimilation rate, causes major productivity losses, and results in severe quality problems. Clearly, good planning and preparation before acquiring new technologies ensures the expected greater economic returns. This becomes a more dominant problem when companies import technologies from else where. For example, a Far Eastern company once brought in a western fertilizer plant without first studying what not to bring. Because of its lack of preparation, the company did not know that the technical collaborator was using that part of the equipment because of the cold, snowy climate it was operating in. Thus, the company was installing equipment which was inappropriate for the humid tropical climate in which it operated. Advancement phase. When capital is limited, as has become the case for many companies today, one cannot indiscriminately purchase and abandon technologies with scarce money. Therefore, it becomes imperative to improvise the acquired technologies for one’s home needs. Companies like Lincoln Electric have taken this thinking to a new height. They are a world leader in electric arc-welding equipment, and generate most of their process technologies internally, eventually patenting them because they cannot find equipment out among the vendors. For the most part, it advances its technologies through the efforts of its design and development engineers. A company which buys stator-winding machines from a company like Lincoln Electric, within the legally permissible limits, may be able to improvise the feed rates, the winding patterns, and other such features in order to enhance the original techno logical capabilities of the equipment. Similarly, an automotive company, which might spend several billions of dollars to retool for new models, might have to create advancement features for its basic tooling in order to reduce the overall tooling costs. Abandonment phase. This last phase of the technology cycle is probably one of the most critical ones, because this is where decisions are made concerning the obsolescence of a particular technology. With the rapid discarding of existing technologies (product-based, processbased, information-based, and management-based), timing for new technologies is critical for winning in the business game, let alone for survival. Posturing for new technologies involves many interdependent variables, including the competition’s product entry timing, the customer’s ability to absorb and invest in new technologies, the technical knowledge and skills needed, the spare-parts management program, and the marketing and advertising channels available. Bad timing in prematurely abandoning a product could result in lost revenues on one hand, but on the other hand, waiting too long to abandon might also result in lost revenues because a customer has found a better alternative in competition. There 44
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doesn’t seem to be an easy formula to make the selection—it is still an art—but it can be done with greater input of information from different areas of the company such as research development, marketing, and production.
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The TC fits within the broader technology flow process in which all technologies that are abandoned after being marketed, or inventions not commercialized to start with, are archived for a certain period of time, ranging from a few days to possibly several decades. One or more of these factors may be more important than the others in each of the five phases, and for each type of technology under consideration. For example, in the acquisition phase of the TC, a developing-country enterprise, which has a limited for-eign exchange to buy sophisticated equipment, will consider the economic factor to be relatively more important. Accordingly, the company may opt for self-generation rather than transfer of technology, by designing and building machinery of its own. In a multinational company, external factors, including the political and cultural factors, sometimes may become more dominant in relative importance than the economic and technical factors. For example, prior to the 1990s, some Japanese multinational companies were wise to offer their technology and know-how in India without demanding a 51 percent share, but rather settling for 45 percent, because of an understanding and appreciation for the political and cultural requirements prevalent and imposed by the Indian government. Thus, they gained entry to some vital markets well before others in the West did. 2.4 TECHNOLOGY FLOW CHANNEL Channels of technology flow Technology is intangible; it flows easily across boundaries of countries, industries departments. or individuals, provided that the channels of flow are established. There are three types of channels that allow the flow of technology. 1. General channels: The technology transfer is done unintentionally and may proceed without the continued involvement of the source. Information is made available the public domain with limited or no restrictions on its use. This information is harnessed by users and applied to their purposes. Channels of this type of transfer include education, training, publications, conferences, study missions, and exchange of visits. 2. Reverse-engineering channels: Other channels in which the transfer occurs with no active contribution from the source include reverse engineering and emulation. Here a host, or a traditional receiver of a technology, is capable of breaking the code of a technology and developing the capability to duplicate it in some fashion. This is feasible provided that the host has the knowledge to do this and there is no legal violation of intellectual or property rights. For example, a product that is put on the market by company A can be purchased by company B, reverse-engineered, and introduced to the market as a competitor to company A’s product, as illustrated by the case in the accompanying box. This is a powerful method for technology 45
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transfer. Its limitation is its inability to transfer the developer’s tacit knowledge. Such knowledge is usually during development process. 3. Planned channels: The technology transfer is done intentionally, the product according to a planned process and with the consent of the technology owner. There are several types of agreements that are used to effect planned transfers. They permit access to, and use of, a technological know-how: a) Licensing: The receiver purchases the right to utilize someone else’s technology. This may entail an outright purchase or a payment of an initial lump-sum amount plus a percentage of sales. b) Franchise: This is a form of licensing; however, the source usually provides some type of continual support to the receiver, for example, by supplying materials, marketing support, or training. This channel is commonly used in food chains and service organizations, such as McDonald’s, Burger King, and Pizza Hut. c) Joint venture: Two or more entities combine their interests in a business enterprise in which they can share knowledge and resources to develop a technology, :reduce a product, or use their respective know-how to complement one ano-ther. They also share in the rewards of the venture. International joint ventures are frequently used by recipients to acquire technology and by sources of technology to gain access to local markets and distribution skills. d) Turnkey project: A country buys a complete project from an outside source and the project is designed, implemented, and delivered ready to operate. Special provisions for training or continued operational support may be included in the agreement between the parties. Engaging in a turnkey project is equivalent to buying or selling a machine, but on the scale of an entire plant. Most innovative firms would not sell a plant or license technologies that they intend to exploit themselves. e) Foreign direct investment (FDI): A corporation, usually a multinational, decides to produce its products or invest some of its resources overseas. This permits the transfer of technology to another country, but the technology remains within the boundaries of the firm (i.e., is still controlled by the firm). This type of investment has advantages for both the investor and the host country. The investor gains access to a labor force, natural resources, technology, or markets. The host country receives technological know-how, employment opportunities for its people, training for the workforce, and investment capital that adds to the development of. its infrastructure. The host country will also get tax advantages, since most employees will be contributing to the local economy. The multinational may also gain a tax advantage by locating facilities offshore in a country or territory that gives a tax break. Many U.S. pharmaceutical companies have located facilities in Puerto Rico because of the tax advantage they can get with this arrangement. Some developing countries provide long-term tax relief for foreign companies located on their soil. f) Technical consortium and joint R&D project: Here, two or more entities collaborate in a large venture because the resources of one are inadequate to affect the direction of technological change. Typically this type of venture takes place between two countries or two large conglomerates. For example, a consortium was formed between France 46
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and England to develop a supersonic plane (the Concorde). Both nations needed to combine their technical and financial resources to develop expensive technology and, in the meantime, to compete with their rivals in the United States. Several similar ventures and consortia exist under the auspices of the European Union (EU). European governments have established a number of projects to help national companies compete with America Japanese firms. Programs the EU supports include “Race,” a project to advance communication technology; “Espirit,” for information technology; and “Jessi,” to bolster semiconductor research. Project “Eureka” is an independent research program involving 24 nations (U.S. Office of Technology Policy, 1997). All these cooperative projects aim to advance research, develop technology, and transfer knowledge to participating member states. The Japanese government, through its Ministry of International Trade and Industry (MITI), fosters alliances between industry and government in projects of national interest and scope. Examples include the VLSI project undertaken to make the Japanese semiconductor industry competitive and the Fifth Generation project, which focuses on advancing artificial intelligence and parallel processing (Cheney and Grimes, 199).
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Routes of technology transfer he principal routes of enterprise-to-enterprise technology transfer are : a) Licensing or Franchise Licensing and Franchise arrangements vary from a complete package of instructions, technical assistance and training to mere permission for the manufacture and sale of a product. b) Suppliers of Materials and Parts Suppliers of materials and parts are often willing to provide a full range of technical support, information and manufacturing know-how, and they can be as effective in know-how transfer as in industrial licensing arrangements. The manufacturing of colour TV sets in India is a classic example of this type. The manufacturers did not have a formal technology transfer agreement but had an understanding with the foreign suppliers of materials and components regarding technical assistance in production. c) Equipment Supplier Avariety of technical services are provided by equipment suppliers, including operational and maintenance procedures and even processing know-how (typical in chemical industry). Some technologies are machine based and therefore the know-how is transferred along with supply of plant and equipment. a) Outright purchase e.g., of turnkey plants or of complete manufacturing and operating specifications, drawings, know-how, performance data and technical assistance. b) Acquisition of the company or business owning the technology.
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c) Joint ventures with the technology owners. d) Franchising of trademarks and technical, management, and marketing know-how. e) Combinations and variations of any of the above. We have studied the process of Technology Generation and Development in the previous unit. Technology once developed can be used by its developer or owner, or can be transferred to another user immediately or after sometime at any stage till maturity, dictated by commercial expediency. Generally, newer technologies are transferred among the developed countries and matured or nearly matured technologies are transferred from developed to developing countries at the enterprise level. In this unit we shall study the process of Technology Transfer and some of the related issues. Basically there are two ways of acquiring new technology: develop it or purchase it. The second way of acquiring new technologyis commonly called “technology transfer”. The important reasons for purchasing technology are : (i) it involves little or no R&D investment; (ii) technology can be used quickly; and (iii) technical and financial risks are often quite low. There are also good reasons for selling technology, such as (i) increasing return on R&D investments; (ii) technology may not have immediate use; and (iii) technology has already been utilized up to its limit. Therefore, technology transfer occurs because of the existence of “buyers” and “sellers”. The sellers are called “transferors” or “licensors” and the buyers are called “transferees” or “licensees” in the technology transfer process. Transfer, as defined, means the acquiring through purchase and use of technology. Therefore, the definition of technology transfer is the acquisition and use of knowledge. There is no transfer of technology unless and until the technical knowledge is put to use. Technology transfer is not restricted here only to scientific or engineering items. The manufacturing, marketing, distribution and customer service are among the factors that are included in technology transfer. The key factors in technology transfer include :
Transplantation of technology involves shift from one set of well-defined conditions to another set in which at least one key variable may differ. Secondly, the recipient may apply the technology to a different purpose from that of the supplier.
A sense of opportunism prevails in technology transfer, whether justified or not.
The transfer process embraces a rich variety of mechanisms and relationships between recipient and donor (supplier of technology). The process can vary from a routine people less passive transfer to turnkey contract where the donor takes the full responsibility for all phases of the contract.
The nature of the transferred technology and how it is transferred are critical to the success of the technology transfer process.
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Technology transfer may begin as a solution to someone else’s problems. Adoption of such “outside solution to solve an ‘inside’ problem is technology transfer. The advantage lies in avoiding “reinventing the wheel”.
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Models of TECHNOLOGY TRANSFER The following Figures (Source : Mogavexco, L.N., and R.S. Shane,, 1982, Technology Transfer and Innovation, Marcel Dek ker) illustrate the models of technology transfer :
TECHNOLOGY
BRIDGING AGENCIES
TECHNOLOGY USERS
Figure 2.1 Bridging Agencies
REAEARCH
DEVELOPMENT
KEY ENTITES DIFFUSION
ADOPTION
Figure 2.2 Research and Development Diffusion Model
NEED FELT
APPLICATION OF SOLUTION
ARTICULATED AS PROBLEM
CHOICE OF SOLUTION
SEARCH FOR SOLUTIONS
Figure 2.3 Problem – Solver Model
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DEVELOPMENT
COMMUNICATION
UTILIZATION
Figure 2.4 Technology Transfer Summary Model Agencies that try to make technology transfers happen include government departments, financial institutions, industries, technology transfer agencies, consultants, venture capital companies, research companies, and R&D organizations, etc. These are the bridging agencies of Figure 2.1. The users of new technologies comprise private and public sector industries, giant technically oriented agencies such as Indian Space Research Organization, government departments, Atomic Energy Commission etc. It can be seen that a wide spectrum of participants in the total economy are technology users. Figure 2.2 illustrates schematically the diffusion of technology from a mission-oriented agency that supports development of technology for purposes of its mission and then arranges for the technology diffusion to other industries by knowledge transfer. This is usually a slow process. Figure 2.3 shows the generation and transfer of technology as a companion of problem solving. Figure 2.4 shows a synthesis of the entire process of technology transfer on a large scale. 2.5 TECHNOLOGY TRANSFER MODES Technology transfer modes have been categorized basically as being passive or active, which refers to the transferor’s role in the application of technology to the solution of the user’s problem. This is illustrated in Figure 2.5 (Source : Mogavexco, L.N. and R.S. Shane, 1982, Technology Transfer and Innovation, Marcel Dekker). If the transferring mechanism presents the technology to the potential user without assisting the user in its application, namely by a report or oral presentation, then the technology transfer mode is said to be passive. This is actually knowledge transfer. If the transferring activity assists the potential user in the application of technology, then the technology transfer mode is said to be active. In this process, the transferring activity goes beyond mere interpretation of the transmitted data and advises the potential user on how to apply the technology, or demonstrates the applicability of the technology to the perceived use. There could however be an intermediate also, which may be called semi-active mode in which transferring activity is in between the activity is in between the active and passive modes.
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USERS/NEEDS TECHNOLOGY BASE ENGINEERING COMMUNICATION
TECHNOLOGY TRANSFER MODES
MEDICINE ELECTRONICS ENERGY STRUCTURES CHEMICALS MATERIALS COMPUTERS ETC.
PUBLIC SECTOR TRAFIC SAFETY EMERGENCY HEALTH CARE CRIME PREVENTION PUBLIC TRANSPORTATION DRINKING WATER QUALITY ENERGY CONSERVATION URBAN CONSTRUCTION ETC.
PASSIVE ACTIVE
PRIVATE SECTOR INDUSTRY AGRICULTURE MINING CONSUMER PRODUCTS AUTOMOTIVE MEDICINE ETC.
Figure 2.5 Connecting Technology with Users The three different types of technology transfer modes are discussed-in detail (Source for Figures 2.6 to 2.8 : Mogavexco, L.N., and R.S. Shane,1982, Technology Transfer and Innovation). The Passive Mode The passive mode, also called dissemination mode, is illustrated in Figure 2.6. The most familiar and widely used form of passive technology transfer is the published literature. There is no direct communication or assistance from the originator of the technology to the producer of finished consumer item. Yet thousands of products are made and consumed from this form of knowledge transfer. Similar forms of passive technology transfer are self-teaching manuals such as television repair manuals and how-to-do-it guide& for home repairs. The Semi-active Mode In the semi-active mode of [technology transfer the role of technology transfer agent (in addition to self-education or self-retrieval of elements of technology transfer) is somewhat limited. This is illustrated in Figure 2.7. The technology transfer agent (consultant or technology expert) screens available pertinent information for product development. Here the role of transfer agent is only that of an interpreter or communicator. He will not actively participate in the application of the technology.
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The Active Mode The active mode technology transfer carries the process through to an actual demonstration as shown in Figure 2.8. The figure demonstrates various steps involved in the construction of the model or a product from procurement of material to fabrication and assembly. In this mode the technology transfer agent or consultant will be fully involved and acts as a bridge in technology transfer from technology source to entrepreneur or implementing agency. Horizontal and Vertical Technology Transfer Horizontal Technology Transfer implies transfer of technology from one firm to another. Such transfers take place generally between the firms located in different countries, mainly due to reasons of competition and maturity or near maturity of technologies. Vertical technology transfer means transfer of technology from an R&D organization to a firm. Such transfers are mostly within the country and the technologies are new, and may often require further efforts in terms of establishing commercial viability. Such a transfer involves considerable risk.
TECHNOLOGY INFORMATION
TECHNOLOGY BASE
* PUBLICATIONS
USER
* PRIMARY INNOVATOR
* COMPUTARIZED
FOR APPLICATION
DATA BASES
OF TECHNOLOGY
* PERSONAL CONTACTS
Figure 2.6 Technology Transfer – Passive Mode
TECHNOLY BASE
TECHNICAL INFORMATION
* PUBLICATIONS * COMPUTERIZED DATA BASES
TECHNOLOGY TRANSFER AGENT
* SECONDARY INNOVATOR
USER
* PRIMARY INNOVATOR
FOR APPLICATION
FOR APPLICATION
OF TECHNOLOGY
OF TECHNOLOGY
* PERSONAL CONTACTS
Figure 2.7 Technology Transfer – Semi-active Mode.
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NOTES TECHNOLOGY BASE
TECHNICAL INFORMATION
* PUBLICATIONS * COMPUTERISED DATA BASES
CHAMPION AND HIS TEAM
* PRIMARY INNOVATOR
USER
* SECONDARY INNOVATOR
FOR APPLICATION
FOR APPLICATION
OF TECHNOLOGY
OF TECHNOLOGY
* PERSONAL CONTACTS
Figure 2.8 Technology Transfer – Active Mode 2.6 TECHNOLOGY UPGRADATION In today’s rapidly changing technological environment, there is a great need for proper implementation and supervision of new technologies. Increasingly, we are seeing major restructuring within corporations in which personnel positions are either removed or reconfigured to suit the incoming foreign technology(ies). Therefore, the issues of technology transfer and the methodologies to achieve successful technology transfers need to be considered. Technology Transfer Issues Okko and Gunasekaran (1994) define technology transfer as “the spread of technology from one culture, country, or region to another.” However, other definitions of technology transfer abound, depending on the perspective of an organization. Johnsrud (1994) states that “industry perspectives generally portray technology transfer as an internal or intraorganizational technology management problem,” whereas “government and academic organizations more often view technology transfer as an inter-organizational activity.” This difference in opinion can pose barriers to inter-organizational technology transfer, and as a result, reduce the competitiveness of the industry. Too often, the modern industrial giants of our day have been guilty of “over- isolating R&D, engineering, manufacturing, and marketing through organizational compartmentalization” (Stewart, 1989). Wood and EerNisse (1992) also presented a number of reasons for different bottlenecks in the technology transfer; one of the more important ones was the cultural gap between industry and the federal laboratories. The seemingly uncatchable “technology train” is causing companies to reevaluate which technologies they decide to keep and which they discard. A prime example of this is the health-care field. Medical breakthroughs and technological advances are almost daily occurrences, some of them costing millions of dollars. As Clemmer (1991) points out, these discoveries force us to answer tough questions such as “which technologies do we choose? Where do we draw the line?”
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Technology assessment for upgradation Technology assessment is the study and evaluation of new technologies. It is based on the conviction that new developments within, and discoveries by, the scientific community are relevant for the world at large rather than just for the scientific experts themselves, and that technological progress can never be free of ethical implications. Also, technology assessment recognizes the fact that scientists normally are not trained ethicists themselves and accordingly ought to be very careful when passing ethical judgement on their own, or their colleagues´new findings, projects, or work in progress. Technology assessment assumes a global perspective and is future-oriented rather than backward-looking or anti-technological. Scientific research and science-based technological innovation is an indispensable prerequisite of modern life and civilization. There is no alternative. TA considers its task as interdisciplinary approach to solving already existing problems and preventing potential damage caused by the uncritical application and the commercialization of new technologies. Therefore any results of technology assessment studies must be published, and particular consideration must be given to communication with political decision-makers. Some of the major fields of TA are: information technology nuclear technology molecular nanotechnology pharmacology organ transplants gene technology health technology assessment (HTA) 2.7 TECHNOLOGY MODERNISATION Recognizing the new paradigms for managing technology, Betz et al. (1995) presents eight guiding principles for the management of the modern enterprise. These are: 1. Value creation: Value added constitutes the basic social responsibility of the enterprise. It is the key to long-term survivability of the enterprise. 2. Quality: Quality is a fundamental requirement influencing competitiveness. Quality need not be thought of as a tradeoff with cost but as a hygiene factor. Organizations cannot sustain success without offering quality products or services. 3. Responsiveness: An enterprise must manage not only for stability but also for 4. Change. It must be able to manage short cycles and respond to external environmental changes and customer demands promptly. 5. Agility: A production facility must be flexible enough to (1) produce a variety of product lines and (2) facilitate communication and operation between suppliers,
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production, and customers. This may require changes within an organization’s structures to meet changing demands.
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6. 5Innovation: A firm must be able to improve its ability to innovate and to use innovation to gain competitive advantage. Innovation may be relevant in a number of categories, including products, production, and services. Competing through technology is fact of life today. 7. Integration: A modern firm must be able to acquire and integrate a portfolio of technologies that will give it a unique and defined advantage over its competitors. The portfolio may include more than one generation of product or process technologies. Integrating all resources including technology, people, energy, information, and capital is essential for improving productivity and increasing effectiveness. 8. Teaming: The complexity of integrating mixed technologies with varying life cycles requires a workforce with high levels of training. Workers must be able to work together in interdisciplinary teams to carry out and coordinate the operations of the enterprise. 9. Fairness: A firm must develop a fair way to distribute to all its stakeholders the wealth created by a successful production operation. Fairness reduces conflicts among managers, labor, government, and the public. It leads to long-term survival of the enterprise. The following chapters address many, but certainly not all, of the issues emerging from the new MOT paradigms. The objective is to present underlying foundations that will help the reader establish a framework of thinking and will permit analysis of critical issues and synthesis of solutions. The concepts and methodologies presented are those with proven value. Case studies are used as a source of lessons and guiding principles. It is suggested that the reader supplement the material presented here with up-to-date articles published in professional journals and in business-related magazines. Technology Readiness Level based on modernisation
NASA Technology Readiness Levels
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Technology Readiness Level (TRL) is a measure used by some United States government agencies and many major world’s companies (and agencies) to assess the maturity of evolving technologies (materials, components, devices, etc.) prior to incorporating that technology into a system or subsystem. Generally speaking, when a new technology is first invented or conceptualized, it is not suitable for immediate application. Instead, new technologies are usually subjected to experimentation, refinement, and increasingly realistic testing. Once the technology is sufficiently proven, it can be incorporated into a system/ subsystem. Definitions Different definitions are used by different agencies, although they are somewhat similar. The most common definitions are those used by the Department of Defense (DOD) and the National Aeronautics and Space Administration (NASA). DOD definitions Related DOD definitions Technology Readiness Levels in the Department of Defense (DOD) (Source: DOD (2006), Defense Acquisition Guidebook) Technology Readiness Description Level 1. Basic principles observed Lowest level of technology readiness. Scientific and reported research begins to be translated into applied research and development. Example might include paper studies of a technology's basic properties. 2. Technology concept Invention begins. Once basic principles are and/or application observed, practical applications can be invented. formulated The application is speculative and there is no proof or detailed analysis to support the assumption. Examples are still limited to paper studies. 3. Analytical and Active research and development is initiated. This experimental critical includes analytical studies and laboratory studies to function and/or physically validate analytical predictions of characteristic proof of separate elements of the technology. Examples concept include components that are not yet integrated or representative. 4. Component and/or Basic technological components are integrated to breadboard validation in establish that the pieces will work together. This is laboratory environment relatively "low fidelity" compared to the eventual system. Examples include integration of 'ad hoc' hardware in a laboratory. 5. Component and/or Fidelity of breadboard technology increases breadboard validation in significantly. The basic technological components relevant environment are integrated with reasonably realistic supporting elements so that the technology can be tested in a simulated environment. Examples include 'high fidelity' laboratory integration of components. 56
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6. System/subsystem model or prototype demonstration in a relevant environment
Representative model or prototype system, which is well beyond the breadboard tested for TRL 5, is tested in a relevant environment. Represents a major step up in a technology's demonstrated readiness. Examples include testing a prototype in a high fidelity laboratory environment or in simulated operational environment. 7. System prototype Prototype near or at planned operational system. demonstration in an Represents a major step up from TRL 6, operational environment requiring the demonstration of an actual system prototype in an operational environment, such as in an aircraft, vehicle or space. Examples include testing the prototype in a test bed aircraft. 8. Actual system completed Technology has been proven to work in its final and 'flight qualified' form and under expected conditions. In almost all through test and cases, this TRL represents the end of true system demonstration development. Examples include developmental test and evaluation of the system in its intended weapon system to determine if it meets design specifications. 9. Actual system 'flight Actual application of the technology in its final proven' through successful form and under mission conditions, such as those mission operations encountered in operational test and evaluation. In almost all cases, this is the end of the last "bug fixing" aspects of true system development. Examples include using the system under operational mission conditions.
NOTES
The DOD uses similar definitions for the following specialized areas.
Software Technology Readiness Levels
Biomedical Technology Readiness Levels
Manufacturing Readiness Levels
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NASA definitions Technology Readiness Levels in the National Aeronautics and Space Administration(NASA) (Source: Mankins (1995), Technology Readiness Levels: A White Paper) Technology Readiness Description Level 1. Basic principles This is the lowest "level" of technology observed and reported maturation. At this level, scientific research begins to be translated into applied research and development. 2. Technology concept Once basic physical principles are observed, then and/or application at the next level of maturation, practical formulated applications of those characteristics can be 'invented' or identified. At this level, the application is still speculative: there is not experimental proof or detailed analysis to support the conjecture. 3. Analytical and At this step in the maturation process, active experimental critical research and development (R&D) is initiated. This function and/or must include both analytical studies to set the characteristic proof of technology into an appropriate context and concept laboratory-based studies to physically validate that the analytical predictions are correct. These studies and experiments should constitute "proof-ofconcept" validation of the applications/concepts formulated at TRL 2. 4. Component and/or Following successful "proof-of-concept" work, breadboard validation in basic technological elements must be integrated to laboratory environment establish that the "pieces" will work together to achieve concept-enabling levels of performance for a component and/or breadboard. This validation must be devised to support the concept that was formulated earlier, and should also be consistent with the requirements of potential system applications. The validation is relatively "lowfidelity" compared to the eventual system: it could be composed of ad hoc discrete components in a laboratory. 5. Component and/or At this level, the fidelity of the component and/or breadboard validation in breadboard being tested has to increase relevant environment significantly. The basic technological elements must be integrated with reasonably realistic supporting elements so that the total applications (component-level, sub-system level, or systemlevel) can be tested in a 'simulated' or somewhat realistic environment.
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6. System/subsystem model or prototype demonstration in a relevant environment (ground or space)
A major step in the level of fidelity of the technology demonstration follows the completion of TRL 5. At TRL 6, a representative model or prototype system or system - which would go well beyond ad hoc, 'patch-cord' or discrete component level breadboarding - would be tested in a relevant environment. At this level, if the only 'relevant environment' is the environment of space, then the model/prototype must be demonstrated in space. 7. System prototype TRL 7 is a significant step beyond TRL 6, demonstration in a space requiring an actual system prototype demonstration environment in a space environment. The prototype should be near or at the scale of the planned operational system and the demonstration must take place in space. 8. Actual system completed In almost all cases, this level is the end of true and 'flight qualified' 'system development' for most technology through test and elements. This might include integration of new demonstration (ground or technology into an existing system. space) 9. Actual system 'flight In almost all cases, the end of last 'bug fixing' proven' through successful aspects of true 'system development'. This might mission operations include integration of new technology into an existing system. This TRL does not include planned product improvement of ongoing or reusable systems.
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Other definitions The Federal Aviation Administration (FAA) references Technology Readiness Levels in some of their documents, and seems to rely on the NASA definitions. Brief history of Technology Readiness Levels Technology Readiness Levels were originally developed by NASA in the 1980s. The original definitions only included seven levels. These were later expanded to nine levels. Original NASA TRL Definitions by Sadin, et al., 1989 (Source: Nolte 2003) Level 1 Basic Principles Observed and Reported Level 2 Potential Application Validated Level 3 Proof of Concept Demonstrated, Analytically and/or Experimentally Level 4 Component and/or Breadboard Laboratory Validated Level Component and/or Breadboard Validated In Simulated or Real-space Environment Level 6 System Adequacy Validated In Simulated Environment Level 7 System Adequacy Validated In Space 59
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The United States Air Force adopted the use of Technology Readiness Levels in the 1990s. In 1995, John C. Mankins, NASA, wrote a “White Paper on Technology Readiness Levels” that discussed NASA’s use of TRLs and proposed descriptions for each TRL. In 1999, the United States General Accounting Office (GAO) produced an influential report GAO/NSIAD-99-162 that examined the differences in technology transition between the DOD and private industry. It concluded that the DOD takes greater risks and attempts to transition emerging technologies at lesser degrees of maturity than does private industry. The GAO concluded that use of immature technology increased overall program risk. The GAO recommended that the DOD adopt the use of NASA’s Technology Readiness Levels as a means of assessing technology maturity prior to transition. In 2001, the Deputy Under Secretary of Defense for Science and Technology issued a memorandum that endorsed use of TRLs in new major programs. Guidance for assessing technology maturity was incorporated into the Defense Acquisition Guidebook. Subsequently, the DOD developed detailed guidance for using TRLs in the 2003 DOD Technology Readiness Assessment Desk book. TRL assessment tools A Technology Readiness Level Calculator was developed by the United States Air Force by Nolte et al. This tool a is standard set of questions implemented in Microsoft Excel that produces a graphical display of the TRLs achieved. This tool is intended to provide a snapshot of technology maturity at a given point in time. The Technology Program Management Model (TPMM) was developed by the United States Army by Craver et al. The TPMM is a TRL gated high-fidelity activity model that provides a flexible management tool to assist Technology Managers in planning, managing, and assessing their technologies for successful technology transition. The model provides a core set of activities including systems engineering and program management tasks that are tailored to the technology development and management goals. This approach is comprehensive, yet it consolidates the complex activities that are relevant to the development and transition of a specific technology program into one integrated model.
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Uses of Technology Readiness Levels
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The primary purpose of using Technology Readiness Levels is to help management in making decisions concerning the development and transitioning of technology. Advantages include:
Provides a common understanding of technology status
Risk management
Used to make decisions concerning technology funding
Used to make decisions concerning transition of technology
Disadvantages include:
More reporting, paperwork, reviews
Relatively new, takes time to influence the system
Systems engineering not addressed in early TRLs
2.7 ADOPTION OF NEW TECHNOLOGIES Invention An invention is a new form, composition of matter, device, or process. Some inventions are based on pre-existing forms, compositions, processes or ideas. Other inventions are radical breakthroughs which may extend the boundaries of human knowledge or experience. Invention that gets out into the world is innovation, and as such it may be a major breakthrough, it may have a minor or incremental impact or its effect can be in between there is also a “cultural invention” which is an innovative set of useful behaviors adopted by people who then pass them on. An invention that is novel and not obvious to those who are skilled in the same field may be able to obtain the legal protection of a patent. Play can lead to invention. “All sorts of things can happen when you’re open to new ideas and playing around with things.” Kevlar inventor, Stephanie Kwolek. Childhood curiosity, experimentation and imagination can develop into a play instinct that is an inner need according to Carl Jung. Inventors feel the need to play with things that interest them, to explore, and this internal drive brings about novel creations. Einstein also said, “To raise new questions, new possibilities, to regard old questions from a new angle, requires creative imagination and marks real advance.” and “Imagination is more important than knowledge.” Inventors often envision a new idea, seeing it in their mind. New ideas often come when the conscious mind turns away from the subject or problem, when you are focusing on something else, relaxing, at rest or sleeping. A novel idea may come in a flash - Eureka! For example, after years of working to figure out the general theory of relativity, the solution came to Einstein suddenly in a dream “like a giant die making an indelible impress, a huge map of the universe outlined itself in one clear vision.” 61
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Inventing also takes insight. It may begin with questions, doubt or a hunch. It may begin by recognizing that something unusual or accidental may be useful or that it opens a new avenue for exploration. For example, the odd metallic color of plastic made by accidentally adding a thousand times too much catalyst led scientists to explore its metallike properties, inventing electrically conductive plastic and light emitting plastic - invention that won the Nobel Prize in 2000. “Inspiration exists, but it has to find us working.” Picasso. No matter how complete the initial is as a spark, a hunch or a vision, inventions typically have to be worked. Inventing is often an exploratory process, full of risk, with failures as well as successes, and its outcome is not known or not fully known. “If we knew what it was we were doing, it would not be called research, would it?” Einstein Inventors believe in their ideas and they do not give up in the face of one or many failures. Their perseverance, confidence and passion are famous. “If I find 10,000 ways something won’t work, I haven’t failed. I am not discouraged, because every wrong attempt discarded is another step forward.” Thomas A. Edison, who also declared, “I never did a day’s work in my life, it was all fun.” Inventors want to satisfy a need, they try to solve a problem or make something better, asking what if or, wouldn’t it be great if. “Discontent is the first necessity of progress.” Edison. Inventors may for example, try to improve something by making it more effective, healthier, faster, more efficient, easier to use, serve more purposes, longer lasting, cheaper, more ecologically friendly, or aesthetically different, e.g., lighter weight, more ergonomic, structurally different, with new light or color properties, etc. Or an entirely new invention may be created like the Internet, email, the telephone or electric light. “Necessity, who is the mother of invention.” Plato. Yet invention is also the mother of necessity. Nobody needed a phonograph before Edision invented it, the need for it developed afterwards. Likewise, few ever imagined the telephone or the airplane prior to their invention, but many people cannot live without these inventions now. The idea for an invention may be developed on paper or on a computer, by writing or drawing, by trial and error, by making models, by experimenting, by testing and/or by making the invention in its whole form. As the dialogue between Picasso and Braque brought about Cubism, collaboration has spawned many inventions. Brainstorming can spark new ideas. Collaborative creative processes are frequently used by designers, architects and scientists. Co-inventors are frequently named on patents. Now it is easier than ever for people in different locations to collaborate. Many inventors keep records of their working process - notebooks, photos, etc., including Leonardo da Vinci, Thomas Jefferson and Albert Einstein. In the process of developing an invention, the initial idea may change. The invention may become simpler, more practical, it may expand, or it may even morph into something totally different. Working on one invention can lead to others too. There is only one country in the world that will grant patent rights for an invention that continues part of an invention in a previously filed patent, the United States. 62
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The creation of an invention and its use can be effected by practical considerations. Some inventions are not created in the order that enables them to be most useful. For example, the parachute was invented before powered flight. There are inventions that are too expensive to produce and inventions that require scientific advancements that have not yet occurred. These barriers can erode or disappear as the economic situation changes or as science develops. But history shows that turning an invention that is only an idea into reality can take any amount of time, even centuries as demonstrated by inventions originally conceived by Leonardo da Vinci which are now in physical form and commonplace in our lives. Interestingly, some invention that exists as only an idea and has never been made in reality can obtain patent protection.
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An invention can serve many purposes, these purposes might differ significantly and they may change over time. An invention or a further developed version of it may serve purposes never envisioned by its original inventor(s) or even by others living at the time of it’s original invention. As an example, consider all the kinds of plastic developed, their innumerable uses, and the tremendous growth this material invention is still undergoing today. Artistic invention Invention has a long and important history in the arts. Inventive thinking has always played a vital role in the creative process. While some inventions in the arts are patentable, others are not because they cannot fulfill the strict requirements governments have established for granting them, In art, design and architecture “A man paints with his brains and not with his hands.” Michelangelo. Art is continuously reinvented. Many artists, designers, and architects think like inventors. As they create, they may for example: explore beyond that which is known or obvious, push against barriers, change or discard conventions, and/or break into new territory. Some artists are inventors and among their inventions are important contributions to visual art as well as other fields. Some visual artists like Picasso become inventors in the process of creating art. Inventions by other artists are separate from their art, such as the scientific inventions of Leonardo da Vinci. Some inventions in visual art employ prior developments in science or technology. For example, Picasso and Julio Gonzalez used welding to invent a new kind of sculpture, the form of which could be more open to light and air, and more recently, computer software has enabled an explosion of invention in visual art, including the invention of computer art, and invention in photography, film, architecture and design. Like the invention of welded sculpture, other inventions in art are new art forms, for example, the collage and the construction invented by Picasso, the Readymade invented by Marcel Duchamp, the mobile invented by Alexander Calder, the combine invented by Robert Rauschenberg, 63
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and the shaped painting invented by Frank Stella. A number of art movements were inventions often created collaboratively, such as Cubism invented by Picasso and Braque. Substantial inventions in art, design and architecture were made possible by inventions and improvements in the tools of the trade. The invention of Impressionist painting, for example, was possible because the prior invention of collapsible, resealable metal paint tubes facilitated spontaneous painting outdoors. Inventions originally created in the form of artwork can also develop other uses, as Alexander Calder’s mobile is commonly used over babies’ cribs today. Funds generated from patents on inventions in art, design and architecture can support the realization of the invention or other creative work. Frederic Auguste Bartholdi’s 1879 patent on the Statue of Liberty helped fund the statue currently in New York harbor because it covered small replicas. Among other artists, designers and architects who are or were inventors are: Filippo Brunelleschi, Le Corbusier, Naum Gabo, Louis Comfort Tiffany, John La Farge, Buckminster Fuller, Jackson Pollock, Man Ray, Yves Klein, Henry N. Cobb, I. M. Pei, Kenneth Snelson, Helen Frankenthaler, Chuck (Charles) Hoberman and Ingo Maurer. Some of their inventions have been patented. Others might have fulfilled the requirements of a patent, like the Cubist image. There are also inventions in visual art that do not fit into the requirements of a patent. Examples are inventions that cannot be differentiated from that which has already existed clearly enough for approval by government patent offices, such as Duchamp’s Readymade and other conceptual works. Invention whose inventor or inventors are not known cannot be patented, such as the invention of abstract art or abstract painting, oil painting, Process Art, Installation art and Light Art. Also, when it cannot or has not been determined whether something was a first in human history or not, there may not be a patentable invention even though it may be considered an invention in the realm of art. For example, Picasso is credited with inventing collage though this probably was done earlier in a culture outside of the western world. Inventions in the visual arts that may be patentable might be new materials or mediums, they might be new kinds of images, they might be new processes, they might be novel designs, or they may be a combination of these. Inventions by Filippo Brunelleschi, Louis Comfort Tiffany, John La Farge, Chuck (Charles) Hoberman and others received patents. The color, International Klein Blue invented by Yves Klein was patented in 1960 and used two years later in his sculpture. Inventions by Kenneth Snelson which are crucial to his sculptures are patented. R. Buckminster Fuller’s famous geodesic dome is covered in one of his 28 US patents. Ingo Maurer known for his lighting design has a series of patents on inventions in these works. Many inventions created collaboratively by designers at IDEO Inc. have been patented. Countless other examples can easily be found by searching patents at the websites of the Patent Offices of various countries. Inventions in design can be protected in a special kind of patent called a “design patent.” The first design patent was granted in 1842 to George Bruce for a new font. 64
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In the performing arts
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The value of invention in acting was noted by Paul Newman when discussing his reasons for retiring, “You start to lose your memory, your confidence, your invention. So that’s pretty much a closed book for me.” Work by Martha Graham and many other artists is known for invention. Getting inventions out into the world Inventions get out into the world in different ways. Some of them are sold, licensed or given away as products or services. Simply exhibiting visual art, playing music or having a performance gets many artistic inventions out into the world. Believing in the success of an invention can involve risk, so it can be difficult to obtain support and funding. Grants, inventor associations, clubs and business incubators can provide the mentoring, skills and resources some inventors need. Success at getting an invention out into the world often requires passion for it and good entrepreneural skills. “Make a better mousetrap, and the world will beat a path to your door.” -Ralph Waldo Emerson . In economic theory, inventions are one of the chief examples of “positive externalities,” a beneficial side-effect that falls on those outside a transaction or activity. One of the central concepts of economics is that externalities should be internalized unless some of the benefits of this positive externality can be captured by the parties, the parties will be under-rewarded for their inventions, and systematic under-rewarding will lead to under investment in activities that lead to inventions. The patent system captures those positive externalities for the inventor or other patent owner, so that the economy as a whole will invest a more-closely-optimum amount of resources in the process of invention. Invention and innovation Innovation is “something new or different introduced.” www.Dictionary.com. In the social sciences, an innovation is anything new to a culture, whether it has been adopted or not. The theory for adoption (or non-adoption) of an innovation called diffusion of innovations considers the likelihood that an innovation will ever be adopted and the taxonomy of persons likely to adopt it or spur its adoption. This theory was first put forth by Everett Rogers. Gabriel Tarde also dealt with the adoption of innovations in his Laws of Imitation. Open Innovation Open Innovation is a term promoted by Henry Chesbrough, a professor and executive director at the Center for Open Innovation at Berkeley. The concept is related to (but distinct from) user innovation, cumulative innovation and distributed innovation. The central idea behind open innovation is that in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own research, but should
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instead buy or license processes or inventions (i.e. patents) from other companies. In addition, internal inventions not being used in a firm’s business should be taken outside the company (e.g., through licensing, joint ventures, spin-offs). In contrast, closed innovation refers to processes that limit the use of internal knowledge within a company and make little or no use of external knowledge. Some companies promoting open innovation include Procter & Gamble, Innovation Exchange ,NineSigma, InnoCentive, and IBM. Prior to World War II, closed innovation was the paradigm in which most firms operated. Most innovating companies kept their discoveries highly secret and made no attempt to assimilate information from outside their own R&D labs. However, in recent years the world has seen major advances in technology and society which have facilitated the diffusion of information. Not the least of these advances is electronic communication systems, including the internet. Today information can be transferred so easily that it seems impossible to prevent. Thus, the open innovation model states that since firms cannot stop this phenomenon, they must learn to take advantage of it. It is the business model of the firm that determines what external information to bring inside, and what internal information to take outside. Open source vs. Open Innovation While open source and open innovation might conflict on patents issues, they are not mutually exclusive, as participating companies can donate their patents to an independent organization, put them in a common pool or grant unlimited license use to anybody. Hence some open source initiatives can merge the two concepts, this is the case for instance for IBM with its Eclipse platform which IBM is advocating as a case of open innovation, where competing companies are invited to co-operate inside an open innovation network. Difference between traditional innovation and open innovation Open innovation needs a different mindset and company culture than traditional or closed innovation.
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Closed innovation Principles Open innovation Principles The smart people in our field Not all the smart people work for us. We work for us. need to work with smart people inside and outside our company. To profit from research and External R&D can create significant value; development (R&D), we must internal R&D is needed to claim some discover it, develop it and ship portion of that value. it ourselves. If we discover it ourselves, we We don't have to originate the research to will get it to market first. profit from it. The company that gets an Building a better business model is better innovation to market first will than getting to market first. win. If we create the most and the If we make the best use of internal and best ideas in the industry, we external ideas, we will win. will win. We should control our We should profit from others' use of our innovation process, so that our innovation process, and we should buy competitors don't profit from others' intellectual property (IP) whenever it our ideas. advances our own business model.
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First to file and first to invent The United States uses a first-to-invent system. Invention is generally defined to comprise two steps: conception of the invention and reduction to practice of the invention. When an inventor conceives of an invention and diligently reduces the invention to practice (by filing a patent application, by practicing the invention, etc), the inventor’s date of invention will be the date of conception. Thus, provided an inventor is diligent in reducing an application to practice, he or she will be the first inventor and the inventor entitled to a patent, even if another files a patent application (reduces the invention to practice) before the inventor. Every country other than the United States uses a first-to-file system. This means that, regardless of who the first inventor was, the person or legal entity who files a patent application first is the one who can be granted a patent for the invention. The first-to-invent versus first-to-file rule is one of the major differences between U.S. patent law and the patents systems of other nations. Harmonization efforts are underway with the goal being to unify the patent laws of various nations so that inventors have the same rights regardless of in which country a patent is granted. Other considerations Although patents normally go to the first inventor under a first-to-file system, an inventor who keeps the information secret or just does not publish generally loses the right to the patent and also does not establish prior art. Without prior art, a later inventor can get a 67
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valid patent on the same invention and then apply it against earlier inventor(s). All this is easily prevented simply by recognizing the invention and applying for a patent, or by publishing details of how to practice the invention, thus creating prior art. Prior art searching A “novelty search” is a prior art search that is often conducted by patent attorneys, patent agents or professional patent searchers before an inventor files a patent application. A novelty search helps an inventor determine if the invention is novel before committing the resources necessary to obtain a patent. A “validity search” is a prior art search done after a patent issues. The purpose of a validity (or invalidity) search is to try and find prior art that the patent examiner overlooked so that a patent can be declared invalid. This might be done by an entity infringing the patent, or it might be done by a patent owner or other entity that has a financial stake in a patent to confirm the validity of a patent. A clearance search is a prior art search done of issued patents to see if a given product or process violates someone else’s existing patent. If so, then a validity search may be done to try and find prior art that would invalidate the patent. Duty of disclosure In the United States, inventors and their patent agents or attorneys are required by law to submit any references they are aware of to the United States Patent and Trademark Office that may be material to the patentability of the claims in a patent application they have filed. The patent examiner will then determine if the references qualify as “prior art” and may then take them into account when examining the patent application. If the attorney/ agent or inventor fails to properly disclose the potentially relevant references they are aware of, then a patent can be found invalid for inequitable conduct. At least Japan also has a duty of disclosure. Australia has abolished its duty of disclosure with regard to the results of documentary searches by, or on behalf of, foreign patent offices, except where: (a) normal exam was requested prior to April 22nd, 2007, and (b) the foreign patent office search issued prior to April 22nd, 2007, and (c) acceptance (allowance) was officially advertised prior to July 22nd, 2007. 2.9 ABSORBTION OF NEW TECHNOLOGIES Startup Financing Cycle A startup company or start-up is a company with a limited operating history. These companies, generally newly created, are in a phase of development and research for markets. They have an uncertain future, and may result in a spectacular success, or failure. The term became popular internationally during the dot-com bubble when a great number of dot68
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com companies were founded. A high tech startup company is a startup company specialized in the high tech industry.
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Evolution of a startup company While slow-growth businesses may be startups, investors are most attracted to those new companies distinguished by their risk/reward profile and scalability. That is, they have lower bootstrapping costs, higher risk, and higher potential return on investment. Successful startups are typically more scalable than an established business, in the sense that they can potentially grow rapidly with limited investment of capital, labor or land. Startups enjoy several unique options for funding. Venture capital firms and angel investors may help startup companies begin operations, exchanging cash for an equity stake. In practice though, many startups are initially funded by the founders themselves. Factoring is another option, though not unique to start ups. A company may cease to be a startup as it passes various milestones, such as becoming profitable, or becoming publicly traded in an IPO, or ceasing to exist as an independent entity via a merger or acquisition. Startup companies, particularly those associated with new technology, sometimes produce huge returns to their creators and investors - a recent example of such was Google, whose creators are now billionaires through their share ownership. However, the failure rate of startup companies is very high. Based on a research, Founder CEOs of high-tech companies can typically expect their stock to be worth about $6,500,000 (statistical average) if the company succeeds in going public (in 1997) While there are startup businesses created in all types of businesses, and all over the world, some locations and business sectors are particularly associated with startup companies. The Internet bubble of the late 1990s was associated with huge numbers of internet startup companies, some selling the technology to provide internet access, others using the internet to provide services. Most of this startup activity was located in Silicon Valley, an area of northern California renowned for the high level of startup company activity. The first critical and pivotal task in setting up a business is to conduct research in order to validate, assess and develop the ideas or business concepts in addition to opportunities to establish further and deeper understanding on the ideas or business concepts as well as their commercial potentials.
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Startupers
Startupers is a term used in the software industry to describe people involved in the creation of high tech startups. Typically, startupers are entrepreneurs, venture capitalists, software engineers, web developers, and others involved in the ground level of a new technology.
2.10 ABSORPTION PROCESS Technology absorption capabilities of recipient enterprise The absorptive capabilities of the recipient enterprise depends upon its resources and capabilities (embodied in technical and managerial skills as well as financial strength) and upon the transfer capabilities of the supplier enterprise. The following are some of the problems encountered by small-to-medium enterprises in technology absorption. Service facilities : Material testing, heat treatment, instrument calibration, engineering standards and quality control procedures. Manufacturing : Material standards and specifications, manufacturing processing procedures, formulas on alloys and compounds, fabrication and use of fixtures, jigs, dies and tools, welding techniques, casting and other metallurgical processes and material substitutes. Equipment : Special equipment designs (heat exchangers, pressure vessels, bearings heating elements) and standardization of major machine components (gear boxes, machine tools), die casting etc. 2.11 RELOCATION ISSUES Technology analysis may be viewed as a “skyway theory” of technology. Just as a skyway is a passageway linking various buildings, allowing easy access to the main areas without attempting to cover every floor, so technology analysis allows easy access to the essential feature of all technologies without attempting to grasp every detail. Table 2.1 Linkages of Direct Technology Driven Changes. Technology development product design
simplifies Operations costs reduced, procurement requirement changed marketing redefined, service simplified, etc. Supplier introduces electronic order Procurement procedure change, handling and shipping fewer stock-outs operations introduces JIT (just-time to customers. marketing has to explain Service introduces on- line Customer Marketing has new customer-oriented feedback system customer costs campaign, operations uses, feedback for reduced, technology improvements. quality improvement—development incorporates customer ideas for product improvements. Outbound logistics introduces Marketing has another new—campaign customer–designated shipping packages customer costs reduced, customer– and lot sizes designated shipping service has lower customer demands and costs 70
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Traditional Tools
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Traditional strategic management’s analytical tools can address technological issues with some utility. However, in varying degrees they suffer from (1) a lack of differentiation of technological change from other types of change; (2) little insight into the dynamic processes involved in technological change; (3) a dependence on ( frequently a technical) analysts’ knowledge, expertise, and understanding; and (4) some question about the credibility of underlying concepts. They lack the focus and emphasis required for contemporary strategic management analysis. Table 2.2 Technological Change Restructures Industry New supplier technology
Technology lowers plant and greater cost equipments costs Technology drives high plant motivation and equipment costs New technology-driven substitutes Firm’s proprietary technology diffused
Improved supplier differentiation or cost reduction, potentially higher supplier power, potentially greater cost competition. Entry barriers lowered for new entrants, potentially competition. Entry barriers raised for new entrants-may increase for substitutes or increase firm power Firm power endangered—entry barriers, new competitive space created Reduced firm power—lower barriers for new entrants, potentially greater cost competition
Summary
Technology flow channel gives different means of channel flow.
Technology transfer modes explains different modes in transferring technology.
Technology upgradation explains how technology has to be improved for better efficiency.
Technology modernization tells the need for modernization in this competitive world.
Adoption of new technologies elaborates on how alternates are available .
Absorption process gives the methodology by which technology is absorbed.
Relocation issues give the salient difficulties in transferring technology.
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Review 1. What are the Technology flow channels? 2. Explain different modes in transferring technology. What mode of technology transfer is normally followed in developing countries? 3. Give examples that you know regarding modes of technology transfer in India? 4. Explain how Technology upgradation can improve efficiency? 5. What is the need for modernization in this competitive world? 6. Elaborate on adoption of new technologies and how alternates are available? 7. Give the methodology by which technology is absorbed? 8. What are the salient issues in relocation?
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UNIT III
TRANSFER MECHANISMS 3.1 INTRODUCTION This unit starts with the Technology Transfer Services. Matching and pre-selection of prospective business partners is essential to make a good fit. Commercialising innovations through press release is essential to create awareness. Technology transfer negotiations require well managed Technology transfer Offices, databank, periodicals and web based services. Technology transfer agreements and Material Transfer Agreements (MTA s) help in materializing technology transfers without disputes. Business meets, workshops, training programmes are enablers for the advancement of technology. 3.2 LEARNING OBJECTIVES
Technology Transfer Services that help in technology transfer.
Matching and pre-selection of prospective business partners is essential to make a good fit.
Commercialising innovations through press release is essential to create awareness.
Technology transfer negotiations require well managed
Technology transfer Offices, databank, periodicals and web based services.
Technology transfer agreements and Material Transfer Agreements (MTA s) help in materializing technology transfers without disputes.
Business meets, workshops, training programmes are enablers for the advancement of technology.
3.3 TECHNOLOGY TRANSFER SERVICES Services / Activities
Transfer of technology relating to proven R & D outputs.
Research partnership with industry for technology development and its
Commercial applications.
Innovative problem solving consultancy with industry clients.
Safeguarding Intellectual Property Rights.
Information Support Service to industry and R & D organizations. 73
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Access to the array of specialised equipment and central facilities such as video
Production, laboratories, central workshops etc.
HRD Programmes
Corporate Membership of FITT
3.4 MATCHING AND PRE-SELECTION OF PROSPECTIVE BUSINESS PARTNERS Business incubator Business incubators are programs designed to accelerate the successful development of entrepreneurial companies through a match with an array of business support resources and services, developed and orchestrated by incubator management and offered both in the incubator and through its network of contacts. Incubators vary in the way they deliver their services, in their organizational structure, and in the types of clients they serve. Successful completion of a business incubation program increases the likelihood that a start-up company will stay in business for the long term: Historically, 87% of incubator graduates stay in business. Incubators differ from research and technology parks in their dedication to start-up and early-stage companies. Research and technology parks, on the other hand, tend to be large-scale projects that house everything from corporate, government or university labs to very small companies. Most research and technology parks do not offer business assistance services, which are the hallmark of a business incubation program. However, many research and technology parks house incubation programs. Incubators also differ from the U.S. Small Business Administration’s Small Business Development Centers (and similar business support programs) in that they serve only selected clients. SBDCs are required by law to offer general business assistance to any company that contacts them for help. In addition, SBDCs do not target start-up and earlystage companies; they work with any small business at any stage of development. Many business incubation programs partner with their local SBDC to create a “one-stop shop” for entrepreneurial support. In 2005 alone, North American incubation programs assisted more than 27,000 companies that provided employment for more than 100,000 workers and generated annual revenues of $17 billion. The incubation process
Most common incubator services
Help with business basics
Networking activities
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Marketing assistance
High-speed Internet access
Help with accounting/financial management
Access to bank loans, loan funds and guarantee programs
Help with presentation skills
Links to higher education resources
Links to strategic partners
Access to angel investors or venture capital
Comprehensive business training programs
Advisory boards and mentors
Management team identification
Help with business etiquette
Technology commercialization assistance
Help with regulatory compliance
Intellectual property management
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Unlike many business assistance programs, business incubators do not serve any and all companies. Entrepreneurs who wish to enter a business incubation program must apply for admission. Acceptance criteria vary from program to program, but in general only those with feasible business ideas and a workable business plan are admitted. It is this factor that makes it difficult to compare the success rates of incubated companies against general business survival statistics Although most incubators offer their clients office space and shared administrative services, the heart of a true business incubation program is the services it provides to startup companies. More than half of incubation programs surveyed by the National Business Incubation Association in 2006 reported that they also served affiliate or virtual clients. These companies do not reside in the incubator facility. Affiliate clients may be home-based businesses or early-stage companies that have their own premises but can benefit from incubator services. Virtual clients may be too remote from an incubation facility to participate on site, and so receive counseling and other assistance electronically. The amount of time a company spends in an incubation program can vary widely depending on a number of factors, including the type of business and the entrepreneur’s level of business expertise. Life science and other firms with long research and development cycles require more time in an incubation program than manufacturing or service companies that can immediately produce and bring a product or service to market. On average, incubator clients spend 33 months in a program. Many incubation programs set graduation 75
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requirements by development benchmarks, such as company revenues or staffing levels, rather than time in the program. Incubator types, goals, and sponsors
Industry sectors intentionally supported by incubation programs technology Computer software Services/professional Manufacturing Internet Biosciences/life sciences Electronics/microelectronics Telecommunications Computer hardware Medical devices Wireless technology Healthcare technology Advanced materials Defense/homeland security Energy Environment/clean technologies Media Nanotechnology Construction Arts Aerospace Kitchen/food Retail Fashion Wood/forestry Tourism
More than half of all business incubation programs are “mixed-use” projects; that is, they work with clients from a variety of industries. Technology incubators account for 39% of incubation programs. Business incubation has been identified as a means of meeting a variety of economic and socioeconomic policy needs, which may include:
Creating jobs and wealth
Fostering a community’s entrepreneurial climate
Technology commercialization 76
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Diversifying local economies
Building or accelerating growth of local industry clusters
Business creation and retention
Encouraging women or minority entrepreneurship
Identifying potential spin-in or spin-out business opportunities
Community revitalization
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About one-third of business incubation programs are sponsored by economic development organizations. Government entities (such as cities or counties) account for 21% of program sponsors. Another 20% are sponsored by academic institutions, including two- and four-year colleges, universities, and technical colleges. In many countries, incubation programs are funded by regional or national governments as part of an overall economic development strategy. In the United States, however, most incubation programs are independent, community-based and resourced projects. The U.S. Economic Development Administration is a frequent source of funds for developing incubation programs, but once a program is open and operational it typically receives no federal funding; few states offer centralized incubator funding. Rents and/or client fees account for 59% of incubator revenues, followed by service contracts or grants (18%) and cash operating subsidies (15%). Many for-profit or “private” incubation programs were launched in the late 1990s by investors and other for-profit seeking to hatch businesses quickly and bring in big payoffs. At the time, NBIA estimated that nearly 30% of all incubation programs were for-profit ventures. In the wake of the dot-com bust, however, many of those programs closed. In NBIA’s 2002 State of the Business Incubation survey, only 16% of responding incubators were for-profit programs. By the 2006 SOI, just 6% of respondents were for-profit. Although some incubation programs (regardless of nonprofit or for-profit status) take equity in client companies, most do not. Only 25% of incubation programs report that they take equity in some or all of their clients. History The formal concept of business incubation began in the USA in 1959 when Joseph Mancuso opened the Batavia Industrial Center in a Batavia, New York, warehouse. Incubation expanded in the U.S. in the 1980s and spread to the UK and Europe through various related forms (e.g. innovation centres, pépinières d’entreprises, technopoles/science parks). The U.S.-based National Business Incubation Association estimates that there are about 5,000 incubators worldwide. As of October 2006, there were more than 1,400 incubators in North America, up from only 12 in 1980. Her Majesty’s Treasury identified 77
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around 25 incubation environments in the UK in 1997; by 2005, UKBI identified around 270 incubation environments across the country. A study funded by the European Commission in 2002 identified around 900 incubation environments in Western Europe. Incubation activity has not been limited to developed countries; incubation environments are now being implemented in developing countries and raising interest for financial support from organisations such as UNIDO and the World Bank. 3.5 COMMERCIALISING INNOVATIONS Discovery (observation) Discovery is made by providing observational evidence and attempts to develop an initial, rough understanding of some phenomenon. Some observational discoveries lead to invention of object, process, or techniques. A discovery may sometimes be based on earlier discoveries, collaborations or ideas, and the process of discovery requires at least the awareness that an existing concept or method can be modified or transformed. However, some discoveries also represent a radical breakthrough in knowledge. Example discoveries: Within the course of scientific innovation, major scientific theories and discoveries were developed by various people. In many cases, the discovery spanned several years. The following are a few discoveries by observation:
JJ Thomson discovery of the electron model.
The discovery of the structure of DNA.
The discovery of quasars.
Another discovery was that the Earth was not flat. In Western culture, Greek philosophers realized that the Earth was round by the fourth century BCE; non-western cultures noticed it even earlier. Indeed, the curvature of the earth is fairly obvious to seagoing people—for example, watching a ship disappear bottom-first over the horizon. Innovation The term innovation may refer to both radical and incremental changes in thinking, in things, in processes or in services. Invention that gets out in to the world is innovation. In many fields, something new must be substantially different to be innovative, not an insignificant change, e.g., in the arts, economics, business and government policy. In economics the change must increase value, customer value, or producer value. The goal of innovation is positive change, to make someone or something better. Innovation leading to increased productivity is the fundamental source of increasing wealth in an economy.
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Innovation is an important topic in the study of economics, business, technology, sociology, and engineering. Colloquially, the word “innovation” is often used as synonymous with the output of the process. Since innovation is also considered a major driver of the economy, the factors that lead to innovation are also considered to be critical to policy makers.
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Introduction In the organisational context, innovation may be linked to performance and growth through improvements in efficiency, productivity, quality, competitive positioning, market share, etc. All organisations can innovate, including for example hospitals, universities, and local governments. While innovation typically adds value, innovation may also have a negative or destructive effect as new developments clear away or change old organisational forms and practices. Organisations that do not innovate effectively may be destroyed by those that do. Hence innovation typically involves risk. A key challenge in innovation is maintaining a balance between process and product innovations where process innovations tend to involve a business model which may develop shareholder satisfaction through improved efficiencies while product innovations develop customer support however at the risk of costly R&D that can erode shareholder return Conceptualising innovation Innovation has been studied in a variety of contexts, including in relation to technology, commerce, social systems, economic development, and policy construction. There are, therefore, naturally a wide range of approaches to conceptualising innovation in the scholarly literature. Fortunately, however, a consistent theme may be identified: innovation is typically understood as the successful introduction of something new and useful, for example introducing new methods, techniques, or practices or new or altered products and services. Distinguishing from Invention and other concepts “An important distinction is normally made between invention and innovation. Invention is the first occurrence of an idea for a new product or process, while innovation is the first attempt to carry it out into practice”. It is useful, when conceptualizing innovation, to consider whether other words suffice. Invention - the creation of new forms, compositions of matter, or processes - is often confused with innovation. An improvement on an existing form, composition or processes might be an invention, an innovation, both or neither if it is not substantial enough. It can be difficult to differentiate change from innovation. According to business literature, an idea, a
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change or an improvement is only an innovation when it is put to use and effectively causes a social or commercial reorganization. Innovation occurs when someone uses an invention or an idea to change how the world works, how people organize themselves, or how they conduct their lives. In this view innovation occurs whether or not the act of innovating succeeds in generating value for its champions. Innovation is distinct from improvement in that it permeates society and can cause reorganization. It is distinct from problem solving and may cause problems. Thus, in this view, innovation occurs whether it has positive or negative results. Innovation in organizations A convenient definition of innovation from an organizational perspective is given by Luecke and Katz (2003), who wrote: “Innovation . . . is generally understood as the successful introduction of a new thing or method . . . Innovation is the embodiment, combination, or synthesis of knowledge in original, relevant, valued new products, processes, or services. Innovation typically involves creativity, but is not identical to it: innovation involves acting on the creative ideas to make some specific and tangible difference in the domain in which the innovation occurs. For example, Amabile et al (1996) propose: “All innovation begins with creative ideas . . . We define innovation as the successful implementation of creative ideas within an organization. In this view, creativity by individuals and teams is a starting point for innovation; the first is necessary but not sufficient condition for the second”. For innovation to occur, something more than the generation of a creative idea or insight is required: the insight must be put into action to make a genuine difference, resulting for example in new or altered business processes within the organisation, or changes in the products and services provided. A further characterization of innovation is as an organizational or management process. For example, Davila et al (2006), write: “Innovation, like many business functions, is a management process that requires specific tools, rules, and discipline.” From this point of view the emphasis is moved from the introduction of specific novel and useful ideas to the general organizational processes and procedures for generating, considering, and acting on such insights leading to significant organizational improvements in terms of improved or new business products, services, or internal processes.
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Through these varieties of viewpoints, creativity is typically seen as the basis for innovation, and innovation as the successful implementation of creative ideas within an organization. From this point of view, creativity may be displayed by individuals, but innovation occurs in the organizational context only.
NOTES
It should be noted, however, that the term ‘innovation’ is used by many authors rather interchangeably with the term ‘creativity’ when discussing individual and organizational creative activity. As Davila et al (2006) comment, “Often, in common parlance, the words creativity and innovation are used interchangeably. They shouldn’t be, because while creativity implies coming up with ideas, it’s the “bringing ideas to life” . . . that makes innovation the distinct undertaking it is.” The distinctions between creativity and innovation discussed above are by no means fixed or universal in the innovation literature. They are however observed by a considerable number of scholars in innovation studies. Economic conceptions of innovation Joseph Schumpeter defined economic innovation in The Theory of Economic Development, 1934, Harvard University Press, Boston 1. The introduction of a new good — that is one with which consumers are not yet familiar — or of a new quality of a good. 2. The introduction of a new method of production, which need by no means be founded upon a discovery scientifically new, and can also exist in a new way of handling a commodity commercially. 3. The opening of a new market, that is a market into which the particular branch of manufacture of the country in question has not previously entered, whether or not this market has existed before. 4. The conquest of a new source of supply of raw materials or half-manufactured goods, again irrespective of whether this source already exists or whether it has first to be created. 5. The carrying out of the new organization of any industry, like the creation of a monopoly position (for example through trustification) or the breaking up of a monopoly position 6. Schumpeter’s focus on innovation is reflected in Neo-Schumpeterian economics, developed by such scholars as Christopher Freeman and Giovanni Dosi Innovation is also studied by economists in a variety of contexts, for example in theories of entrepreneurship or in Paul Romer’s New Growth Theory. Transaction cost and network theory perspectives According to Regis Cabral (1998, 2003): 81
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“Innovation is a new element introduced in the network which changes, even if momentarily, the costs of transactions between at least two actors, elements or nodes, in the network.” Innovation and market outcome Market outcome from innovation can be studied from different lenses. The industrial organizational approach of market characterization according to the degree of competitive pressure and the consequent modelling of firm behaviour often using sophisticated game theoretic tools, while permitting mathematical modelling, has shifted the ground away from an intuitive understanding of markets. The earlier visual framework in economics, of market demand and supply along price and quantity dimensions, has given way to powerful mathematical models which though intellectually satisfying has led policy makers and managers groping for more intuitive and less theoretical analyses to which they can relate to at a practical level. Non quantifiable variables find little place in these models, and when they do, mathematical gymnastics (such as the use of different demand elasticities for differentiated products) embrace many of these qualitative variables, but in an intuitively unsatisfactory way. In the management (strategy) literature on the other hand, there is a vast array of relatively simple and intuitive models for both managers and consultants to choose from. Most of these models provide insights to the manager which help in crafting a strategic plan consistent with the desired aims. Indeed most strategy models are generally simple, wherein lie their virtue. In the process however, these models often fail to offer insights into situations beyond that for which they are designed, often due to the adoption of frameworks seldom analytical, seldom rigorous. The situational analyses of these models often tend to be descriptive and seldom robust and rarely present behavioural relationship between variables under study. From an academic point of view, there is often a divorce between industrial organisation theory and strategic management models. While many economists view management models as being too simplistic, strategic management consultants perceive academic economists as being too theoretical, and the analytical tools that they devise as too complex for managers to understand. Innovation literature while rich in typologies and descriptions of innovation dynamics is mostly technology focused. Most research on innovation has been devoted to the process (technological) of innovation, or has otherwise taken a how to (innovate) approach. The integrated innovation model of Soumodip Sarkar goes some way to providing the academic, the manager and the consultant an intuitive understanding of the innovation – market linkages in a simple yet rigorous framework in his book , Innovation, Market Archetypes and Outcome- An Integrated Framework.
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The integrated model presents a new framework for understanding firm and market dynamics, as it relates to innovation. The model is enriched by the different strands of literature - industrial organization, management and innovation. The integrated approach that allows the academic, the management consultant and the manager alike to understand where a product (or a single product firm) is located in an integrated innovation space, why it is so located and which then provides valuable clues as to what to do while designing strategy. The integration of the important determinant variables in one visual framework with a robust and an internally consistent theoretical basis is an important step towards devising comprehensive firm strategy. The integrated framework provides vital clues towards framing a what to guide for managers and consultants. Furthermore, the model permits metrics and consequently diagnostics of both the firm and the sector and this set of assessment tools provide a valuable guide for devising strategy.
NOTES
Sources of innovation There are several sources of innovation. In the linear model the traditionally recognized source is manufacturer innovation. This is where an agent (person or business) innovates in order to sell the innovation. Another source of innovation, only now becoming widely recognized, is end-user innovation. This is where an agent (person or company) develops an innovation for their own (personal or in-house) use because existing products do not meet their needs. Eric von Hippel has identified end-user innovation as, by far, the most important and critical in his classic book on the subject, Sources of Innovation. Innovation by businesses is achieved in many ways, with much attention now given to formal research and development for “breakthrough innovations.” But innovations may be developed by less formal on-the-job modifications of practice, through exchange and combination of professional experience and by many other routes. The more radical and revolutionary innovations tend to emerge from R&D, while more incremental innovations may emerge from practice - but there are many exceptions to each of these trends. Regarding user innovation, rarely user innovators may become entrepreneurs, selling their product, or more often they may choose to trade their innovation in exchange for other innovations. Nowadays, they may also choose to freely reveal their innovations, using methods like open source. In such networks of innovation the creativity of the users or communities of users can further develop technologies and their use. Whether innovation is mainly supply-pushed (based on new technological possibilities) or demand-led (based on social needs and market requirements) has been a hotly debated topic. Similarly, what exactly drives innovation in organizations and economies remains an open question. More recent theoretical work moves beyond this simple dualistic problem, and through empirical work shows that innovation does not just happen within the industrial supply83
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side, or as a result of the articulation of user demand, but through a complex processes that links many different players together - not only developers and users, but a wide variety of intermediary organistions such as consultancies, standards bodies etc. Work on social networks suggests that much of the most successful innovation occures at the boundaries of organisations and industries where the problems and needs of users, and the potential of technologies can be linked together in a creative process that challenges both. Value of experimentation in innovation When an innovative idea requires a new business model, or radically redesigns the delivery of value to focus on the customer, a real world experimentation approach increases the chances of market success. New business models and customer experiences can’t be tested through traditional market research methods. Pilot programs for new innovations set the path in stone too early thus increasing the costs of failure. Stefan Thomke of Harvard Business School has written a definitive book on the importance of experimentation. Experimentation Matters argues that every company’s ability to innovate depends on a series of experiments [successful or not], that help create new products and services or improve old ones. That period between the earliest point in the design cycle and the final release should be filled with experimentation, failure, analysis, and yet another round of experimentation. “Lather, rinse, repeat,” Thomke says. Unfortunately, uncertainty often causes the most able innovators to bypass the experimental stage. In his book, Thomke outlines six principles companies can follow to unlock their innovative potential. 1. Anticipate and Exploit Early Information Through ‘Front-Loaded’ Innovation Processes 2. Experiment Frequently but Do Not Overload Your Organization. 3. Integrate New and Traditional Technologies to Unlock Performance. 4. Organize for Rapid Experimentation. 5. Fail Early and Often but Avoid ‘Mistakes’. 6. Manage Projects as Experiments. Thomke further explores what would happen if the principles outlined above were used beyond the confines of the individual organization. For instance, in the state of Rhode Island, innovators are collaboratively leveraging the state’s compact geography, economic and demographic diversity and close-knit networks to quickly and cost-effectively test new business models through a real-world experimentation lab.
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Diffusion of innovations
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Once innovation occurs, innovations may be spread from the innovator to other individuals and groups. This process has been studied extensively in the scholarly literature from a variety of viewpoints, most notably in Everett Rogers’ classic book, The Diffusion of Innovations. However, this ‘linear model’of innovation has been substantinally challenged by scholars in the last 20 years, and much research has shown that the simple inventioninnovation-diffusion model does not do justice to the multilevel, non-linear processes that firms, entrepreneurs and users participate in to create successful and sustainable innovations. Rogers proposed that the life cycle of innovations can be described using the ‘scurve’ or diffusion curve. The s-curve maps growth of revenue or productivity against time. In the early stage of a particular innovation, growth is relatively slow as the new product establishes itself. At some point customers begin to demand and the product growth increases more rapidly. New incremental innovations or changes to the product allow growth to continue. Towards the end of its life cycle growth slows and may even begin to decline. In the later stages, no amount of new investment in that product will yield a normal rate of return. The s-curve is derived from half of a normal distribution curve. There is an assumption that new products are likely to have “product Life”. I.e. a start-up phase, a rapid increase in revenue and eventual decline. In fact the great majority of innovations never get off the bottom of the curve, and never produce normal returns. Innovative companies will typically be working on new innovations that will eventually replace older ones. Successive s-curves will come along to replace older ones and continue to drive growth upwards. In the figure above the first curve shows a current technology. The second shows an emerging technology that current yields lower growth but will eventually overtake current technology and lead to even greater levels of growth. The length of life will depend on many factors. 85
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Goals of innovation Programs of organizational innovation are typically tightly linked to organizational goals and objectives, to the business plan, and to market competitive positioning. For example, one driver for innovation programs in corporations is to achieve growth objectives. As Davila et al (2006) note, “Companies cannot grow through cost reduction and reengineering alone . . . Innovation is the key element in providing aggressive top-line growth, and for increasing bottom-line results” In general, business organisations spend a significant amount of their turnover on innovation i.e. making changes to their established products, processes and services. The amount of investment can vary from as low as a half a percent of turnover for organisations with a low rate of change to anything over twenty percent of turnover for organisations with a high rate of change. The average investment across all types of organizations is four percent. For an organisation with a turnover of say one billion currency units, this represents an investment of forty million units. This budget will typically be spread across various functions including marketing, product design, information systems, manufacturing systems and quality assurance. The investment may vary by industry and by market positioning. One survey across a large number of manufacturing and services organisations found, ranked in decreasing order of popularity, that systematic programs of organizational innovation are most frequently driven by: 1. Improved quality 2. Creation of new markets 3. Extension of the product range 4. Reduced labour costs 5. Improved production processes 6. Reduced materials 7. Reduced environmental damage 8. Replacement of products/services 9. Reduced energy consumption 10. Conformance to regulations These goals vary between improvements to products, processes and services and dispel a popular myth that innovation deals mainly with new product development. Most 86
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of the goals could apply to any organisation be it a manufacturing facility, marketing firm, hospital or local government.
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Failure of innovation Research findings vary, ranging from fifty to ninety percent of innovation projects judged to have made little or no contribution to organizational goals. One survey regarding product innovation quotes that out of three thousand ideas for new products; only one becomes a success in the marketplace. Failure is an inevitable part of the innovation process, and most successful organisations factor in an appropriate level of risk. Perhaps it is because all organisations experience failure that many choose not to monitor the level of failure very closely. The impact of failure goes beyond the simple loss of investment. Failure can also lead to loss of morale among employees, an increase in cynicism and even higher resistance to change in the future. Innovations that fail are often potentially ‘good’ ideas but have been rejected or ‘shelved’ due to budgetary constraints, lack of skills or poor fit with current goals. Failures should be identified and screened out as early in the process as possible. Early screening avoids unsuitable ideas devouring scarce resources that are needed to progress more beneficial ones. Organizations can learn how to avoid failure when it is openly discussed and debated. The lessons learned from failure often reside longer in the organisational consciousness than lessons learned from success. While learning is important, high failure rates throughout the innovation process are wasteful and a threat to the organisation’s future. The causes of failure have been widely researched and can vary considerably. Some causes will be external to the organisation and outside its influence of control. Others will be internal and ultimately within the control of the organisation. Internal causes of failure can be divided into causes associated with the cultural infrastructure and causes associated with the innovation process itself. Failure in the cultural infrastructure varies between organisations but the following are common across all organisations at some stage in their life cycle (O’Sullivan, 2002): 1. Poor Leadership 2. Poor Organisation 3. Poor Communication 4. Poor Empowerment 5. Poor Knowledge Management Common causes of failure within the innovation process in most organisations can be distilled into five types:
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1. Poor goal definition 2. Poor alignment of actions to goals 3. Poor participation in teams 4. Poor monitoring of results 5. Poor communication and access to information Effective goal definition requires that organisations state explicitly what their goals are in terms understandable to everyone involved in the innovation process. This often involves stating goals in a number of ways. Effective alignment of actions to goals should link explicit actions such as ideas and projects to specific goals. It also implies effective management of action portfolios. Participation in teams refers to the behaviour of individuals in and of teams, and each individual should have an explicitly allocated responsibility regarding their role in goals and actions and the payment and rewards systems that link them to goal attainment. Finally, effective monitoring of results requires the monitoring of all goals, actions and teams involved in the innovation process. Innovation can fail if seen as an organisational process whose success stems from a mechanistic approach i.e. ‘pull lever obtain result’. While ‘driving’ change has an emphasis on control, enforcement and structure it is only a partial truth in achieving innovation. Organisational gatekeepers frame the organisational environment that “Enables” innovation; however innovation is “Enacted” - recognised, developed, applied and adopted - through individuals. Individuals are the ‘atom’ of the organisation close to the minutiae of daily activities. Within individuals gritty appreciation of the small detail combines with a sense of desired organisational objectives to deliver (and innovate for) a product/service offer. From this perspective innovation succeeds from strategic structures that engage the individual to the organisation’s benefit. Innovation pivots on intrinsically motivated individuals, within a supportive culture, informed by a broad sense of the future. Innovation, implies change, and can be counter to an organisation’s orthodoxy. Space for fair hearing of innovative ideas is required to balance the potential autoimmune exclusion that quells an infant innovative culture. 3.6 PRESS RELEASE Measures of innovation Individual and team-level assessment can be conducted by surveys and workshops. Business measures related to finances, processes, employees and customers in balanced scorecards can be viewed from the innovation perspective (e.g. new product revenue, time to market, customer and employee perception & satisfaction). Organizational
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capabilities can be evaluated through various evaluation frameworks e.g. efqm (European foundation for quality management) -model.
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The OECD Oslo Manual from 1995 suggests standard guidelines on measuring technological product and process innovation. Some people consider the Oslo Manual complementary to the Frascati Manual from 1963. The new Oslo manual from 2005 takes a wider perspective to innovation, and includes marketing and organizational innovation. Other ways of measuring innovation have traditionally been expenditure, for example, investment in R&D (Research and Development) as percentage of GNP (Gross National Product). Whether this is a good measurement of Innovation has been widely discussed and the Oslo Manual has incorporated some of the critique against earlier methods of measuring. This being said, the traditional methods of measuring still inform many policy decisions. The EU Lisbon Strategy has set as a goal that their average expenditure on R&D should be 3 % of GNP. The Oslo Manual is focused on North America, Europe, and other rich economies. In 2001 for Latin America and the Caribbean countries it was created the Bogota Manual Many scholars claim that there is a great bias towards the “science and technology mode” (S&T-mode or STI-mode), while the “learning by doing, using and interacting mode” (DUI-mode) is widely ignored. For an example, that means you can have the better high tech or software, but there are also crucial learning tasks important for innovation. But these measurements and research are rarely done. Public awareness Public awareness of innovation is an important part of the innovation process. This is further discussed in the emerging fields of innovation journalism and innovation communication. Commercialization Commercialization is the process of introducing a new product into the market. The actual launch of a new product is the final stage of new product development, and the one where the most money will have to be spent for advertising, sales promotion, and other marketing efforts. In the case of a new consumer packaged good, costs will be at least $ 10 million, but can reach up to $ 200 million. In general one can say that it will cost about a dollar for each dollar of sales turnover achieved. “Most Technology-based inventions never go beyond the conception stage.The light bulb in the mind gets lit often, but only occasionally does it leave a trace” . Commercialization is often confused with sales, marketing or business development. The Commercialization process has three key aspects:
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1. The funnel. It is essential to look at many ideas to get one or two products or business that can be sustained long-term 2. It is a stage-wise process and each stage has its own key goals and milestones 3. It is vital to involve key stakeholders early, including customers The Commercialization Process Commercialization going from “mind to market” of a product will only take place, if the following four questions can be answered: When? The company has to decide on the introduction timing. When facing the danger of cannibalizing the sales of the company’s other products, if the product can be improved further, or if the economy is down, the launch should be delayed. Where? The company has to decide where to launch its products. It can be in a single location, one or several regions, a national or the international market. This decision will be strongly influenced by the company’s resources, in terms of capital, managerial confidence and operational capacities. Smaller companies usually launch in attractive cities or regions, while larger companies enter a national market at once. Global roll outs are generally only undertaken by multinational conglomerates, since they have the necessary size and make use of international distribution systems (e.g., Unilever, Procter & Gamble). Other multinationals use the “lead-country” strategy: introducing the new product in one country/region at a time (e.g. Colgate-Palmolive). To Whom? The company has to decide who their primary target consumers are. In this way it can concentrate its distribution and promotion resources. The primary target consumer group will have been identified earlier by research and test marketing. These primary consumer group should consist of innovators, early adopters, heavy users and/or opinion leaders. This will ensure adoption by other buyers in the market place during the product growth period. How? The company has to decide on an action plan for introducing the product by implementing the above decisions. It has to develop a viable marketing mix and create a respective marketing budget.
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Example of commercialization
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When Germany’s Siemens unveiled its new fashion mobile phone brand, Xelibri, in 2003, the main thrust of Xelibri’s launch strategy was to establish credibility as a fashion brand. Xelibri hosted the opening party of the London Fashion Week to which celebrities and opinion-leading editors and journalists of the fashion press were invited to celebrate “Xelibri’s birthday party”. This, together with other selected fashion events and a comprehensive PR campaign, drew huge media attention, including the support of fashion industry influencers, while creating high brand and product awareness […] Advertising was used to sustain the high brand awareness already created by other communication tools; TV and cinema ads served to reinforce Xelibri’s fashion statement. Being positioned as a fashion accessory, upmarket department stores like Selfridges in the UK and Peek & Cloppenburg in Germany, that did not sell mobile phones before, were used as the primary distribution channel for this new line of phones. Copycat A copycat (also copy-cat or copy cat) is a person (or animal, or computer program) that mimics or repeats the behavior of another. The expression may derive from kittens that learned by imitating the behaviors of their mothers. It has been in use since at least 1896, in Sarah Orne Jewett’s “The Country of the Pointed Firs”. The term is often derogatory, suggesting a lack of originality. A copycat website is a website that was spoofed, with the intention of misleading readers with fraudulent objectives often associated with phishing or e-mail spoofing. Copycat crimes are the waves of similar crimes that are sometimes committed shortly after a particularly notorious or unusual crime is reported; they range from shoplifting of particular items to copycat suicides and murders. The “copycat effect” refers to the tendency of sensational publicity about a violent murder or suicide to cause more of the same. In Victoria, Australia, and elsewhere, the word is well-known from an anonymous schoolchildren’s poem describing corporal punishment as a consequence of schoolroom plagiarism. Diffusion of innovations According to Rogers(2003) “Diffusion is the process by which an innovation is communicated through certain channels over time among the members of a social System.” In other words, the study of the diffusion of innovation is the study of how, why, and at what rate new ideas and technology spread through cultures. It applies, for example, to the acceptance of new technological products like the wristwatch and the personal computer,
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foods like tomato sauce and sushi, music styles like opera and bossa nova, dressing styles like the top hat and blue jeans, ideals like democracy or feminism, and so on. This research topic began in the 1950s at the University of Chicago with funding from television producers who sought a way to measure the effectiveness of broadcast advertising. It soon became apparent that advertised products or services were “innovations” in the culture. The general result of the study was that the most influential channel of influence was not from some broadcast medium, but down an echelon of levels, from a small number of “early adopters” to a larger number of “secondary adopters”, and from them to “tertiary adopters”, then to “quaternary adopters”, etc. There was also lateral influence within each level. Broadcast messages could reinforce the propagation from one adopter level down to the next, but lower levels are unlikely to respond until the level above them has adopted. It found that people were more likely to adopt, or even consider adopting, if people they know and respect have adopted. Imitation is the strongest influence channel. Therefore, the most effective marketing strategy is to first sell to the early adopters, then reinforce the diffusion to each successive level, but not to waste resources on trying to reach any given level before it is ready for it. The field has been expanded to examine competitive diffusion processes, in which the diffusion of some innovation stimulates an opposing innovation that also diffuses in competition with the first. Examples of this can include competing products, political candidates, religions, etc. It is sometimes useful to characterize the propensity of an innovation to diffuse with a “coefficient of diffusion.” Thus, the course of events in Vietnam in the 1950s and 1960s can be described in terms such that the meme of nationalism had a higher coefficient of diffusion than the constitutional republican government. Competitive diffusion processes have been simulated by various games, such as the Pendulous family of simulated war games, in which control of the most territory on the board is the object of the game, and play consists of encouraging the spread of “forces” that occupy positions. The S-Curve and technology adoption :
Figure 3.1 The adoption curve becomes an s-curve when cumulative adoption is used.
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Everett M. Rogers in his 1962 book, Diffusion of Innovations, theorized that innovations would spread through society in an S curve, as the early adopters select the technology first, followed by the majority, until a technology or innovation is common. According to Rogers, diffusion research centers on the conditions which increase or decrease the likelihood that a new idea, product, or practice will be adopted by members of a given culture. According to Rogers people’s attitude toward a new technology is a key element in its diffusion. Roger’s Innovation Decision Process theory states that innovation diffusion is a process that occurs over time through five stages: Knowledge, Persuasion, Decision, Implementation and Confirmation. Accordingly, the innovation-decision process is the process through which an individual or other decision-making unit passes
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1. from first knowledge of an innovation, 2. to forming an attitude toward the innovation, 3. to a decision to adopt or reject, 4. to implementation of the new idea, and 5. to confirmation of this decision. The speed of technology adoption is determined by two characteristics p, which is the speed at which adoption takes off, and q, the speed at which later growth occurs. A cheaper technology might have a higher p, for example, taking off more quickly, while a technology that has network effects (like a fax machine, where the value of the item increases as others get it) may have a higher q. Caveats and criticisms Critics of this model have suggested that it is an overly simplified representation of a complex reality. A number of other phenomena can influence innovation adoption rates, such as 1. Customers often adapt technology to their own needs, so the innovation may actually change in nature from the early adopters to the majority of users. This is acknowledged, discussed and included in later additions of the Rogers book. 2. Disruptive technologies may radically change the diffusion patterns for established technology by starting a different competing S-curve. 3. Lastly, path dependence may lock certain technologies in place, as in the QWERTY keyboard.
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3.7 TECHNOLOGY TRANSFER NEGOTIATIONS United Nations Framework Climate Change Convention (UNFCCC) UNFCCC are the terms related to the transfer of environmentally sound technologies and the know-how necessary to mitigate and facilitate adequate adaptation to climate change under which transfers of such technologies and know-how could take place. The enabling environments component of the framework focuses on government actions, such as fair trade policies, removal of technical, legal and administrative barriers to technology transfer, sound economic policy, regulatory frameworks and transparency, all of which create an environment conducive to private and public sector technology transfer. The purpose of the enabling environments component of the framework is to improve the effectiveness of the transfer of environmentally sound technologies by identifying and analysing ways of facilitating the transfer of environmentally sound technologies, including the identification and removal of barriers at each stage of the process. The following are means of creating enabling environments for technology transfer: a. All Parties, particularly developed country Parties, are urged to improve, as appropriate, the enabling environment for the transfer of environmentally sound technologies through the identification and removal of barriers, including, inter alia, strengthening environmental regulatory frameworks, enhancing legal systems, ensuring fair trade policies, utilizing tax preferences, protecting intellectual property rights and improving access to publicly funded technologies and other programmes, in order to expand commercial and public technology transfer to developing countries; b. All Parties are urged to explore, as appropriate, opportunities for providing positive incentives, such as preferential government procurement and transparent and efficient approval procedures for technology transfer projects, which support the development and diffusion of environmentally sound technologies; c. All Parties are urged to promote joint research and development programmes, as appropriate, both bilaterally and multilaterally; d. Developed country Parties are encouraged to promote further and to implement facilitative measures, for example export credit programmes and tax preferences, and regulations, as appropriate, to promote the transfer of environmentally sound technologies; e. All Parties, particularly developed country Parties, are encouraged to integrate, as appropriate, the objective of technology transfer to developing countries into their national policies, including environmental and research and development policies and programmes; f.
Developed countries are encouraged to promote, as appropriate, the transfer of publicly owned technologies. 94
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Framework for capacity-building in developing countries
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A. Purposes The present framework for capacity-building in developing countries sets out the scope of, and provides the basis for action on, capacity-building related to the implementation of the Convention and preparation for the effective participation of developing countries in the Kyoto Protocol process that will, in a coordinated manner, assist them in promoting sustainable development while meeting the objective of the Convention. It should serve as a guide for the Global Environment Facility as an operating entity of the financial mechanism, and be considered by multilateral and bilateral organizations in their capacity-building activities related to the implementation of the Convention and preparation for their effective participation in the Kyoto Protocol process. B. Objective and scope of capacity-building Objective Capacity-building should assist developing countries to build, develop, strengthen, enhance, and improve their capabilities to achieve the objective of the Convention through the implementation of the provisions of the Convention and the preparation for their effective participation in the Kyoto Protocol process. C. Scope The following is the initial scope of needs and areas for capacity-building in developing countries as broadly identified, in the compilation and synthesis document prepared by the secretariat. a. Institutional capacity-building, including the strengthening or establishment, as appropriate, of national climate change secretariats or national focal points; b. Enhancement and/or creation of an enabling environment; c. National communications; d. National climate change programmes; e. Greenhouse gas inventories, emission database management, and systems for collecting, managing and utilizing activity data and emission factors; f.
Vulnerability and adaptation assessment;
g. Capacity-building for implementation of adaptation measures; h. Assessment for implementation of mitigation options; i.
Research and systematic observation, including meteorological, hydrological and climatological services;
j.
Development and transfer of technology;
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k. Improved decision-making, including assistance for participation in international negotiations; l.
Clean development mechanism;
m. Needs arising out of the implementation of Article 4, paragraphs 8 and 9, of the Convention; n. Education, training and public awareness; o. Information and networking, including the establishment of databases. Other capacity-building needs and possible responses are being identified by the Parties in their discussions of other issues. The decisions resulting from these discussions, as well as other activities related to the implementation of the Convention and preparation for their effective participation in the Kyoto Protocol process, should continue to inform the scope and implementation of this framework. D. Specific scope for capacity-building in least developed countries The least developed countries, and small island developing States amongst them, are among the most vulnerable to extreme weather events and the adverse effects of climate change. They also have the least capacity to cope with and adapt to the adverse effects of climate change. The following is the initial assessment of needs and priority areas for capacity-building in these countries: a. Strengthening existing and, where needed, establishing national climate change secretariats or focal points to enable the effective implementation of the Convention and effective participation in the Kyoto Protocol process, including preparation of national communications; b. Developing an integrated implementation programme which takes into account the role of research and training in capacity-building; c. Developing and enhancing technical capacities and skills to carry out and effectively integrate vulnerability and adaptation assessments into sustainable development programmes and develop national adaptation programmes of action; d. Strengthening existing and, where needed, establishing national research and training institutions in order to ensure the sustainability of the capacity-building programmes; e. Strengthening the capacity of meteorological and hydrological services to collect, analyse, interpret and disseminate weather and climate information to support implementation of national adaptation programmes of action; f.
Enhancing public awareness (level of understanding and human capacity development).
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E. Implementation
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Actions to enhance the implementation of this framework, taking into account the initial scope outlined All Parties should improve the coordination and effectiveness of capacity-building efforts through dialogue between and among Annex II Parties, developing country Parties, and bilateral and multilateral institutions. All Parties should support the operation of this framework and promote conditions conducive to the sustainability and effectiveness of capacity-building activities. In implementing this framework, developing country Parties should: a. Continue to identify their specific needs, options and priorities for capacitybuilding on a country-driven basis, taking into account existing capacities and past and current activities; b. Promote South-South cooperation by utilizing the services of institutions in developing countries that can support capacity-building activities at the national, subregional and regional levels, wherever possible and effective; c. Promote the participation of a wide range of stakeholders, including governments at all levels, national and international organizations, civil society and the private sector, as appropriate; d. Promote the coordination and sustainability of activities undertaken within this framework, including the efforts of national coordinating mechanisms, focal points, and national coordinating entities; e. Facilitate the dissemination and sharing of information on capacity-building activities conducted by developing countries for better coordination and South-South cooperation. In implementing this framework, Annex II Parties should: a) Provide additional financial and technical resources to assist developing countries,in particular the least developed countries and small island developing States among them, in the implementation of this framework, including promptly available financial and technical resources to enable them to undertake country-level needs assessments and to develop specific capacitybuilding activities consistent with this framework; b) Respond to the capacity-building needs and priorities of developing countries, inparticular the least developed countries and small island developing States among them, in a coordinated and timely manner, and support activities implemented at the national and, as appropriate, subregional and regional levels; c) Give particular attention to the needs of least developed countries and small island developing States among them.
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3.8 TECHNOLOGY TRANSFER OFFICES :- DATABANK - PERIODICALS – WEB BASED SERVICES - Technology transfer offices, foundations and associations AURIL Association for University Research and Industry Links,
Association of European Science and Technology Transfer Professionals (ASTP)
Association of Federal Technology Transfer Executives
Association of University Technology Managers (AUTM)
BeefCAMPus- commercialization training based on real cases
Biodiscovery Toronto
Cambridge Enterprise Limited, University of Cambridge
Danish National Network for University Technology Transfer
Edinburgh Research and Innovation, University of Edinburgh
Flintbox
Imperial Innovations
Innovation Relay Centre Network (IRC)
InvenioIP
Isis Innovation Ltd, University of Oxford
KCL Enterprises
KOTRA — Korean Trade-Promotion Agency
Larta Institute
Licensing Executives Society International (LESI)
Local technical assistance program (LTAP)
Medipex (NHS Innovations Yorkshire and Humber)
lNetval the Italian University Technology Transfer Offices Network
NHS Innovations London
National Institutes of Health (NIH) Office of Technology Transfer
Ottawa Technology Transfer Network
Proton Europe: European University Technology Transfer Offices Association
RedOtri: the Spanish University Technology Transfer Offices Network
Technology Transfer and Business Enterprise, Ottawa
Technology Transfer Society
The iBridge Network
The University Companies Association (UNICO) - UK
The University of Virginia Patent Foundation 98
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TII, Technologies, Innovation and Industrial Information
UNeMed, University of Nebraska Medical Center
Univalor, Université de Montréal and its affiliated institutions
university-technology.com - technology transfer and licensing from Scotland’s universities
Virginia Tech Intellectual Properties
Wellcome Trust
Wisconsin Alumni Research Foundation
ASCAMM Foundation
IBEC, institute for bioengineering of catalonia
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3.9 TECHNOLOGY TRANSFER AGREEMENTS Technology transfer agreements ATechnologyTransfer Agreement is a contract between the licensor and licensee, detailing the scope of services and terms and conditions from both sides. Drafting of this agreement is often a highly complex job requiring considerable skill and experience, since the interests of the two parties may sometimes be conflicting. However, the obligations of the licensor and licensee may broadly relate to the following : Obligations of the licensor : a) Supply of the technical means b) Technical assistance, to the staff of the licensee c) Provision as to the results and consequences of non-satisfaction of the guarantees. d) Exclusive and non-exclusive rights e) Preservation of secrecy f) Title of the licensor g) Period of agreement h) Force majore i)
Intellectual property rights
j) Updated; technologies and improvements k) Technical information 1.
Training l)
Help in/marketing and exports
m) Settlement of legal disputes o) Access to R&D Obligations of the licensee 99
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a) Payment b) Secrecy c) Use of the know-how d) Minimum output e) Maintaining specified quality or standard f) Adequate technical and managerial standards and facilities g) Focal facilities for the experts/staff of the licensor h) Access to the factory premises as required 1) legal disputes There-have been several studies regarding the technology transfer agreement at national and international levels, and even model agreements have been evolved by the UN and national governments in several countries including India. However, these remain only guidelines, and technology transfer is more an expression of mutual faith rather than a legal issue. Code of conduct for technology transfer It is widely felt that firms including transnational corporations (TNCs) in developed countries exploit firms in developing countries while transferring technologies, and unfair practices prevail to the disadvantage of the latter. The United Nations Conference on Technology and Development (UNCTAD) has been making attempts for the last more than a decade to formulate a commonly accepted code of conduct, taking into account the interests of all the parties concerned. However, this effort has so far not succeeded due to differences between the North and the South, and several issues such as laws of the land, restrictive practices, etc. Nonetheless, the documents that have been prepared so far have served as guidelines and have created awareness about the various issues which need to be examined while entering into technology transfer agreements. Government initiative and technology transfer Many Governments in advanced countries encourage the introduction/import Of new technologies to help or generate business development and economic growth. In countries, such as Sweden, Japan, South Korea etc., the Governments have instituted programmers of technology search whereby local companies and consultants are encouraged to set up networks of foreign contacts in other advanced countries to identify innovative products that could be made under license in their country. These initiatives seek to use importation of technology to rejuvenate industries and initiate new product development. The innovation and economic growth is ultimately bound to follow the path of simulating R&D spending as a way to promote greater product innovation. These countries have excelled in technology innovation and in many cases improved upon the technology. Japan has become a major supplier of sophisticated technology to developing and developed countries. 100
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Government Regulations in Developing Countries
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Indiscriminate entry of inappropriate technologies will go against the declared national development objectives/priorities. It is in this context that most of the developing countries have established effective official mechanisms for determining the type of technology suitable to particular circumstances of their economies, and have developed systems and procedures for collection of information and data on technologies so as to strengthen their negotiating strength with the technology suppliers. The scope of these regulations covers a wide spectrum of issues. All of these include the establishment of a national registry in charge of screening and authorizing a particular technological transaction. They define the transaction to be controlled by the registry. Special requirements or criteria like contribution to domestic technological capabilities, training local’ personnel and processing of domestic resources etc. are generally prescribed. Another important aspect relates to policies restricting the direct cost of technology transactions; i.e., a ceiling on remittance of royalties, control of payments for unused patents, direction of the agreement, control on excessive prices etc. The regulatory system does not generally encourage indigenous development and the production is based on second or third generation technologies. Structure for Licensing Service i) The use of licensing to help local development requires four key inputs : ii) Information on licensing opportunities iii) Technical personnel to interpret both the requirements of client firms and the offerings of potential licensors (i) and (ii) could partly be provided by recourse to existing resources of a company. Ministry of i)A database on potential client companies Science and Technology and a few other ministries have established specialized departments for creation of database. The information is made available to the enterprise to supplement their own information systems. In India, most of the technologies are transferred from industrially advanced countries through various routes, the more popular being the route through licensing arrangements. There have been over 12.000 foreign collaborations in the past, 80% of which are from eight developed countries such as USA, Japan, West Germany, France, and Italy. Some of these foreign collaborations had equity participation also, the foreign investments being of the order of Rs.500 crores per year. There are several instances of transfer of technology from R&D organizations to industry, mostly in areas of low technologies or technologies relevant to Indian conditions. The CSIR has played a major role in this respect, while technologies from Defense R&D, Department of Space, Department Atomic Energy, etc. are also now being transferred to industry. There are very few instances of transfer of technology from one firm to another. In some areas such as chemicals & pharmaceuticals, construction, 101
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textiles, steel, hotels, cement and management, India has even exported technologies and services to other developing countries through licensing arrangements or contractual arrangements or joint ventures. Government is now paying greater attention to exports of technologies and services. Indian Experience The Industrial Policy Resolution of 1948 and the Industrial Policy of 1956 provided the basis for government policy for foreign investment and also in making available to the country the Scientific, technical and industrial knowledge. The transfer of technology was conceived to be a part of the flow of foreign capital and accompanying the technical collaboration. In 1961 selective foreign private investment and foreign collaboration were introduced. The Policy was to attract foreign capital in those fields in which the country needed development ‘in pursuance of the plan targets... economic development also for generation of employment. The policy towards foreign collaboration was further liberalized in 1970 for bridging technological gaps that existed in several sectors of industry. The Industrial Policy Statement of 1977 took note of continued inflow of technology in sophisticated areas. The policy statement gave preference to outright purchase of best available technology and then adopting it to meet the needs of the country. In the Industrial Statement of 1980, induction of advanced technology was favoured for encouraging exports and production of quality products at competitive prices. Technology Policy Statement of 1983 was directed toward technological self-reliance. In the acquisition of technology, consideration was given to the choice and sources of alternative means of acquiring it, its role in meeting a major need of the sector, selection and relevance of the product, etc. The Government of India in its Policy Statement of 1991 liberalized most of the restrictions in technology import. The policy is aimed at encouraging foreign investment up to 100 per cent in most of the sectors with a view to promote exports competition in Indian industry and production of better quality products. The regulatory procedures have been abolished with respect to many industrial sectors to allow free flow of technology. Technology transfer is a process or activity to acquire technologies and is not a mere transfer of know-how from one person to another, although know-how transfer is an important part in it. There are various models regarding technology transfer. What model will be used would vary from case to case. We discussed various modes of technology transfer. In technology transfer, it is generally expected that transfer activity would stimulate economic and technological development in the economy.
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The industrial enterprise should have a continued growth. The growth comes either from internal technology or technology acquired from outside. A technology search strategy is important for technology transfer and is part and parcel of the corporate plan of an enterprise. A company may select appropriate technology/product for manufacture and sign a technology transfer agreement with the licensor. But it should have a suitable R&D infrastructure for absorption and up gradation of the technology. An assessment of licensor’s credibility and capacity to transfer the technology would be helpful in ensuring success of the project.
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There are various factors which affect the pricing process in licensing. There are various analytical frameworks based on which the license negotiations can be set. One of these is to establish a framework of the various terms/matters of the agreement and evaluate licensor/licensee bargaining responses relating to them. However, these can only be regarded as aids to decision making and not as substitutes, since licensing negotiations depend very much on human factors. In licensing, as in many other aspects of business, skilled negotiations are a vital factor in business success. The objective of technology transfer is to enlarge business opportunities and to maximize profits for the enterprise. The determination of a fair price for technology is important. The different methods of compensation for a technology package were discussed along with factors affecting payment. In advanced countries market forces dictate technology development and technology inputs. There is relatively unrestricted flow of technology. The experiences of ring countries vary. South Korea has emerged as one of the industrialized developing countries with active support and encouragement provided by its many developing countries, the Government regulations restrict technology transfer. These restrictions may retard development of industry and hence the economic growth of the country. A country should have a well organized information and data bank system on national and international technology. The necessary information should be made available to industry so that the latter can select the best and competitive technology for induction. Advanced countries and transnational corporations generally follow restrictive practices while transferring technology to developing countries, mainly, because the latter are in a weak bargaining position. UNCTAD — a UN Agency — has been making efforts for about a decade to evolve a ‘code of conduct’ for ‘Transfer of Technology’ to ensure fair returns to all parties concerned but has not met with much success so far. KEYWORDS Licensor : Seller or supplier of technology. Licensee : Purchaser or recipient of technology.
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Technology Transfer : Transfer of knowledge generally through purchase of technology for use. Bridging agencies : Government departments and promotional organizations acting as support agencies for development and use of technology. Active Mode :Assisting the potential use of technology in transferring and in the application of technology. Technology transfer agent: Someone who will listen to the user’s problems and advise on the appropriate technology, e.g., a consultant. Search Strategy : Strategy to find new product/project suitable for license in accordance with overall business strategy. Resources : Financial, managerial, technical resources and material available for implementing the project. Technology package : Apackage of technology components including detailed procedures and instructions for implementing the project. Production techniques : Manufacturing procedure for a product Franchise : Giving of licensing rights by the technology owner or supplier to the licensee to manufacture a given product. Adoption of Technology : Involves carrying out required changes/modifications in the technology/design acquired from licensor to enable the use of local raw materials and purchase items. Royalty : Financial compensation payable to licensor for use of intellectual property rights, as a percentage of turnover or profits, for a limited period. Lump sum payment : One time payment for use of know-how or technology. NPV : Net present value of money. Intellectual property : Knowledge, know-how or technology. Intellectual fee : Financial compensation payable for use of knowledge, know-how or technology. Regulations : Rules and procedures introduced by the government. Data Bank : Collection, storing, processing and dissemination of technical information. Information Service : Technical data made available to the user.
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License Agreement : Contractual agreement to acquire technology from outside agency. Code of Conduct for Transfer of Technology : Fair code or guidelines and norms beneficial to the licensor and licensee.
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3.10 MATERIAL TRANSFER AGREEMENTS (MTA S) Technology Transfer & Marketing group pursues, protects, packages and licenses to industry the intellectual property and know-how developed and serves scientists and other technical staff in all aspects of intellectual property. Technology transfer & related services
Technology Development in the areas of Powder Metallurgy, Ceramic Materials, Surface Engineering and laser processing of materials
Technology scale up, restandardisation and demonstration.
Technology proving and demonstration at pilot scales.
Assistance in implementing technologies at commercial scale.
Technology evaluation, assessment selection and acquisition.
Information on technology/business/investment opportunities.
Assistance in technology transfer negotiations.
Technology upgradation and modernization.
Adoption and absorption of new technologies.
Assistance in making Detailed Project Reports/Techno-economic Feasibility Reports.
Technology transfer & marketing mechanisms
Advertisements in Business publications/catalogues/periodicals.
Partnerships with intermediaries (consultants, overseas technology developer, technology brokers, industrial associations,business information centre) offering complementary technology transfer services.
Joint ventures (equity participation) for selected projects.
Arranging financial assistance upto 50% of the project cost at 6 % interest rate for setting up of pilot plants/commercialization through Technology Information, Forecasting & Assessment Council (TIFAC) and Technology Development Board (TDB).
Technology Transfer Programme (TTP) Technology transfer is executed through licensing. Licensing can be either exclusive or non-exclusive. Exclusive license can be either for a specific application/for a specific geographical area.Main aim of giving exclusive license is not to introduce price-war between
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start-ups in their fledgling years.Price-war may prove disastrous to the existence of a startup and ultimately it may kill the technology. 3.11 BUSINESS MEETS, WORKSHOPS, TRAINING PROGRAMMES ENTREPRENEURSHIP Entrepreneurship is the practice of starting new organizations or revitalizing mature organizations, particularly new businesses generally in response to identified opportunities. Entrepreneurship is often a difficult undertaking, as a vast majority of new businesses fail. Entrepreneurial activities are substantially different depending on the type of organization that is being started. Entrepreneurship ranges in scale from solo projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities. Many “high-profile” entrepreneurial ventures seek venture capital or angel funding in order to raise capital to build the business. Angel investors generally seek returns of 20-30% and more extensive involvement in the business. Many kinds of organizations now exist to support would-be entrepreneurs, including specialized government agencies, business incubators, science parks, and some NGOs. History of Entrepreneurship The understanding of entrepreneurship owes much to the work of economist Joseph Schumpeter and the Austrian economists such as Ludwig von Mises and von Hayek. In Schumpeter (1950), an entrepreneur is a person who is willing and able to convert a new idea or invention into a successful innovation. Entrepreneurship forces “creative destruction” across markets and industries, simultaneously creating new products and business models. In this way, creative destruction is largely responsible for the dynamism of industries and long-run economic growth. Despite Schumpeter’s early 20th-century contributions, the traditional microeconomic theory of economics has had little room for entrepreneurs in its theoretical frameworks (instead assuming that resources would find each other through a price system). For Frank H. Knight (1967) and Peter Drucker (1970) entrepreneurship is about taking risk. The behavior of the entrepreneur reflects a kind of person willing to put his or her career and financial security on the line and take risks in the name of an idea, spending much time as well as capital on an uncertain venture. Knight classified three types of uncertainty.
Risk, which is measurable statistically (such as the probability of drawing a red colour ball from a jar containing 5 red balls and 5 white balls).
Ambiguity, which is hard to measure statistically (such as the probability of drawing a red ball from a jar containing 5 red balls but with an unknown number of white balls).
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True Uncertainty or Knightian Uncertainty, which is impossible to estimate or predict statistically (such as the probability of drawing a red ball from a jar whose number of red balls is unknown as well as the number of other coloured balls).
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The acts of entrepreneurship is often associated with true uncertainty, particularly when it involves bringing something really novel to the world, whose market never exists. Before Internet, nobody knew the market for Internet related businesses such as Amazon, Google, YouTube, Yahoo etc. Only after the Internet emerged did people begin to see opportunities and market in that technology. However, even if a market already exists, let’s say the market for cola drinks (which has been created by Coca Cola), there is no guarantee that a market exists for a particular new player in the cola category. The question is: whether a market exists and if it exists for you. The place of the disharmony-creating and idiosyncratic entrepreneur in traditional economic theory (which describes many efficiency-based ratios assuming uniform outputs) presents theoretic quandaries. William Baumol has added greatly to this area of economic theory and was recently honored for it at the 2006 annual meeting of the American Economic Association. Entrepreneurship is widely regarded as an integral player in the business culture of American life, and particularly as an engine for job creation and economic growth. The Entrepreneur Entrepreneurs have many of the same character traits as leaders. Similarly to the early great man theories of leadership; however trait-based theories of entrepreneurship are increasingly being called into question. Entrepreneurs are often contrasted with managers and administrators who are said to be more methodical and less prone to risk-taking. Such person-centric models of entrepreneurship have shown to be of questionable validity, not least as many real-life entrepreneurs operate in teams rather than as single individuals. Still, a vast but now clearly dated literature studying the entrepreneurial personality found that certain traits seem to be associated with entrepreneurs:
David McClelland (1961) described the entrepreneur as primarily motivated by an overwhelming need for achievement and strong urge to build.
Collins and Moore (1970) studied 150 entrepreneurs and concluded that they are tough, pragmatic people driven by needs of independence and achievement. They seldom are willing to submit to authority.
Bird (1992) sees entrepreneurs as mercurial, that is, prone to insights, brainstorms, deceptions, ingeniousness and resourcefulness. they are cunning, opportunistic, creative, and unsentimental.
Cooper, Woo, & Dunkelberg (1988) argue that entrepreneurs exhibit extreme optimism in their decision-making processes. In a study of 2004 entrepreneurs
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they report that 81% indicate their personal odds of success as greater than 70% and a remarkable 33% seeing odds of success of 10 out of 10.
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Busenitz and Barney (1997) claim entrepreneurs are prone to overconfidence and over generalisations.
Cole (1959) found there are four types of entrepreneur: the innovator, the calculating inventor, the over-optimistic promoter, and the organization builder. These types are not related to the personality but to the type of opportunity the entrepreneur faces.
Characteristics of entrepreneurship
The entrepreneur has an enthusiastic vision, the driving force of an enterprise.
The entrepreneur’s vision is usually supported by an interlocked collection of specific ideas not available to the marketplace.
The overall blueprint to realize the vision is clear, however details may be incomplete, flexible, and evolving.
The entrepreneur promotes the vision with enthusiastic passion.
With persistence and determination, the entrepreneur develops strategies to change the vision into reality.
The entrepreneur takes the initial responsibility to cause a vision to become a success.
Entrepreneurs take prudent risks. They assess costs, market/customer needs and persuade others to join and help.
An entrepreneur is usually a positive thinker and a decision maker.
Contributions of Entrepreneurs 1. Develop new markets. Under the modern concept of marketing, markets are people who are willing and able to satisfy their needs. In Economics, this is called effective demand. Entrepreneurs are resourceful and creative. They can create customers or buyers. This makes entrepreneurs different from ordinary businessmen who only perform traditional functions of management like planning, organization, and coordination. 2. Discover new sources of materials. Entrepreneurs are never satisfied with traditional or existing sources of materials. Due to their innovative nature, they persist on discovering new sources of materials to improve their enterprises. In business, those who can develop new sources of materials enjoy a comparative advantage in terms of supply, cost and quality. 3. Mobilize capital resources. Entrepreneurs are the organizers and coordinators of the major factors of production, such as land labor and capital. They properly mix these factors of production to create goods and service. Capital resources, from a layman’s view, refer to money. However, in economics, capital resources represent machines, buildings, and other physical productive resources. Entrepreneurs have 108
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initiative and self-confidence in accumulating and mobilizing capital resources for new business or business expansion.
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4. Introduce new technologies, new industries and new products. Aside from being innovators and reasonable risk-takers, entrepreneurs take advantage of business opportunities, and transform these into profits. So, they introduce something new or something different. Such entrepreneurial spirit has greatly contributed to the modernization of economies. Every year, there are new technologies and new products. All of these are intended to satisfy human needs in more convenient and pleasant way. 5. Create employment. The biggest employer is the private business sector. Millions of jobs are provided by the factories, service industries, agricultural enterprises, and the numerous small-scale businesses. For instance, the super department stores like SM, Uniwide, Robinson and others employ thousands of workers. Likewise giant corporations like SMC, Ayala and Soriano group of companies are great job creators. Such massive employment has multiplier and accelerator effects in the whole economy. More jobs mean more incomes. This increases demand for goods and services. This stimulates production. Again, more production requires more employment. Advantages of Entrepreneurship Every successful entrepreneur brings about benefits not only for himself/ herself but for the municipality, region or country as a whole. The benefits that can be derived from entrepreneurial activities are as follows: 1. Enormous personal financial gain 2. Self-employment, offering more job satisfaction and flexibility of the work force 3. Employment for others, often in better jobs 4. Development of more industries, especially in rural areas or regions disadvantaged by economic changes, for example due to globalisation effects 5. Encouragement of the processing of local materials into finished goods for domestic consumption as well as for export 6. Income generation and increased economic growth 7. Healthy competition thus encourages higher quality products 8. More goods and services available 9. Development of new markets 10. Promotion of the use of modern technology in small-scale manufacturing to enhance higher productivity 11. Encouragement of more researches/ studies and development of modern machines and equipment for domestic consumption 12. Development of entrepreneurial qualities and attitudes among potential entrepreneurs to bring about significant changes in the rural areas 109
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13. Freedom from the dependency on the jobs offered by others 14. The ability to have great accomplishments 15. Reduction of the informal economy 16. Emigration of talent may be stopped by a better domestic entrepreneurship climate BLUE OCEAN STRATEGY Blue Ocean Strategy is a business strategy book that promotes a systematic approach “for making the competition irrelevant.” It contains retrospective case studies and suggests theoretical approaches to creating “blue oceans” of uncontested market space ripe for growth. The book has sold more than a million copies in its first year of publication and is being published in 39 languages. Concept The metaphor of red and blue oceans describes the market universe. Red oceans are all the industries in existence today—the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of product or service demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities or niche, and cutthroat competition turns the red ocean bloody. Hence, the term red oceans. Blue oceans, in contrast, denote all the industries not in existence today—the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored. The corner-stone of Blue Ocean Strategy is ‘Value Innovation’. A blue ocean is created when a company achieves value innovation that creates value simultaneously for both the buyer and the company. The innovation (in product, service, or delivery) must raise and create value for the market, while simultaneously reducing or eliminating features or services that are less valued by the current or future market. The authors critique Michael Porter’s idea that successful business are either low-cost providers or niche-players. Instead, they propose finding value that crosses conventional market segmentation and offering value and lower cost. This idea was originally proposed by Prof. Charles W. L. Hill from Michigan State University in 1988. Prof. Hill claimed that Porter’s model was flawed because differentiation can be a means for firms to achieve low cost. Prof. Hill proposed that a combination of differentiation and low cost may be necessary for firms to achieve a sustainable competitive advantage. 110
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Many others have proposed similar strategies. For example, Swedish professors Jonas Ridderstråle and Kjell Nordström in their 1999 book Funky Business follow a similar line of reasoning. For example, “competing factors” in Blue Ocean Strategy are similar to the definition of “finite and infinite dimensions” in Funky Business. Just as Blue Ocean Strategy claims that a Red Ocean Strategy does not guarantee success, Funky Business explained that “Competitive Strategy is the route to nowhere”. Funky Business argues that firms need to create “Sensational Strategies”. Just like Blue Ocean Strategy, a Sensational Strategy is about “playing a different game” according to Ridderstrale and Nordstrom. Ridderstrale and Nordstrom also claim that the aim of companies is to create temporary monopolies. Kim and Mauborgne explain that the aim of companies is to create blue oceans, that will eventually turn red. This is the same idea expressed in the form of an analogy. Ridderstrale and Nordstrom also claimed in 1999 that “in the slow-growth 1990s overcapacity is the norm in most businesses”. Kim and Mauborgne claim that blue ocean strategy make sense in a world that supply exceeds demand.
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Preceding work The contents of the book are based on more than fifteen years of research and a series of Harvard Business Review articles as well as academic articles on various dimensions of the topic. Kim and Mauborgne studied about one hundred fifty strategic moves made from 1880-2000 in more than thirty industries and closely examined the relevant business players in each . They analyzed the winning business players as well as the less successful competitors. Studied industries included hotels, cinemas, retail stores, airlines, energy, computers, broadcasting, construction, automotive and steel. They searched for convergence among the more and less successful players. Divergence across the two groups was also studied to discover the common factors leading to strong growth and the key differences separating those winners from the mere survivors and the losers. Kim and Mauborgne defined a consistent and common pattern across all the seemingly idiosyncratic success stories and first called it value innovation, and then Blue Ocean Strategy. The name “Blue Ocean Strategy” was introduced in the Harvard Business Review article published in October 2004. The book builds on and extends the work presented in these articles by providing a narrative arc that draws all these ideas together to offer a unified framework for creating and capturing blue oceans. Recent Application Examples Reports of businesses using Blue Ocean Strategy concepts include:
Nintendo’s Wii: An example of this strategy is the success of the Nintendo Wii and DS, which Nintendo designed to target audiences not traditionally known to play videogames. By simplifying its interface (through a touchscreen on the DS and 111
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motion controls on the Wii) and by marketing software which is designed to complement daily life rather than create escapist experiences (games such as Wii Sports, Wii Fit, and Brain Training), Nintendo has managed to spark greater mainstream appeal than any previous consoles; news stories have detailed its appeal to those who have never played video games before. In addition both the Wii and the DS have faced supply issues throughout their lifetimes, forcing Nintendo to have to ramp up production rates repeatedly to try and keep up with demand for its systems.
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China Mobile: China Mobile CEO Wang Jianzhou talked about China’s hinterland as a classic “blue-ocean market,” where the company is casting its net widely without worrying about getting tangled up with the nets of rivals.
Pitney Bowes: Michael Critelli, the departing CEO of Pitney Bowes, explained how Pitney Bowes created the Advanced Concept & Technology Group (ACTG), a unit responsible for identifying and developing new products outside. Critelli cited ACTG’s development of a machine, which enables people to design and print their own postage from their desktops, as an example of a blue ocean strategic move.
Starwood: One group which has been exploring blue ocean thinking for the past three years is Starwood Hotels and Resorts. In an interview to INSEAD Knowledge, Robyn Pratt, Vice President, Six Sigma and Operational Innovation talks about how they are taking a step-by-step approach to implementing the concept.
Blue Ocean Strategy vs. competition based strategies Kim and Mauborgne argue that traditional competition-based strategies (red ocean strategies) while necessary, are not sufficient to sustain high performance. Companies need to go beyond competing. To seize new profit and growth opportunities they also need to create blue oceans. The authors argue that competition based strategies assume that an industry’s structural conditions are given and that firms are forced to compete within them, an assumption based on what academics call the structuralist view, or environmental determinism. To sustain themselves in the marketplace, practitioners of red ocean strategy focus on building advantages over the competition, usually by assessing what competitors do and striving to do it better. Here, grabbing a bigger share of the market is seen as a zero-sum game in which one company’s gain is achieved at another company’s loss. Hence, competition, the supply side of the equation, becomes the defining variable of strategy. Here, cost and value are seen as trade-offs and a firm chooses a distinctive cost or differentiation position. Because the total profit level of the industry is also determined exogenously by structural factors, firms principally seek to capture and redistribute wealth instead of creating wealth. They focus on dividing up the red ocean, where growth is increasingly limited.
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Blue ocean strategy, on the other hand, is based on the view that market boundaries and industry structure are not given and can be reconstructed by the actions and beliefs of industry players. This is what the authors call “reconstructionist view”. Assuming that structure and market boundaries exist only in managers’ minds, practitioners who hold this view do not let existing market structures limit their thinking. To them, extra demand is out there, largely untapped. The crux of the problem is how to create it. This, in turn, requires a shift of attention from supply to demand, from a focus on competing to a focus on value innovation—that is, the creation of innovative value to unlock new demand. This is achieved via the simultaneous pursuit of differentiation and low-cost. As market structure is changed by breaking the value/cost tradeoff, so are the rules of the game. Competition in the old game is therefore rendered irrelevant. By expanding the demand side of the economy new wealth is created. Such a strategy therefore allows firms to largely play a non–zero-sum game, with high payoff possibilities.
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Tools and frameworks Blue Ocean Strategy has introduced a number of practical tools, methodologies and frameworks to formulate and execute Blue Ocean Strategies, attempting to make creation of blue oceans systematic, repeatable process. Some of these are listed below; Basic tools of Blue Ocean Strategy
The strategy canvas
The Four Actions framework
Eliminate-Reduce-Raise-Create Grid
The initial litmus test for BOS: focus, divergence, compelling tagline
Frameworks/methodologies applicable to strategy execution
Tipping Point Leadership approach
Four Organizational Hurdles framework
Kingpins approach, Fishbowl management, atomization
Hot spots, cold spots and consigliere approach
3 E principles of Fair Process
Additional tools/methodologies/frameworks for strategy formulation
The six paths framework
The sequence of Blue Ocean Strategy
Buyer Utility map
Buyer experience cycle
The profit model of Blue Ocean Strategy
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Price corridor of the mass model
Four Step Visualizing Strategy Process
Pioneer-Migrator Settler Map
Three tiers of noncustomers framework
Criticisms While co-authors, Professor Kim and Affiliate Professor Mauborgne, propose approaches to finding uncontested market space, at the present there are few if any success stories of companies that applied their theories. This hole in their data persists despite the publication of Value Innovation concepts since 1997. A critical question is whether this book and its related ideas are descriptive rather than prescriptive. The authors present many examples of successful innovations, and then explain from their Blue Ocean perspective - essentially interpreting success through their lenses. The research process followed by the authors has been criticized on several grounds. No control group was used. There is no way to know how many companies exploiting a blue ocean strategy concept failed. The theory therefore does not meet the falsifiability criteria in practice. A deductive process was not followed. The examples in the book are selected to “tell a winning story”. A whole chapter of the book explaining what the authors call “Tipping Point Leadership” is based on a conclusion that the drop in crime in New York city was caused by a change in policies, actions, and leadership. However, according to the book Freakonomics, crime rates dropped due to an increase in abortion rates several years earlier. Crime rates fell simultaneously in cities other than New York that had not applied what the authors call Tipping Point Leadership. Brand and communication are taken for granted and do not represent a key for success. Kim and Maubourgne take the marketing of a value innovation as a given, assuming the marketing success will come as a matter of course. The book only presents a snaphot overview of 3 industries: automobiles, computers and movie theaters. It is argued that rather than a theory, Blue Ocean Strategy is an extremely successful attempt to brand a set of already existing concepts and frameworks with a highly “sticky” idea. The blue ocean/red ocean analogy is a powerful and memorable metaphor, which is responsible for its popularity. This metaphor can be powerful enough to stimulate people to action. However, the concepts behind the Blue Ocean Strategy (such as the competing factors, the consumer cycle, non-customers, etc.) are not new. Many of these tools are also used by Six Sigma practitioners and proposed by other management gurus.
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Summary
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Technology Transfer Services that help in technology transfer.
Matching and pre-selection of prospective business partners is essential to make a good fit. Commercialising innovations through press release is essential to create awareness.
Technology transfer negotiations require well managed
Technology transfer Offices, databank, periodicals and web based services.
Technology transfer agreements and Material Transfer Agreements (MTA s) help in materializing technology transfers without disputes.
Business meets, workshops, training programmes are enablers for the advancement of technology.
Review questions 1. What are the Technology Transfer Services? 2. List out the criteria to match and pre-select prospective business partners? 3. How important are Technology transfer negotiations? 4. Explain the services of Technology transfer Offices, databank, periodicals and web based services. 5. Explain the Technology transfer agreements and Material Transfer Agreements (MTA s)? Are you aware of any agreement made between the two firms? If so, what were its salient features and how was it implemented? 6. How can business meets, workshops, training programmes be enablers for the advancement of technology?
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UNIT IV
TECHNOLOGY PARTNERING 4.1 INTRODUCTION This unit starts with In-house development of technologies which are developed and demonstrated on its own. Partnerships with intermediaries commitments related to the transfer of environmentally sound technologies and the know-how necessary to mitigate and facilitate adequate adaptation to climate change. Sponsored development technologies are developed and demonstrated at the request of a potential user organization/company wholly funded by the client organization. Joint development technologies are developed jointly with another partner with both the partners contributing substantially to each facet of the overall technology development. Collaborative development technology is developed in conjunction with each partner exclusively developing a component of the whole technology. International networks of technology share skills, knowledge, technologies, methods of manufacturing, samples of manufacturing and facilities among industries, universities, governments and other institutions to ensure that scientific and technological developments are accessible to a wider range of users 4.2 LEARNING OBJECTIVES
In-house development of technologies are developed and demonstrated on its own.
Partnerships with intermediaries commitments relate to the transfer of environmentally sound technologies and the know-how necessary to mitigate and facilitate adequate adaptation to climate change.
Sponsored development technologies are developed and demonstrated at the request of a potential user organization/company wholly funded by the client organization.
Joint development technologies are developed jointly with another partner with both the partners contributing substantially to each facet of the overall technology development.
Collaborative development technology is developed in conjunction with each partner exclusively developing a component of the whole technology.
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International networks of technology share skills, knowledge, technologies, methods of manufacturing, samples of manufacturing and facilities among industries, universities, governments and other institutions to ensure that scientific and technological developments are accessible to a wider range of users
4.3 IN-HOUSE DEVELOPMENT Small & medium enterprises, have to cope up and survive in the hi-tech global market can adopt the following strategies to develop and in transfer of technologies In-house development : These technologies are developed and demonstrated on its own. One or more of these factors may be more important than the others in each of the five phases, and for each type of technology under consideration. For example, in the acquisition phase of the Transfer Cycle, a developing-country enterprise, which has a limited foreign exchange to buy sophisticated equipment, will consider the economic factor to be relatively more important. Accordingly, the company may opt for self-generation rather than transfer of technology, by designing and building machinery of its own 4.4 PARTNERSHIPS WITH INTERMEDIARIES Terms of transfer of technology and know-how Barriers and opportunities related to the transfer of technology The Conference of the Parties (COP) requested the secretariat, to elaborate “the terms under which transfers of such technologies and know-how could take place”. It also requested itemized progress reports on concrete measures taken by the Parties, with respect to their commitments related to the transfer of environmentally sound technologies and the know-how necessary to mitigate and facilitate adequate adaptation to climate change. At its fifth session, the Subsidiary Body for Scientific and Technological Advice (SBSTA) took note of a list of topics that could be addressed by the secretariat in a series of papers. These included financial flows between countries, activities undertaken by governments to facilitate the introduction and use of environmentally sound technologies, small and medium enterprises and transnational corporations, and success stories from different countries. The focus is on the legal and institutional measures affecting admission and establishment, ownership, control and operation of technologies, services and firms. It provides examples of activities, regulations and operating instruments that have been implemented in some developing countries to enhance and promote the transfer of environmentally sound technologies and to remove barriers to their introduction. The assumption is that the transfer of technology (both hard and soft) is a process of many day-to-day activities involving several stakeholders, who are influenced by the social, 118
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economic, legal, technological and political circumstances in each country. It is assumed that technology can be transferred between private partners, between private partners and governments and between governments, but that, having ratified the Convention, governments have a unique role.
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Table 4.1 Steps in Supplier side Recipient side
Supplier side
Recipient side
a)
research and development
a)
create awareness of the need for ESTs
b)
project preparation
b)
develop capacity for the adoption of ESTs
c)
demonstrations
c)
assess technological options
d) project implementation or d) technology commercialization
implement and operate technology
e)
feedback analysis
eedback analysis
e)
Environmentally sound and economically viable technologies and know-how conducive to mitigating and adapting to climate change. The term encompasses “soft technologies” and “hard technologies”. Examples of soft technologies include capacity building, information networks, training and research, while examples of hard technologies include equipment and products to control, reduce or prevent anthropogenic emissions of GHG in the energy, transportation, forestry, agriculture, industry and waste management sectors, to enhance removals by sinks, and to facilitate adaptation. Steps in table 4.1 are not directly linked between the supplier and recipient sides The implementation of the above processes calls for the involvement and commitment of different actors. There are six main actors who may enter the process at different stages: Governments, private sector businesses, multilateral financial institutions, international organizations, non-governmental organizations (NGOs) and consumers/households. These actors often perform multiple functions; for example, the private sector develops, manufactures, markets, finances, and operates technologies. However, the boundaries between actors are not rigid and may differ for different types of technologies All the above actors participate in the process. Nevertheless, the process itself depends upon the varying conditions, in both developed and developing countries To be able to facilitate the adoption and implementation of ESTs it is essential to consider specific regional, national and sectoral barriers and incentives. Encouraging key actors to value the mediumand long-term economic and competitive benefits of sustainable development over the 119
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short-term costs of shifting production and consumption patterns remains one of the most important objectives to be achieved Barriers Barriers may generally be defined as factors that inhibit the technology transfer process. Examples of barriers are abundant in the literature.However, the following is a short list of barriers relevant to the transfer of ESTs: a) Institutional: lack of legal and regulatory frameworks, limited institutional capacity, and excessive bureaucratic procedures; b) Political: instability, interventions in domestic markets (for example, subsidies), corruption and lack of civil society; c) Technological: lack of infrastructure, lack of technical standards and institutions for supporting the standards, low technical capabilities of firms and lack of a technology knowledge base; d) Economic: instability, inflation, poor macroeconomic conditions and disturbed and/ or non-transparent markets; e) Information: lack of technical and financial information and of a demonstrated track record for many ESTs; f) Financial: lack of investment capital and financing instruments; g) Cultural: consumer preferences and social biases; h) General: intellectual property protection, and unclear arbitration procedures. A first step in the process of overcoming barriers is to identify and assess them according to the technologies chosen and the targeted categories of users. An example of such a process is the technology and technology information needs survey conducted by the secretariat with the cooperation of the University of Amsterdam. In that survey Parties were requested to provide information on past experiences and projects, and to list the perceived barriers encountered in formulating and implementing them. The results are presented in table 2 .
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Table 4.2 Barriers to the transfer of technology as identified by Parties Reporting Countries Belize, Guinea, Latvia, Mali Poland, Republic of Korea Mali
Mali, Kiribati Mali, Poland Zimbabwe Albania, Panama Mali Egypt Egypt, Guinea, Indonesia Barbados, Costa Rica Mali
Key barriers
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Category
Lack of finance, terms of Financial funding
Inability to obtain international finances for dissemination of indigenous technologies High investment cost High cost of service and maintenance Affordability for technology end-users Lack of/access to technical information Lack of supply of spare parts Lack of technical capacity Lack of local management skills, training of personnel Lack of public acceptance: low level of public awareness Cultural, including perceived comfort
Financial
Economic Economic Economic Technological Technological Technological Institutional Institutional
Cultural
The conclusions from the data provided in the survey are limited by the number of projects reported. Therefore it is not possible to give a general assessment of the comparative importance of various types of barriers. However, the key barriers, in order of decreasing importance, appear to be: financial, economic, technological, institutional and cultural. In particular, access to national and international sources of financing is seen as a major obstacle. Opportunities A list of activities that can create opportunities to promote the transfer of technology, include: a) government policies creating favourable conditions for both public-sector and private-sector transfers; b) institutional support and training for assessing, developing, and managing new technologies; c) information networks and clearing houses that disseminate information and provide advice and training; d) collaborative networks of technology 121
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research and demonstration centers; e) international programmes for cooperation and assistance in research and development and capacity building; f) technology-assessment capabilities among international organizations; and g) long-term collaborative arrangements between private businesses for foreign direct investment and joint ventures. Many governments are undertaking such actions by developing legal instruments, tax regimes that reward technology upgrading, targeted lending programmes from public and private banks, public/private partnerships to support the import/export of ESTs, tax refunds or subsidies for the import and implementation of ESTs, subsidized infrastructure, tariff protection, and providing clear information about government programmes and actions. Some governments are also using economic instruments together with traditional command and control regulations (for example, emission standards) to achieve environmental goals and to encourage the transfer of technologies. Case studies suggest that no single policy instrument is likely to be sufficient to address environmental problems, and that, therefore, a combination of instruments is likely to be needed. To be effective, economic instruments also need strong institutions, the active support of economic, financial and industrial authorities, and few bureaucratic restrictions. Further examples of recent activities undertaken by Parties can be drawn from the results of the technology and technology information needs survey, where Parties were requested to provide details on enabling measures adopted by their governments to facilitate the transfer and implementation of ESTs in different sectors relevant to climate change in their countries. The responses of Parties are summarized in table 3. Table 4.3 Enabling measures initiated by Parties Creating awareness
Disseminating information
Albania Barbados Belize Benin Bhutan Bolivia
Albania Bolivia Costa Rica Ecuador Egypt Georgia
Botswana Bulgaria Costa Rica Ecuador Egypt Georgia Guinea
Guinea Indonesia Lithuania Mali Philippines Poland Republic of Korea Senegal Singapore
Guyana Jamaica
Providing technical assistance Bangladesh Barbados Bolivia Botswana Bulgaria Guinea Indonesia Mali Poland Uruguay
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Creating a fiscal environment Barbados Bulgaria Lithuania Mali Poland Republic of Korea Uruguay
Removing trade barriers Bulgaria Mali Poland Senegal Uruguay
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Latvia Lesotho Lithuania Mali Nigeria Philippines Poland Republic of Korea Senegal Singapore South Africa Syria Trinidad & Tobago Uruguay Venezuela Zimbabwe
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Trinidad & Tobago Uruguay Venezuela Zimbabwe
Some lessons learned from case studies The African case studies provide some useful lessons for future technology development and transfer in Africa. For example, there is a need for the developers of technology who enter the market at an early stage to provide for awareness building, demonstrations, initial training, and financial support. This was crucial when introducing solar photovoltaic (PV) systems in Kenya, where donor agencies, working with local companies, provided for such activities. Rapid technology learning, substantial cost savings, materials substitution, and enhancing local capability can be achieved by the involvement of local staff during the development cycle, and for process and product improvements, as in the case of the Zimbabwe ethanol programme. Also, technical “after-sales” support and maintenance facilities can help the performance and dissemination of the technology as the case of Senegal demonstrates; and low-interest loans and other subsidies to early users encourage the penetration of new technologies. The revolving fund in Zimbabwe helped to disseminate PV technology in the country. The importance of tax reductions and subsidies needs further study. At present, the final price of ESTs in Africa is very high due to a number of factors, including the lack of competition. The cost of a PV system in Kenya is almost three times that in Indonesia. Taxes (15 per cent import duty and 20 per cent VAT) contribute to this cost, but the base cost is also high. It is not clear whether a reduction of taxes alone would reduce the market cost.
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The Latin America case studies provide other lessons. For example, it is important to incorporate environmental criteria into the management and concession of official credits and fiscal incentives. The Green Protocol established in Brazil is an example of these activities. The Protocol, composed of federal financial institutions, requires that the participating banks promote the protection and recovery of the environment through specific credit lines. Small-scale pilot demonstration programmes that aim to disseminate information and reduce high initial costs through rebates and promotions can encourage electrical energy Conservation. Information clearing houses can play a role in promoting renewable energy by disseminating information on solar, wind, biomass and small hydro technologies. The Brazilian renewable programme case study draws attention to the successful use of reference centres. The South-East Asia cases provide yet other lessons. For example, a phased longterm government strategy to tackle barriers that are closely related to the development stages of each country is important. Such a strategy needs to address institutional, financial, education and training issues. It also needs to closely link government, institutions and the private sector. The removal of energy price subsidies appears to be an effective way to facilitate the transfer of ESTs. Governments can play a key role by funding the “startup” of R & D institutions, as shown in the example of the Republic of Korea. Such institutions have been established, along with education and training programmes in formal and vocational schools, in an effort to enhance the development of human capital development. Well coordinated partnerships among government, private sector and foreign companies are important to the success of technology transfer. 4.5 SPONSORED DEVELOPMENT Sponsored development : Here, technologies are developed and demonstrated at the request of a potential user organization/company. This kind of technology development is wholly funded by the client organization. Technology transfer is done solely to the sponsorer. Presumptions The common management view is that managing technologies is something apart from “conventional” management. It is frequently delegated to a specialist “chief technology officer” (in many firms, the “chief information officer”) whose career ceiling lies well below CEO level. This “disconnect” between top management and technology managers is reflected in a recent world survey of 95 leading R&D-intensive compa-nies. The survey found technical executives on the boards of directors of over 90 percent of the Japanese firms surveyed; the U.S. figure was less than 20 percent. 124
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Technology is sometimes “managed” by purchasing what is required from outside the firm as needs develop. Limited understanding of the “commodity” being purchased can lead to results reminiscent of the conglomerate craze of past decades (e.g., Exxon’s foray into electronics, McDonnell-Douglas’ in semiconductors). These two interrelated beliefs— (1) that technology is a factor “outside” normal management and (2) that it can be purchased when needed—help explain the lack of technology management skills in U.S. firms.
NOTES
Implications In his recent article on the theory of business, Peter Drucker observes : A theory of the business has three parts. First, there are assumptions about the environment of the organization: society and its structure, the market, the customer, and technology. Second, there are assumptions about the specific mission of the organization.... Third, there are assumptions about the core competencies needed to accomplish the organization’s mission.... The assumptions about the environment define what an organization is paid for. The assumptions about mission define what an organization defines to be meaningful results; in other words, they point to how it envisions itself making a difference in the economy and in the society at large. Finally, the assumptions about core competencies define where an organization must excel in order to maintain leadership. Thus, technological change undermines assumptions about a “theory of business” in all three areas simultaneously. Recognized or invisible, technologies are now key competitive factors, even in tradition-minded areas like education, insurance, banking, or publishing. Pervasive in every phase of business, commerce, government, education, health care, etc., they can transform virtually any activity. The impacts of failing to integrate technology and business are strikingly apparent in “natural” monopolies such as telephone, electricity, or cable television. All were mature industries where technologies seemed reasonably stable, firm roles were clear, and there was limited competition. Each is now being recreated by new technologies like wireless communications (cellular phones, direct broadcast satellites), energy cogeneration, or advance: control techniques (and resulting changes in regulatory regimes). The belief that technology can be purchased assumes that (1) willing and capable vendors for needed technologies can be found readily; (2) technologies can be freely transferred, absorbed, and integrated into purchaser systems and structures; and (3) managing, developing, and elaborating acquired technologies require no special top management insight or expertise. It is strengthened by the (now largely discredited”) spinoff concept of university and government-funded research providing a reservoir of technologies. In reality, many cutting-edge technologies are difficult to acquire. Where readily acquirable, they often cannot be effectively utilized by a management unfamiliar with them. Technological success at American firms like 3M, Motorola, and Hewlett Packard has depended on managers familiar with their company’s core technologies and able to regularly leverage them into new products. 125
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Demonstrating a Next-Generation Technology A vision of an NGT is a description of the functionality, performance, and features desirable that cannot be obtained in the current generation of technology and includes imagination of how current applications could be better accomplished with the new technology and new applications that might be feasible which cannot be accomplished with the current technology. A research strategy leading to a technical feasibility demonstration of NGT is a set of interdisciplinary research thrusts containing projects that are scheduled for integration into an experimental test bed embodying the functionality of an NGT system. Because the form of an NGT system is complex, one should try an example of system on an application in order to see which advanced research ideas will be useful, which won’t, and what cannot yet be done. A research test bed for an NGT system allows the demonstration of advanced ideas to reduce risk by making clearer what is the most useful engineering pathway to the future generations of a technology term. Once an NGT vision is created, the next step is to formulate a long-term research strategy: The current state of the technological system should be described, delineating present limitations on functionality as performance limits and existing features and current costs, along with present applications of the technology. A desirable significant change in performance and features is then planned which would constitute a dramatic leap forward, to alter existing markets and create new markets. The NGT goals are then expressed as planned performance, features, and cost. The research issues are identified which could lead from the present state of technology toward the NGT vision. These issues are then grouped into a set of interdisciplinary research thrust areas, which together constitute a program of basic science and engineering research for the next generation of the technological system Initial research projects are proposed in these thrust areas to address the range of research issues and are then coordinated in time to result in prototype subsystems of the NGT system. A milestone chart is formulated which plans the integration of these prototype subsystems into an experimental test bed for the NGT system. These steps lay out a targeted basic research program aimed at demonstrating an experimental prototype of the NGT system. Technology Transfer of NGT in Industry-University Centers The following procedure facilitates the appropriate kinds of cooperation for technology transfer of NGT:
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Corporate research should strategically plan next-generation technology, and this is best done within an industrial-university-government research consortium. Corporate research should plan NGT products jointly with product development groups in the business divisions. Marketing experiments should be set up and conducted jointly with corporate research and business divisions, with trial products using ideas tested in the consortium experimental prototype test beds.
NOTES
The CEO team should encourage long-term financial planning focused on NGT Personnel planning and personnel development are required to transition knowledge bases and skill mixes for NGT. Consensus on vision and testing technical feasibility in a program of technology transfer between corporate research and strategic business units should pose address the following questions: What will be the boundaries of the next generation of a technology system? What NGT ideas are technically demonstrable and should now be planned into product strategy and what NGT ideas must still be technically demonstrated and should not yet be planned into product strategy? What is the pace of technical change, and when should the introduction of products based on NGT be planned? What professional development and training should be planned for product development groups in order to prepare for NGT products? Next-generation technology research planning is an excellent way for industry to uti-lize university-based science. It improves management capability of exploiting tech-nology discontinuities. For technology transfer between industry and university to be effective, it is necessary for both the strategic business units’ research labs and corporate research to cooperate with university researchers in formulating and reaching a consensus on an NGT vision and research plan. Industry-university research coopera-tion can facilitate good cooperation between corporate and divisional research labs and help management with its long-term research needs. 4.6 JOINT DEVELOPMENT Joint development : In this case, technologies are developed by ARCI jointly with another partner with both the partners contributing substantially to each facet of the overall technology development. Here, project is partially funded by the client and the first priority for technology transfer is given to this client. In a multinational company, external factors, including the political and cultural factors, sometimes may become more dominant in relative importance than the economic and technical factors. For example, prior to the 1990s, some Japanese multinational companies were wise to offer their technology and know-how in India without demanding a 51 percent 127
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share, but rather settling for 45 percent, because of an understanding and appreciation for the political and cultural requirements prevalent and imposed by the Indian government. Thus, they gained entry to some vital markets well before others in the West did. 4.7 COLLABORATIVE DEVELOPMENT
Collaborative development : Here, technology is developed in conjunction with each partner exclusively developing a component of the whole technology. Here again,first priority for technology transfer is given to collaborator.
Technology Transfer Methodologies Because of these important technology transfer issues facing enterprises, several methodologies and solutions have been proposed by various authors in an attempt to achieve efficient and cost-effective means of technology transfer. A traditional approach, advocated by many federal laboratories, is the “technology-push” strategy. This method “pushes” patented discoveries and inventions out of the lab and in to the market place. In contrast to technology push are “market-pull” approaches to technology transfer. “Market pull approaches emphasize that technology will only be transferred as a result of companies seeking specific technology from laboratories that can solve particular problems or meet strategic product development opportunities”. Another methodology of technology transfer was based on the integration of the concepts of manufacturing strategy and international technology transfer. Joint ventures between local and foreign enterprises should be sought out in an effort to speed up technology transfer. He further argues that factors such as consulting entities, construction entities, and training organizations define the role of joint ventures in technology transfer. “Hence, joint venture provides a dynamic mechanism for developing countries to improve technological progress”. In the rapidly changing business panorama, characterized by dramatically increased rates of interconnectivity between enterprises all over the world, and the overwhelming rate of advances in technologies, at least five tough questions need to be addressed: When should a transnational enterprise withhold its proprietary technologies from its alliances? What corporate policies are appropriate when the technology transferor has more advanced technologies than the transferee? Which technologies must a company invest in, and why? Where should a company draw a line in the growth or decline of a particular technology in use? How should national policies with regard to technology transfer affect an enterprise’s transfer policies? 128
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The extent to which a transnational enterprise withholds its proprietary technologies from its alliances may well determine the rate of market penetration, the ability to provide barriers for competitive entry, and the ability to generate future alliances. The Issue is when such an enterprise should withhold its proprietary technologies. When a company has transferred its latest technologies to another enterprise, the transferee initially might have a greater dependence for know-how on the technology provider or transferor (e.g., licenser), but as time goes on, the transferee may advance the imported technologies to a point where the licenser may lose the competitive edge. The issue here is what type of corporate policies should be put into place to prevent such a scenario.
NOTES
One of the greatest challenges is in determining what types of technologies a company must invest in, and what the justification is. The implications of a decision to invest in technologies of a particular kind can be far-reaching—economically, ecologi-cally, politically and culturally. When a particular technology is being used, we know that it is only a matter of time before it reaches that portion of the “S curve” in which only marginal revenues are realized. When technology discontinuities occur while going from one technology to another, decisions have to be made as to the timing of new technologies to substitute the existing ones, with minimal negative impact of such discontinuities. Depending on the nature of technology transfer by a multinational company, the national policy can affect the management of such technologies. The question then becomes of assessing what impact such national policies would have on technology transfers. Clearly, the answer to these five issues and questions are neither easily understood nor well documented in the open literature. We believe that our concept of “technology gradient” (TG) can provide a relevant and meaningful approach to addressing these questions either partially or fully. Definition of the technology gradient Just as a thermal gradient exists between two bodies of different temperatures, there exists, in our opinion, a “technology gradient” between a technology transferee and a technology recipient. It represents the rate of change in a technology’s advantages over those of the known ones. At least three possible scenarios are likely to occur for a technology gradient to exist. The first situation occurs when a technology imitator tries to modify or adapt the technology concepts and methodologies from the original technology introduce. This is particularly true in the initial stages of the life cycle of a technology. For example, when IBM introduced its first personal computer in 1981, only a few dozen small companies began to emulate IBM’s open architecture of PCs, and develop their own clone versions.
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As time went on, by the latter part of the 1990s, more than a hundred manufacturers of PCs have emerged in the world. Today, PCs are assembled even in small shacks and boats in some Far Eastern countries! The technology gradient substantially diminished between a technology introducer (IBM in this case) and the manufacturers of the clones. The second situation for technology gradient occurs when a technology transferee has a technical collaboration agreement with the technology transferee. Here, the gradient is more pronounced in the earlier stages of the agreement than in the later stages. Consider an American company transferring a new product technology to a company in a developing country. This could be the usual 16-year, technical collaboration agreement. In the first 5 years, the technology transferee is greatly dependent on the transferee, in fully understanding the technology in question. During this time, the technology gradient is somewhat predominant in a Positive sense, from the American company’s standpoint. However, in the last 2 or 3 years of the agreement, this gradient could have substantially decreased as the transferee gained considerable experience and know-how while working with the American company. In a third situation, a technology innovator goes beyond what the original technology introducer has achieved; the gradient even flows in the reverse direction, with a positive advantage to the innovator. A familiar example is the television technology. Up until the late 1960s, many American companies, including General Electric, Zenith, RCA, and Magnavox, were major TV producers, but Japanese companies such as Sony, Hitachi, Mitsubishi, Panasonic, JVC, Toshiba, and Sharp have been innovating TV technology, both in product and process, so much so that they now have out-surpassed the American companies. As of this writing, only Zenith manufactures TV Technology Yielder A technology yielder company starts out in the proactive zone, but its technology gradient rapidly moves it into the reactive zone Technology Gainer A technology gainer company starts out in the reactive zone, but maintains an upward TG trend into the proactive zone eventually Technology Loser A technology loser company starts and ends in the reactive zone, wherein the TG has a downward slope BENEFITS OF THE TG APPROACH The TG approach has some unique benefits while managing new and/or existing technologies, particularly for multinational enterprises:
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1. Enterprises of any kind—and in particular, companies willing to have transnational alliances—can manage the nature of their business relationships much better by having a clear understanding of their roles in managing their respective technologies because they can predetermine their TGs and position themselves in the market for a mutual advantage.
NOTES
2. While introducing new technologies, a company can determine a TG profile for the short-, intermediate-, and long-term periods. This will enable better strategic planning, as the company will know some of the major challenges as well as opportunities confronting such technologies in the global markets. 3. Decisions to phase out existing technologies can be made more objectively than at present by using the TG computations as part of the economic and technical feasibility studies. 4. Measures taken to advance the present technologies can be based on the possibility of success from the TG standpoint. This would avoid expensive capital investments. For example, if a company has a TG much better than its competition for one of its core technologies it does not have to spend millions for new technologies at the present time, but when such a technology becomes a “technology loser”, the company may have to acquire a new one Notation: new technologies (type N); existing technologies (type E) Step 1
Awareness possibility
Determine the expected TG for each of the type N technologies that are commercially feasible for adoption. Do the same for the type E technologies that are in the ‘’advanced” phase of the technology cycle. Rank-order these technologies by the TG potential. Step 2 Acquisition capability Conduct technical and economic feasibility studies for all the type N and type E technologies rank-ordered in step 1 above. Select the type N technologies that will provide the greatest and fastest market share, customer retention, and return on investment. Purchase the selected type N technologies and install them. Step 3 Adaptation potential For each of the type N technologies, determine the potential for adaptation to your particular socio-technical environment. If the potential is high, set aside such technologies for adaptation. Step 4 Advancement potential Out of the present type E and type N technologies, determine the possibility for advancing these technologies to result in the highest possible TG value. 131
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Step 5 Abandonment possibility Make a systematic assessment of the TG for the type E technologies and rank order them from the lowest to the highest TG. Eliminate the type E technologies with the lowest TG, based on a minimum desired TG threshold. Generate technology transfer strategies to transfer the remaining type E technologies to those countries or operations if the end user is interested. Step6
Business planning
Formally introduce the “TG analysis” into the business planning strategies to maximize and/or leverage the technology advantage as a strategic business weapon. This is almost essential in today’s global enterprises. Step 7 Profit planning Apply Sumanth’s “total productivity model” (TPM) or his CTPM, to determine the impact of various TGs on the profits of your enterprise for the next 5 to 10 years. Step 8
Reward system
Apply a total productivity-and society based reward system to motivate employees and suppliers, customers, and stockholders, community. Step 9 Contingency planning Using the TG concept, prepare contingency plans for the most unforeseen and the most unexpected appearances of technologies that never were envisaged. For every product line or service unit, do the impact analysis in the event of “surprise technologies.” Step 10 Consistency and benchmarking Benchmark your product technologies and process technologies using the TG approach. Do so regularly on an international basis. International benchmarking is a necessary condition for global competitiveness. Have this function undertaken as a routine one. Managing new and existing technologies while incorporating the TG in an established enterprise: the 10-step procedure. Since the “technology cycle” will continue to rotate much faster than ever before, it would be beneficial for companies to model the behavior of TGs with the relevant variables. Dealing with just one TG at a time will be totally unrealistic, and even suboptimal. Thus, it would be appropriate to develop methodologies that can optimize such TGNs. It would also become necessary to include many more indicators, many of which are unimaginable at this time, because of the complexity of the technology issues.
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Today’s enterprises not only have to be competitive in domestic markets, but increasingly so in the global market arena. With more countries emerging as free-enterprise economies, there has been a dramatic increase in the rates of technology transfer from the developed to developing economies. At the same time, the economic capital of the developing economies has become scarce, thus making it necessary for a careful analysis of technology investments before they are made. In this chapter, we propose the concept of technology gradient as a tool for companies to address some of the technology transfer issues facing them, particularly in determining the candidate(s), timing, level, extent, and cultural setting, for technology transfer among transnational enterprises.
NOTES
4.8 INTERNATIONAL NETWORKS OF TECHNOLOGY BROKERS Technology transfer is the process of sharing of skills, knowledge, technologies, methods of manufacturing, samples of manufacturing and facilities among industries, universities, governments and other institutions to ensure that scientific and technological developments are accessible to a wider range of users who can then further develop and exploit the technology into new products, processes, applications, materials or services. While conceptually the practice has been utilized for many years (in ancient times, Archimedes was notable for applying science to practical problems), the present-day volume of research, combined with high-profile failures at Xerox PARC and elsewhere, has led to a focus on the process itself. Transfer process Many companies, universities and governmental organizations now have an “Office of Technology Transfer” (also known as “Tech Transfer” or “TechXfer”) dedicated to For instance, a research result may be of scientific and commercial interest, but patents are normally only issued for practical processes, and so someone — not necessarily the researchers — must come up with a specific practical process. Another consideration is commercial value; for example, while there are many ways to accomplish nuclear fusion, the ones of commercial value are those that generate more energy than they require to operate. The process to commercially exploit research varies widely. It can involve licensing agreements or setting up joint ventures and partnerships to share both the risks and rewards of bringing new technologies to market. Other corporate vehicles, e.g. spin-outs, are used where the host organization does not have the necessary will, resources or skills to develop a new technology. Often these approaches are associated with raising of venture capital (VC) as a means of funding the development process, a practice more common in the US than in the EU, which has a more conservative approach to VC funding. In recent years, there has been a marked increase in technology transfer intermediaries specialized in their field. They work on behalf of research institutions, governments and even large multinationals. Where start-ups and spin-outs are the clients, commercial fees 133
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are sometimes waived in lieu of an equity stake in the business. As a result of the potential complexity of the technology transfer process, technology transfer organizations are often multidisciplinary, including economists, engineers, lawyers, marketers and scientists. The dynamics of the technology transfer process has attracted attention in its own right, and there are several dedicated societies and journals. Summary
In-house development of technologies are developed and demonstrated on its own.
Partnerships with intermediaries commitments relate to the transfer of environmentally sound technologies and the know-how necessary to mitigate and facilitate adequate adaptation to climate change.
Sponsored development technologies are developed and demonstrated at the request of a potential user organization/company wholly funded by the client organization.
Joint development technologies are developed jointly with another partner with both the partners contributing substantially to each facet of the overall technology development.
Collaborative development technology is developed in conjunction with each partner exclusively developing a component of the whole technology.
International networks of technology share skills, knowledge, technologies, methods of manufacturing, samples of manufacturing and facilities among industries, universities, governments and other institutions to ensure that scientific and technological developments are accessible to a wider range of users
This unit helped the reader to understand the importance of the technology/society / and the business context in an organization.
Characteristics of the strategic technology process are detailed out in addition to when one should prefer what type of process.
The components to plan i.e. vision, mission and objectives are highlighted.
Review questions 1. Why is it necessary to have In-house development of technologies? 2. Partnerships with intermediaries commitments relate to the transfer of environmentally sound technologies. Explain. 3. Why is it that Sponsored development technologies are developed and demonstrated at the request of a potential user organization/company wholly funded by the client organization? 4. When is it necessary to have Joint development technologies developed jointly with another partner? 5. Explain Collaborative development technology? 6.
Give the importance of an International networks of technology? 134
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NOTES
UNIT V
SUPPORT SERVICES 5.1 INTRODUCTION This unit starts with the assistance available in implementing technologies which have an important bearing upon the effectiveness and efficiency of technology transfers. Intellectual property Management characterize the intellectual protectionism or intellectual monopoly, and IP related issues like rights, litigations, royalty audits and auctions argue the public interest is taken care by protectionist legislation. Market/feasibility studies bring out the cost benefit analysis. Product marketing enables the awareness of the new technology and product. Technology valuation, its methods, Contract negotiation, Subcontracting and sublicense brings out the pricing criteria involved. Technology investment practices reflect the investment judgment of an individual. Finally arranging financial assistance sources, option fund, angel investment , Finance syndication, loan, venture capital, debts, grants and incentives are dealt. 5.2 LEARNING OBJECTIVES
Assistance in implementing technologies
Intellectual property Management
IP related issues :– rights - litigations – royalty audits – auctions
Market/feasibility studies
Product marketing
Technology valuation :- methods - Contract negotiation – Subcontracting – sublicense
Technology investment practices
Arranging financial assistance: – sources - option fund – angel investment -Finance syndication – loan - venture capital and debts– grants - incentives
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5.3 ASSISTANCE IN IMPLEMENTING TECHNOLOGIES Competence of know-how supplier Transfer capabilities and motivation of the enterprise supplying the industrial technology have an important bearing upon the effectiveness and efficiency of technology transfers. The competence of the transfer agents, including their ability to design an easily transferable technology package, is an important factor. The supplier enterprise and its transfer package represent a combination of documentation, training and technical assistance. Motivation of the technology supplier depends largely on the transfer mode and the potential return the supplier hopes to realize from an effective and efficient transplant. 5.4 INTELLECTUAL PROPERTY MANAGEMENT Bayh-Dole Act The Bayh-Dole Act or University and Small Business Patent Procedures Act is a piece of United States legislation from 1980. Among other things, it gave US universities, small businesses and non-profits intellectual property control of their inventions that resulted from federal government-funded research. The act, sponsored by two senators, Birch Bayh of Indiana and Bob Dole of Kansas, was enacted by the United States Congress on December 12, 1980. The Bayh-Dole Act is a significant 20th century piece of legislation in the field of intellectual property in the US. Perhaps the most important change of Bayh-Dole is that it reversed the presumption of title. Bayh-Dole permits a university, small business, or nonprofit institution to elect to pursue ownership of an invention before the government. Rights and obligations Recipient requirements Small businesses and non-profit organizations can retain the title in a federally funded “subject invention.” In exchange, the organization is required to
Report each disclosed invention to the funding agency
Elect to retain title in writing within a statutorily prescribed timeframe
File for patent protection
Grant the federal government a non-exclusive, non-transferable, irrevocable, paidup license to practice or have practiced on its behalf throughout the world
Actively promote and attempt to commercialize the invention
Not assign the rights to the technology, with a few exceptions
Share royalties with the inventor
Use any remaining income for education and research
Give preference to US industry and small business 136
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Subject inventions
NOTES
A subject invention “means any invention” that is “conceived or first actually reduced to practice in the performance of work under a funding agreement.” This definition covers a wide range of research activities that are either partially or completely federally funded. The CFR notes two questionable scenarios that do not give rise to subject inventions. The first happens where an invention is created in closely related research outside the scope of the federally funded research. In this case, it must be shown that the nongovernment research did not “diminish or distract from” the federal research. The second scenario occurs when research is wholly outside the scope of federally funded research, but may utilize some government funds (like equipment purchased for another research project). In this case, it must be shown that the research was done “without interference with or cost to the government-funded project.” Nevertheless, this definition is so broad, and it is very difficult to prove that research did not diminish, distract from, interfere with, or cost the government funded program. As such, many institutions assume that where federal funds have been used anywhere in a lab, a subject invention exists. History Prior to the enactment of Bayh-Dole, the U.S. government had accumulated 30,000 patents. Only approximately 5% of those patents were commercially licensed. After World War II, the government began spending a great deal of money to support public research in military, defense and medical technologies (through the newly founded National Science Foundation). However, the government did not have a unified patent policy. At one point, those interested in government intellectual property were faced with dealing with 26 different agency policies. The government’s steps towards unification began in 1963 with Jerome Weisner, President John F. Kennedy’s science advisor, and culminated in 1971 under President Richard Nixon. Nevertheless, all these policies directed title to the agencies and not to the public. Not content, many non-profit organizations, led by the University of WisconsinMadison, sought even more favorable policies. In 1968 and 1973, the University successfully lobbied for agencies to enter into Institutional Patent Agreements, which, among other things, allowed universities and non-profits with approved of patent policies to retain title to their inventions. Although agreed to by only two agencies, the Health and Human Services (HHS) and National Science Foundation, the IPA laid the groundwork for enacting BayhDole less than 10 years later.
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Petitions for march-in rights The government’s march-in right is one of the most contentious provisions in BayhDole. It allows the funding agency, on its own initiative or at the request of a third party, to effectively ignore the exclusivity of a patent awarded under the act and grant additional licenses to other “reasonable applicants.” This right is strictly limited and can only be exercised if the agency determines, following an investigation, that one of four criteria is met. The most important of these are a failure by the contractor to take “effective steps to achieve practical application of the subject invention” or a failure to satisfy “health and safety needs” of consumers. Though this right is, in theory, quite powerful, it has not proven so in terms of its practical application — to date, no federal agency has exercised its march-in rights. Three march-in petitions have been made to the National Institutes of Health, however, and pharmaceutical companies occasionally instruct their legal departments to evaluate the risk of march-in prior to negotiating contracts for drugs licensed under Bayh-Dole. 5.5 IP RELATED ISSUES :– RIGHTS - LITIGATIONS – ROYALTY AUDITS – AUCTIONS Intellectual property (IP) is a legal field that refers to creations of the mind such as musical, literary, and artistic works; inventions; and symbols, names, images, and designs used in commerce, including copyrights, trademarks, patents, and related rights. Under intellectual property law, the holder of one of these abstract “properties” has certain exclusive rights to the creative work, commercial symbol, or invention by which it is covered. Overview Intellectual property rights are a bundle of exclusive rights over creations of the mind, both artistic and commercial. The former is covered by copyright laws, which protect creative works such as books, movies, music, paintings, photographs, and software and gives the copyright holder exclusive right to control reproduction or adaptation of such works for a certain period of time. The second category is collectively known as “industrial properties”, as they are typically created and used for industrial or commercial purposes. A patent may be granted for a new, useful, and non-obvious invention, and gives the patent holder a right to prevent others from practicing the invention without a license from the inventor for a certain period of time. A trademark is a distinctive sign which is used to prevent confusion among products in the marketplace. An industrial design right protects the form of appearance, style or design of an industrial object from infringement. A trade secret is non-public information concerning the commercial practices or proprietary knowledge of a business. Public disclosure of trade secrets may sometimes be illegal. 138
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The term “intellectual property” denotes the specific legal rights described above, and not the intellectual work itself.
NOTES
Purpose Intellectual property rights give creators exclusive rights to their creations, thereby providing an incentive for the author or inventor to develop and share the information rather than keep it secret. The legal protections granted by IP laws are credited with significant contributions toward economic growth. Economists estimate that two-thirds of the value of large businesses in the U.S. can be traced to intangible assets. Likewise, industries which rely on IP protections are estimated to produce 72 percent more value per added employee than non-IP industries. Additionally, a joint research project of the WIPO and the United Nations University measuring the impact of IP systems on six Asian countries and found that “a positive correlation between the strengthening of the IP system and subsequent economic growth.” However, correlation does not necessarily imply causation. Economics of intellectual property Intellectual property rights are considered by economists to be a form of temporary monopoly enforced by the state (or enforced using the legal mechanisms for redress supported by the state). Intellectual property rights are usually limited to non-rival goods, that is, goods which can be used or enjoyed by many people simultaneously - the use by one person does not exclude use by another. This is compared to rival goods, such as clothing, which may only be used by one person at a time. For example, any number of people may make use of a mathematical formula simultaneously. Some objections to the term intellectual property are based on the argument that “property” can only properly be applied to rival goods (or that one cannot “own” property of this sort). Since a non-rival good may be used (copied, for example) by many simultaneously (produced at zero marginal cost in economic terms), producers would have no incentive to create such works. Monopolies, by contrast, also have inefficiencies (producers will charge more and produce less than would be socially desirable). The establishment of intellectual property rights therefore represents a trade-off, to balance the interest of society in the creation of non-rival goods (by encouraging their production) with the problems of monopoly power. Since the trade-off and the relevant benefits and costs to society will depend on many factors that may be specific to each product and society, the optimum period of time during which the temporary monopoly rights exist is unclear.
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History Modern usage of the term “intellectual property” began with the 1967 establishment of the World Intellectual Property Organization (WIPO), but it did not enter popular usage until passage of the Bayh-Dole Act in 1980. The earliest use of the term “intellectual property” appears to be an October 1845 Massachusetts Circuit Court ruling in the patent case Davoll et al. v. Brown. in which Justice Charles L. Woodbury wrote that “only in this way can we protect intellectual property, the labors of the mind, productions and interests as much a man’s own...as the wheat he cultivates, or the flocks he rears.” The statement that “discoveries are...property” goes back earlier. Section 1 of the French law of 1791 stated “All new discoveries are the property of the author; to assure the inventor the property and temporary enjoyment of his discovery, there shall be delivered to him a patent for five, ten or fifteen years”. In Europe, French author A. Nion mentioned “propriété intellectuelle” in his Droits civils des auteurs, artistes et inventeurs, published in 1846. The concept’s origins can potentially be traced back further. Jewish law includes several considerations whose effects are similar to those of modern intellectual property laws, though the notion of intellectual creations as “property” does not seem to exist. The Talmud contains the first known example of codifying a prohibition against the stealing of ideas, which is further discussed in the Shulchan Aruch. Criticism Some critics of intellectual property, such as those in the free culture movement, characterize it as intellectual protectionism or intellectual monopoly, and argue the public interest is harmed by protectionist legislation such as copyright extension, software patents and business method patents. Although the term is in wide use, some critics reject the term “intellectual property” altogether. Richard Stallman argues that it “systematically distorts and confuses these issues, and its use was and is promoted by those who gain from this confusion.” He suggests the term “operates as a catch-all to lump together disparate laws [which] originated separately, evolved differently, cover different activities, have different rules, and raise different public policy issues.” These critics advocate referring to copyrights, patents and trademarks in the singular, and warn against abstracting disparate laws into a collective term. Public participation in patent examination Public participation in patent examination With the advent of the Internet, a number of initiatives have been undertaken to create a forum where the public at large can participate in prior art searches. These forums have been related to both issued patents and pending patent applications. 140
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Pending patent applications
NOTES
More recently, different attempts to employ open Internet-based discussions for encouraging public participation commenting on pending US applications have been started. These may take the form of:
Peer to Patent online system for open, community patent review.
Public patent clarity: the public can add prior art references for a given patent.
Industrial Norms The industry norms method focuses upon the rates that others are charging for intellectual property licensed within the same industry. Investment risks, net profits, market size, growth potential and complementary asset requirements are all absent from direct consideration. The use of industry norms places total reliance upon the ability of others to correctly consider and interpret the many factors affecting royalties. Changing economic conditions along with changing investment rate of return requirements also are absent from consideration when using industry norms. Even if an industry norms royalty was a fair rate of return at the time it was established, there is no guarantee that it is still valid after some years. Value, economic conditions, rate of return and all of the other factors that derive a fair royalty have dynamic properties. They constantly change and so must their underlying analysis that establishes royalties. Use of established industry norms fails to reflect changing conditions. Return on R&D Costs Basing a reasonable royalty on the amount that was spent on development of the intellectual property could be terribly misleading. The amount spent in the development is rarely equal to the value of the property. The millions of rupees spent on research relating atomic energy, space, defense etc. may yield to the Indian Government very little intellectual property. A proper royalty should provide a fair return on the value of the asset regardless of the costs incurred in its development. The underlying value of intellectual property is founded upon the amount of future economic benefits. Factors that can limit the benefits include the market potential, the sensitivity of profits to production costs, the period of time over which benefits will be enjoyed and the many other economic factors that were discussed. The development costs do not reflect these factors in any form. Basing a royalty on development costs can completely miss the goal of obtaining a fair return on a valuable asset. Return on Sales Royalty based upon a percentage of revenues sales has several primary weaknesses, the first difficulty is the determination of the proper allocation of the profits between the 141
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licensor and the licensee. Another area of weakness is the lack of consideration for the value of the intellectual property that is invested in the enterprise as well as a lack of consideration for the value of the complementary monetary and tangible assets that are invested. Finally, this method fails to consider the relative investment risk associated with the intellectual property. There is no rigid formula for determining the price of intellectual property and thus estimates vary from case to case. The price of know-how/intellectual property normally ranges between 2% to 10% of either the plant and equipment cost or projected turnover production of the unit for a period of 5 years. However, the price would depend on the estimates of opportunity value and “what the market can bear” Besides, the realization of price could be divided between lump sum amount and recurring royalty payments. Although it would be in the interest of licensor to realize as much of the price as is possible through lump sum payment, the licensee’s interest would be to pay the price onlythrough recurring royalty based on production. Thus, balance has to be struck between these two components Royalties Payments are made for the use of all forms of industrial property rights, the ownership rights of which are established by national statutory law (patent, trade mark, copyright), civil law (trade secrets), or international consensus (know-how). As a consequence, payments arise in the licensing of industrial property rights because the licensee derives protected benefits from its use. Royalty can be considered a lease payment, not an outright payment. Royalties may be paid as a percentage of sales value, whether the technology is in the form of know-how or the use of patented equipment/process of production. The exfactory value of total sale is frequently the basis of calculations. Alternatively, the royalty may be based on the gross value of production. The rate of royalty may be related to the net value of production. Whether the royalty is based on sales or value added, payments will increase in an inflationary situation, irrespective of the contribution of technology acquired. 5.6 MARKET/FEASIBILITY STUDIES History and evolution The seeds of the private equity industry were planted in 1946 when the American Research and Development Corporation (ARD) decided to encourage private sector institutions to help provide funding for soldiers who were returning from World War II. While the ARD had difficulty stimulating any private interest in the enterprise and ended up disbanding, they are significant because this marked the first recognized time in financial history that an enterprise of this type had been formed. In addition, they had an operating 142
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philosophy that was to become significant in the development of both private equity and venture capital: they believed that by providing management with skills and funding, they could encourage companies to succeed and in doing so, make a profit themselves. During the course of their unsuccessful journey, ARD did succeed in raising approximately $7.4 million, and they did have one rousing success; they funded Digital Equipment Corporation (DEC). By the 1970s such private participation had permeated into the private enterprise formation, but until the late 1970s, the task was being largely carried out by investment arms of a few wealthy families, such as the Rockefellers and Whitneys.[8] In the 1980’s, FedEx and Apple Inc. were able to grow because of private equity or venture funding, as were Cisco, Genentech, Microsoft, Avis, Beatrice Foods, and Dr Pepper.[9]. Despite these successes, through a series of “debt-financed leveraged buy-outs (LBOs)” of established firms, the PE firms were being seen with acrimony and being casted as irresponsible corporate raiders- as a threat to the free capitalist structure. The extreme example of this phenomenon is described in the bestselling book,[10] where the two PE firms Forstmann Little and Kohlberg Kravis Roberts, were described as “Barbarians at the Gate” for their aggressive $25 billion pursuit for RJR Nabisco.
NOTES
Investments in Private Equity Institutional investors provide private equity capital in the hopes of achieving risk adjusted returns that exceed those possible in the public equity markets and will typically include private equity as part of a broad asset allocation that includes traditional assets (e.g., public equity and bonds). Most institutional investors, do not invest directly in privately held companies, lacking the expertise and resources necessary to structure and monitor the investment. Instead, institutional investors will invest indirectly through a private equity fund. Certain institutional investors have the scale necessary to develop a diversified portfolio of private equity funds themselves, while others will invest through fund of funds to allow a more diversified portfolio than an investor could construct. Private equity firms generally receive a return on their investments through one of the following avenues:
an Initial Public Offering (IPO) - shares of the company are offered to the public, typically providing an partial immediate realization to the financial sponsor as well as a public market into which it can later sell additional shares;
a merger or acquisition - the company is sold for either cash or shares in another company;
a Recapitalization - cash is distributed to the shareholders (in this case the financial sponsor) and its private equity funds either from cash flow generated by the company or through raising debt or other securities to fund the distribution.
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Investment features and considerations Considerations for investing in private equity funds relative to other forms of investment include:
Substantial entry requirements. With most private equity funds requiring significant initial commitment(usually upwards of $1,000,000) which can be drawn at the manager’s discretion over the first few years of the fund.
Limited liquidity. Investments in limited partnership interests (which is the dominant legal form of private equity investments) are referred to as “illiquid” investments which should earn a premium over traditional securities, such as stocks and bonds. Once invested, it is very difficult to achieve liquidity before the manager realizes the investments in the portfolio as an investor’s capital is locked-up in long-term investments which can last for as long as twelve years. Distributions are made only as investments are converted to cash; limited partners typically have no right to demand that sales be made.
Investment Control. Nearly all investors in private equity are passive and rely on the manager to make investments and generate liquidity from those investments. Typically, governance rights for limited partners in private equity funds are minimal.
Unfunded Commitments. An investor’s commitment to a private equity fund is drawn over time. If a private equity firm can’t find suitable investment opportunities, it will not draw on an investor’s commitment and an investor may potentially invest less than expected or committed.
Investment Risks Given the risks associated with private equity investments, an investor can lose all of its investment. The risk of loss of capital is typically higher in venture capital funds, which invest in companies during the earliest phases of their development or in companies with high amounts of financial leverage. By their nature, investments in privately held companies tend to be riskier than investments in publicly traded companies.
High returns. Consistent with the risks outlined above, private equity can provide high returns, with the best private equity managers significantly outperforming the public markets.
For the above mentioned reasons, private equity fund investment is for those who can afford to have their capital locked in for long periods of time and who are able to risk losing significant amounts of money. This is balanced by the potential benefits of annual returns which range up to 30% for successful funds
5.7 PRODUCT MARKETING BROAD OBJECTIVES OF TECHNOLOGY TRANSFER & MARKETING GROUP
Protects intellectual property via patent,copyright and/or trademark.
Is always accessible and responsive to existing/prospective technology receivers/ clients.
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Continues to seek out new customers, who wish to commercialize technologies.
Strives to satisfy the common good of all clients in all technology transfer endeavours.
Strives to understand market needs and communicates them to scientists.
Negotiates technology transfer, confidentiality, option and licence agreements.
Conducts workshops, seminars and exhibitions relating to the technology transfer process.
Consults with sponsored research personnel on intellectual property aspects of research contracts.
Ensures that compliance with government regulations related to intellectual property.
Consistent with the organization’s overall vision of translating research into technology, strives to bridge the gap between conventional research institutions/ laboratories and the high-technology industries by taking up technologies in their embryonic stages and nurturing them till they are ripe for transfer to the industries.
NOTES
Seed money A seed round, sometimes known as a friends and family round or seed funding, is a securities offering whereby one or more parties that have some connection to a new enterprise invest the funds necessary to start the business so that it has enough funds to sustain itself for a period of development until it reaches either a state where it is able to continue funding itself, or has created something in value so that it is worthy of future rounds of funding. Seed money refers to the money so invested. Startup Company
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Usage
Startup Financing Cycle Seed money is typically used to pay for such preliminary operations as market research and product development. Investors are often the business founders themselves, using savings, mortgage money, or funds borrowed from family and friends. They may also be outside angel investors, venture capitalists or accredited investors who are acquainted in some way with the founders. Seed capital is not necessarily a large amount of money. Many people start up new business ventures with $10,000 or less. Seed money can be distinguished from venture capital in that venture capital investment tends to involve significantly more money, an arm’s length transaction, and much greater complexity in the contracts and corporate structure that accompany the investment. Seed funding involves a higher risk than normal venture capital funding since the investor does not see any existing project to evaluate for funding. Hence the investments made are usually lower (in the tens-thousands to hundred-thousands of dollars) as against normal venture capital investment (in the hundred-thousands to millions of dollars), for similar levels of stake in the company. Seed money may also come from financial bootstrapping rather than an offering. Bootstrapping in this context means making use of the cash flow of an existing enterprise. Investors make their decision whether to fund a project based on the perceived strength of the idea and the capabilities, skills and past history of the founders.
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5.8 TECHNOLOGY VALUATION :- METHODS - CONTRACT NEGOTIATION – SUBCONTRACTING – SUBLICENSE
NOTES
Factors Affecting Royalty Rates In any negotiation for technology transfer, both parties will arrive at their ‘reservation’ price by some assessment of the costs and benefits they both derive from trade, so that the financial benefits are acceptable to each side. This determines the absolute range over which the price can be negotiated. The process of finalizing a specific price depends on the bargaining strength of the two parties, as well as their negotiating skills and general attitude towards risk and uncertainty. These factors will depend on the nature of the intellectual property to be exchanged. Tables 5-.1 and 5.2 present the key factors affecting the alternative pricing of intellectual property, first from the point of view of the licensor and secon, from that of the licensee. From Tables 5.1 and 5.2 it is apparent that various factors on the cost and benefit side of the equation can affect the pricing of a license and fixing royalty rates. At the outset, the royalty level will be based on an assessment of the respective valuations of both licensor and licensee of these factions. However, that merely sets a maximum and a minimum royalty rate that both would find acceptable. Once it has been established that there is scope for trade, the rest of the pricing decision revolves around the risk preference and bargaining power of the two parties. Figure 5.1 illustrates this bargaining range. The essence of this table is again to emphasize the existent of an overlapping range within which other factors play an important role. Table 5.1 Factors Underlying Licensor Royalty Negotiations FACTOR TYPE OF PROPERTY PATENTS
COSTS
BENEFITS
Cost of development
Royalty payments
Cost of filling, Maintaining and enforcing the patent
Grant backs of developmenta l knowledge
Cost of transfer in terms of people, materials, time etc.
Control of competition
Revenues lost through not directly exporting or working the patent.
TIME
Long agreemen t (up to 20 years)
RISK
Patent infringed
Tightness of patent
Audit of licensees sales is difficult
Ability to enforce
Setting up to competition
Licensee uses your property to develop his own new products faster than your own
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BARGAINING POWER
Distinctive nature Of product process
Existence of other complementary property Ability to directly export or directly invest
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No filling and Maintenance cost
Same
Much shorter length of agreement
Secrecy problem Difficult to control
Same
COPYRIGHT ANDREGISTE RED DISIGN
No filling and maintenance costs No development cost. No filling and maintenance cost. No development cost.
Same
Variable time
Enforcement of Copyright more difficult
Same
Same
Longer time period
Poor quality products under your trade mark
Critical in consumer markets
TRADE MARK
Table 5.2 Factors Underlying Licensee Royalty Negotiations FACTOR TYPE OF PROPERTY PATENTS
COSTS Royalty fee
Alternative cost of In- house development Limitations on markets
Costs of inward transfer Licensed product may make own product obsolete
BENEFITS
TIME
Rapid Introduction of product
Long period of agreement
Patent may be infringed
Gross margin of licensed products
Speed of introduction
Product may be made obsolete
Keeping company together in times of recession Basis of future technical development
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RISK
Limitation of markets; he can compete in on a ‘monopol y ‘basis Changes in the law of restrictive practice
BARGAINING POWER Size of market penetration can provide for licensor Barriers of export for licensor
Local market knowledge in an advantage
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KNOW-HOW
Inward transfer may be more difficult
Access to secrete technology other firm will not know about
Can take longer to incorporate than patent shorter agreement
COPYRIGHT ANDREGIST ERED DISIGN
No costs of inward transfer
The only way of obtaining some sort of property
Long time period
TRADE MARK
No costs of inward transfer
Instant market penetration and brand loyalty
Long time period
Firm may be locked into a long-term agreement after secrete is widely known Easy to break copyright but difficult to enforce and police Trademar k is devalued by poor performan ce of other trademark holders
NOTES
No protection other than secrecy for licensor
Very little for some ‘unique’ property
Very little for some ‘unique’ property
SUBCONTRACTING All of the establishments surveyed in the MDG sector make products with precision machine-tool technologies. Although we do not have information on all types of subcontracting practices at these plants, our survey did ask about subcontracting of operations from the machining production process at the plant. Our maintained hypothec were that cost-based pricing rules in defense contracting should contribute to hoarding of direct production labor, and that defense contractors should be less likely to engage in production subcontracting and to spend less on subcontracts when they did contra out, as compared with the strictly commercial enterprises. Table 4 compares machining subcontracting practices in 1989-90 between defense contractors and plants with no contract ties to DOD. We find that, on average, defense contractors are actually significantly more likely than non-defense enterprises to rely on machining subcontractors (P = 0.0001). For this key production process, 66% of defense contractors subcontract out at least some part of that work to other firms, as compared with only 51 % of plants that do no defense contracting. Among those that do contract out, we find no statistical difference between defense contractors and their strictly commercial counterparts in the MDG sector in the amount of subcontracting they do, as indicated by the amount of purchases from machining subcontractors in 1990 as a share of the total value of shipments from the plant. Similarly
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we find no difference between defense contractors and non-defense producers in this sector in the average number of subcontractors they employ. With respect to the machining process, at least, we find no support for the presumption that defense contractors are reluctant to engage in subcontracting as compared with their strictly commercial counterparts. It is therefore unlikely that government accounting and pricing procedures deter defense contractors from subcontracting. Table 5.3 Comparisons Of Machining Subcontracting Practices Of Defense :Contractors And Plants With Solely Commercial Customers Features of subcontracting
Do you usually contract out machining work to other firms? Mean (% = yes)* Number of plants Total of 1990 sales revenue spent on machining subcontractors Mean Standard deviation Number of plants with any spending on subcontractors How many machining Subcontractors did your plant Use in 1990? Mean Standard deviation Number of plants with any subcontractors
Plants with defense contracts
Plants with solely commercial customers
66.1%
51.3%
58.5% 940
6.9% 8.3
5.9% 8.3
6.5% 8.3
All plants
520
7.5 22.5
7.2 30.4
7.4 26.3 618
5.9 TECHNOLOGY INVESTMENT PRACTICES TECHNOLOGY INVESTMENT PRACTICES Hoarding of direct labor and the failure to make investments to improve productivity have long been identified as a possible source of high costs among defense contractors. Indeed as early as 1976, a major Pentagon review of procurement practices concluded that defense contractors used only 42% as much capital equipment and facilities per dollar of sales as did durable goods manufacturers overall. In 1980, the House Armed Services Committee drew similar conclusions about the lack of investment in new manufacturing technologies by defense contractors. 150
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During the 1980s, information technology applications in which computer software and microelectronic control devices are used to direct and monitor such ordinary productions operations as machining, welding, testing, and inspecting were first introduced in the United States and elsewhere. These technologies have been heralded as providing cost, performance, and flexibility advantages for a wide range of uses (20). Cross-national comparisons of the adoption and use of certain applications, particularly for the matching process form of numerically controlled (NC) and computerized numerically controlled (CNC) machine tools flexible manufacturing systems (FMS), have come to be taken as indicators of the relative strengths of the manufacturing sectors of industrial economies.
NOTES
Our survey results confirm a statistically significant difference (P = 0.0001) in the adoption rates of these types of advanced manufacturing technology related to defense contracting. But the differences we find, are not what we would expect if defense contracting practices were a deterrent to investment in productivity-enhancing technologies. Sixty-six percent of plants with defense contracts ha c programmable machine tools (CNC, NC, or FMS), compared with 50% of plants that have no contract ties to the DOD or any of its prime contractors. Moreover, defense contractors that adopt this technology employ a much higher fraction of programmable machines in their total machine tool stock than do establishments engaged in the same manufacturing process but having no defense contracts. For each of the five common uses of computers in manufacturing, defense contractors have higher rates of use. In addition to programmable machine tools, these applications include computer-aided design (CAD), computer-aided manufacturing process control systems (CAM—used to plan and monitor inventory, work-in-process, and materials flow), computer-aided materials planning, and the use of programmable automation in other production processes. For every one of these technologies, we find significantly higher adoption rates (P = 0.0001) among defense contractors than among plants serving exclusively commercial markets. Although it is difficult to single out a particular cause for these differences, we believe that government policy initiatives and programs directed at the defense industrial base are at least partly responsible for the large technological gap we find between The selected technologies are: programmable automated machine tools in the form of computer numerically controlled (CNC), numerically controlled (NC), or flexible manufacturing systems (FMS); computer-aided design (CAD) systems; computer-aided manufacturing process (CAM) control systems; computer-assisted materials planning systems; and programmable automation used in other production processes at the plant. In the MDG sector, for each of these technologies, plants with defense contracts have a significantly higher rate of adoption than do plants that operate strictly in commercial product markets (that is, they have no defense contracts) defense contractors and other U.S.
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manufacturing establishments in the MDG sector. From 1982 to 1992, the Industrial Modernization and Incentives Program of DOD provided technical assistance to contractors in assessing the applicability of advanced manufacturing technologies to defense contractors’ operations. Through its manufacturing technologies (ManTech) program, DOD has also supported the development of advanced technologies and improvements in process technologies among defense suppliers. The Pentagon spent between $150 million and $200 million annually throughout the 1980s on these programs, which exceeded spending by all state governments on technical assistance programs aimed at manufacturing firms during the same period. Hundreds of defense contractors were directly assisted by these programs. DOD also sponsored annual conferences and workshops on manufacturing practices to high-light the lessons learned from the experiences of the early adopters of these advanced manufacturing technologies, providing an opportunity for representatives from the larger defense industrial community to become acquainted with the difficulties in implementing technical changes and the strategies employed by lead users to solve them. We believe that such forums promoted the dissemination of information about the implementation process that was not as readily available to manufacturing firms outside he defense contracting system. Our research also indicates that major prime contractors provided technical assistance and support to their suppliers that were less commonly available to companies with no contractual relation to DOD or its prime contractors. Access to the technical assistance and supplier development activities of prime contractors and DOD can be construed as providing a competitive advantage to defense contractors that is not widely available in other supplier production chains. Research on supplier relations in the auto industry, for example, suggests that customer-supplier relations are not characterized by the type of information-sharing and technical assistance that we find to be so common among defense contractors. Other research also indicates that institutional mechanisms that foster information sharing and inter-organizational learning can accelerate the diffusion of new technologies . Thus, the higher rates of adoption of advanced manufacturing technologies we find among defense contractors are at least partly attributable to the greater opportunities for inter-organizational taming fostered by such government-sponsored activities. Defense spending reaches a broad segment of manufacturing in the MDG sector, affecting nearly one-half of all establishments. Contrary to conventional wisdom, commercial military integration is not only feasible but is largely the normal practice at the end of the Cold War. The vast majority of defense contractors in the MDG sector manufacture military products in the same plants with the same workers and equipment employed in producing items for commercial customers. In fact, commercial customers dominate the sales of most defense contractors in this sector. Moreover, defense plants, on average, face as much competitive pressure as do those that produce only for commercial marketing. Also, defense contractors use more modern and flexible manufacturing technologies at a higher rate than their strictly commercial counterparts do. 152
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We conclude that the legacy of the 1980s defense buildup has been the generation of an industrial complex poised to exploit certain quite common kinds of commercial markets— those involving customized durable goods—in a post-Cold War era of flexible manufacturing. In the MDG sector, DOD has provided a more supportive environment for long-term investments and the transfer of technology than occurs for firms engaged in strictly commercial customer-supplier relations. Moreover, we find little evidence to support the widely held contention that government contracting procedures have forced a divide in the organization of military and commercial production for the vast majority of contractors. The policy challenge will be to find new ways to promote such supportive inter-firm exchanges outside the defense contracting network.
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The integration of defense and commercial manufacturing activities may not be viewed as uniformly beneficial to society or even to the economy as a whole. For the stance, the degree of integration we find at the end of the Cold War may reflect as much on the weaknesses of producers in commercial markets as on the capabilities of defense contractors or the influence of the Pentagon as an important buyer for this sector during the 1980s. We have focused here on the narrower questions involved in identifying the extent to which integrated dual-use capabilities exist among defense contract and the degree of overlap between the competitive and technical environments of the defense and commercial industrial spheres. Further research is needed to inform debates concerning the need for post-Cold war industrial technology policies. Policy discussions about the feasibility of the integration of military and commercial production and the barriers to defense conversion diversification would benefit from more realistic assessments of the nature of the competitive environment that commercial enterprises face and the kinds of interdependencies among firms that are important to industry performance. Our study is the first to do so for a large cross-section of U.S. industry in a key sector. We think that other studies should be pursued, particularly in such processes as microelectronics and telecommunications. In our view, too much attention has been given to a few high profile cases and too little attention to analyses of the broader industrial base. If our findings for the MDG sector hold true for manufacturing as a whole, we see few technical or organizational barriers to converting most defense plants to further serve commercial markets. Pricing of technology In most licensing situations payments have to be made by the licensee to the licensor. The payments represent compensation to the licensor for allowing use of industrial property rights or valuable intellectual property by the licensee and providing necessary technical assistance to enable the licensee to produce as per agreed terms. Generally there is likely to be some financial return for proprietary knowledge or “ other forms of intellectual property to the licensor. The process by which this return is determined and agreed to by both licensor 153
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and licensee is crucial to the licensing process. It is, however, not an area that is always amenable to the application of scientific rules, since licensing negotiations are subject to human factor, supply and demand conditions in the market and bargaining power of both the partners. In addition, pricing and negotiating in general is subject to the extent of support being available to both buyer and seller. Categories of Payments Payments for the technology may be divided into three broad categories, although in practice an agreement may involve a combination of all three : lump sum payment, royalties and fees. Lump sum Payment: Lump sum payments, by definition, are calculated in advance, though the agreed sum may be paid in installments. This method may be appropriate whereat is desired to obtain the technology by outright purchase. It may also be a means of obtaining the data on a patented process. Traditional reasons for down payment or lump sum payments are as follows :
Down payment is a transfer cost representing the specific costs borne by the licensor to prepare a “technology package” for the licensee. Costs could arise from preparing drawings, specification lists, operating manuals,, on-site training of personnel etc.
Down payment acts as a surety, in case licensee defaults on the term royalties, delays in business operations, fails to go into operation after receipt of know-how or undergoes liquidation. By down payment the licensor reduces the risk of surrendering valuable technology. It is an advance collection of minimum royalties on estimated turnover of the licensor.
The licensor may not be in a position to verify licensee’s accounts and thus prefers a one time transfer fee. The licensed product may be sold internally in the enterprise and detailed sales/production records may not be maintained for such sales. The economic, legal and regulatory environment of the country of the licensee may also influence the collection of lump sum payments. These include stability of national currency or that of exchange rates, regulatory policies of the host country, different levels of taxation etc. Fees Fee for technology which may be remunerated specifically include training, whether in the licensor’s or in the licensee’s works, the position for technical experts required to introduce the technology and fee for expert assistance in the setting up of associated research 154
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and development, design and engineering services. Any fees payable for the management of the plant, purchasing of inputs, etc. are a separate matter, to be distinguished from those of technology fees. Fees related to foreign personnel should be calculated on the number of hours of such services which are agreed upon.
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The three ways of payment are three alternatives. In the end, it is the total payment to be made by the licensee by whatever means and over whatever period, that matters to both the parties. 5.10ARRANGING FINANCIAL ASSISTANCE: – SOURCES - OPTION FUND – ANGEL INVESTMENT- FINANCE SYNDICATION – LOAN VENTURE CAPITAL AND DEBTS– GRANTS - INCENTIVES Private equity Financial market participants Investors Hedge funds Private equity Venture capital Speculation Institutional investors Banks Collective investment schemes Credit Unions Insurance companies Investment banks Pension funds Prime Brokers Trusts Finance series Financial market Participants Corporate finance Personal finance Public finance Banks and Banking Financial regulation 155
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In finance, private equity is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange. There are a wide array of types and styles of private equity and the term private equity has different connotations in different countries. Types of Private Equity Private equity investments can be divided into the following categories:
Leveraged buyout, LBO or Buyout: refers to a strategy of making equity investments as part of a transaction in which a company, business unit or business assets is acquired from the current shareholders typically with the use of financial leverage. The companies involved in these transactions are typically more mature and generate operating cash flows.
Venture capital: a broad subcategory of private equity that refers to equity investments made, typically in less mature companies, for the launch, early development, or expansion of a business. Venture Capital is often sub-divided by the stage of development of the company ranging from early stage capital used for the launch of start-up companies to late stage and growth capital that is often used to fund expansion of existing business that are generating revenue but may not yet be profitable or generating cash flow to fund future growth.[2]
Growth capital: refers to equity investments, most often minority investments, in more mature companies that are looking for capital to expand or restructure operations, enter new markets or finance a major acquisition without a change of control of the business.
Other Strategies
Other strategies that can be considered private equity or a close adjacent market include:
Distressed or Special situations: can refer to investments in equity or debt securities of a distressed company, or a company where value can be unlocked as a result of a one-time opportunity (e.g., a change in government regulations or market dislocation). These categories can refer to a number of strategies, some of which straddle the definition of private equity.
Mezzanine capital: refers to subordinated debt or preferred equity securities that often represents the most junior portion of a company’s capital structure that is senior to the company’s common equity.
Real Estate: in the context of private equity this will typically refer to the riskier end of the investment spectrum including “value added” and opportunity funds where the investments often more closely resemble leveraged buyouts than traditional real estate investments. Certain investors in private equity consider real estate to be a separate asset class. 156
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Secondary investments: refer to investments made in existing private equity assets including private equity fund interests or portfolios of direct investments in privately held companies through the purchase of these investments from existing institutional investors. Often these investments are structured similar to a fund of funds.[3]
Infrastructure: investments in various public works (e.g., bridges, tunnels, toll roads, airports, public transportation and other public works) that are made typically as part of a privatization initiative on the part of a government entity.[4][5][6]
Energy and Power: investments in a wide variety of companies (rather than assets) engaged in the production and sale of energy, including fuel extraction, manufacturing, refining and distribution (Energy) or companies engaged in the production or transmission of electrical power (Power).
Merchant banking: negotiated private equity investment by financial institutions in the unregistered securities of either privately or publicly held companies.[7]
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.Liquidity in the private equity market The private equity secondary market (also often called private equity secondaries) refers to the buying and selling of pre-existing investor commitments to private equity and other alternative investment funds. Sellers of private equity investments sell not only the investments in the fund but also their remaining unfunded commitments to the funds. By its nature, the private equity asset class is illiquid, intended to be a long-term investment for buy-and-hold investors. For the vast majority of private equity investments, there is no listed public market; however, there is a robust and maturing secondary market available for sellers of private equity assets. Increasingly, secondaries are considered a distinct asset class with a cash flow profile that is not correlated with other private equity investments. As a result, investors are allocating capital to secondary investments to diversify their private equity programs. Driven by strong demand for private equity exposure, a significant amount of capital has been committed to secondary investments from investors looking to increase and diversify their private equity exposure. Private equity fundraising Private equity fundraising refers to the action of private equity firms seeking capital from investors for their funds. Typically an investor will invest in a specific fund managed by a firm, becoming a limited partner in the fund, rather than an investor in the firm itself. As a result, an investor will only benefit from investments made by a firm where the investment is made from the specific fund that they have invested in.
Fund of funds. These are private equity funds that invest in other private equity funds in order to provide investors with a lower risk product through exposure to a large number of vehicles often of different type and regional focus. Fund of funds accounted for 14% of global commitments made to private equity funds in 2006 according to Private Equity Intelligence Ltd. 157
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Individuals with substantial net worth. This is often required by the law as well, since private equity funds are generally less regulated than ordinary mutual funds. For example in the US, most funds require potential investors to qualify as accredited investors, which requires $1 million of net worth, $200,000 of individual income, or $300,000 of joint income (with spouse) for two documented years and an expectation that such income level will continue.
As fundraising has grown over the past few years, so too has the number of investors in the average fund. In 2004 there were 26 investors in the average private equity fund, this figure has now grown to 42 according to Private Equity Intelligence Ltd. It is also worth noting that the managers of private equity funds themselves will also invest in their own vehicles, typically providing between 1–5% of the overall capital. Often private equity fund managers will employ the services of external fundraising teams known as placement agents in order to raise capital for their vehicles. The use of placement agents has grown over the past few years, with 40% of funds closed in 2006 employing their services according to Private Equity Intelligence Ltd. Placement agents will approach potential investors on behalf of the fund manager, and will typically take a fee of around 1% of the commitments that they are able to garner. The amount of time that a private equity firm spends raising capital varies depending on the level of interest amongst investors for the fund, which is defined by current market conditions and also the track record of previous funds raised by the firm in question. Firms can spend as little as one or two months raising capital where they are able to reach the target that they set for their funds relatively easily, often through gaining commitments from existing investors in their previous funds, or where strong past performance leads to strong levels of investor interest. Other managers may find fundraising taking considerably longer, with managers of less popular fund types (such as European venture fund managers in the current climate) finding the fundraising process more tough. It is not unheard of for funds to spend as long as two years on the road seeking capital, although the majority of fund managers will complete fundraising within nine months to fifteen months. Once a fund has reached its fundraising target, it will have a final close. After this point it is not normally possible for a new investor to invest in the fund, unless they were to purchase an interest in the fund on the secondary market. Size of industry A record $365bn of private equity was invested globally in 2006 up nearly three times on the previous year. Private equity fund raising also surpassed prior years in 2006 and totaled $335bn, up a quarter on 2005. Improved market confidence and trading conditions and strong performance along with stable long-term returns have contributed to this growth. Buyouts have accounted for a growing portion of private equity investments by value in recent years, and increased their share of investments from a fifth to more than 158
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four-fifths between 2000 and 2006. By contrast, the share of early stage or venture capital investment has declined during this period.
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The regional breakdown of private equity activity shows that in 2006, North America accounted for around 60% of global private equity investments (down from 67% in 2000) and 47% of funds raised (down from 69%). Between 2000 and 2006, Europe increased its share of investments (from 21% to 24%) and funds raised (from 21% to 44%). This was largely a result of strong buyout market activity in Europe. In recent years, there has been a rise in the importance ofAsia-Pacific and emerging markets as investment destinations, particularly China, Singapore, South Korea and India. Asia-Pacific’s share of investments increased from 6% to 14% during this period while its share of funds raised remained unchanged at around 8%. The biggest fund type in terms of commitments garnered was buyout, with 188 funds raising an aggregate $212 billion. So-called mega buyout funds contributed a significant proportion of this amount, with the ten largest funds of 2006 raising $101 billion alone— 23% of the global total for 2006. Other strong performers included real estate funds, which grew 30% from already strong 2005 levels, raising an aggregate $63 billion globally. The only fund type to not perform so well was venture, which saw a drop of 10% from 2005 levels. In terms of the regional split of fundraising, the majority of funds raised in 2006 were focusing on the American market, with 62% of capital raised in 2006 focusing on the US. European focused funds account for 26% of the global total, whilst funds focusing on Asia and the Rest of World account for the remaining 11%. Venture capital is considered a subset of private equity focused on investments in new and maturing companies. Mezzanine capital is similar class of alternative investment focused on structured debt securities in private companies. Private equity firms According to an updated 2008 ranking created by industry magazine Private Equity International (published by PEI Media called the PEI 50), the largest private equity firm in the world today is The Carlyle Group, based on the amount of private equity directinvestment capital raised over a five-year window. As ranked in this article, the largest 10 private equity firms in the world are: 1. The Carlyle Group 2. Goldman Sachs Principal Investment Area 3. TPG 4. Kohlberg Kravis Roberts 159
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5. CVC Capital Partners 6. Apollo Management 7. Bain Capital 8. Permira 9. Apax Partners 10. The Blackstone Group The full list is located here. Because private equity firms are continuously in the process of raising, investing and distributing their private equity funds, capital raised can often be the easiest to measure. Other metrics can include the total value of companies purchased by a firm or an estimate of the size of a firm’s active portfolio plus capital available for new investments. As with any list that focuses on size, the list does not provide any indication as to relative investment performance of these funds or managers. Private equity fund performance In the past the performance of private equity funds has been relatively difficult to track, as private equity firms are under no obligation to publicly reveal the returns that they have achieved from their investments. In the majority of cases the only groups with knowledge of fund performance were investors in the funds, academic institutes (as CEPRES Center of Private Equity Research) and the firms themselves, making comparisons between various different firms, and the establishment of market benchmarks to be a difficult challenge. The application of the Freedom of Information Act (FOIA) in the certain states in the United States, the United Kingdom and other countries, has made certain performance data more readily available. Specifically, FOIA has required certain public agencies to disclose private equity performance data directly on the their websites[13]. The performance of the private equity industry over the past few years differs between funds of different types. Buyout and real estate funds have both performed strongly in the past few years (i.e., from 2003-2007) in comparison with other asset classes such as public equities. In contrast other fund investment types, venture capital most notably, have not shown similarly robust performance. Within each investment type, manager selection (i.e., identifying private equity firms capable of generating above average performance) is a key determinant of an individual investor’s performance. Historically, performance of the top and bottom quartile managers has varied dramatically and institutional investors conduct extensive due diligence in order to assess prospective performance of a new private equity fund.
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It is challenging to compare private equity performance to public equity performance, in particular because private equity fund investments are drawn and returned over time as investments are made and subsequently realized. One method, first published in 1994, is the Long and Nickels Index Comparison Method (ICM). Another method which is gaining ground in academia is the public market equivalent or profitability index. The profitability index determines the investment in public market investments required to earn a target profit from a portfolio of private equity fund investments.
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Venture round used for venture capital financing, by which startup companies obtain investment, generally from venture capitalists and other institutional investors. The availability of venture funding is among the primary stimuli for the development of new companies and technologies. Features Parties
Finders or brokers. Introduce companies to investors. Generally disfavored.
A lead investor, typically the best known or most aggressive venture capital firm that is participating in the investment, or the one contributing the largest amount of cash. The lead investor typically oversees most of the negotiation, legal work, due diligence, and other formalities of the investment. It may also introduce the company to other investors, generally in an informal unpaid capacity.
Co-investors, other major investors who contribute alongside the lead investor
Follow-on or piggyback investors. Typically angel investors, rich individuals, institutions, and others who contribute money but take a passive role in the investment and company management
The company being funded
Law firms and accountants are typically retained by all parties to advise, negotiate, and document the transaction
Stages in a venture round
Introduction. Investors and companies seek each other out through formal and informal business networks, personal connections, paid or unpaid finders, researchers and advisers, and the like.
Offering. The company provides the investment firm a confidential business plan to secure initial interest
Private placement memorandum. A PPM/prospectus is generally not used in the Silicon Valley model
Negotiation of terms. Non-binding term sheets, letters of intent, and the like are exchanged back and forth as negotiation documents. Once the parties agree on terms they sign the term sheet as an expression of commitment. 161
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Signed term sheet. These are usually non-binding and commit the parties only to good faith attempts to complete the transaction on specified terms, but may also contain some procedural promises of limited (30-60 day) duration like confidentiality, exclusivity on the part of the company (i.e. the company will not seek funding from other sources), and stand-still provisions (e.g. the company will not undertake any major business changes or enter agreements that would make the transaction infeasible).
Definitive transaction documents. A drawn-out (usually 2-4 weeks) process of negotiating and drafting a series of contracts and other legal papers used to implement the transaction. In theory these simply follow the terms of the term sheet. In practice they contain many important details that are beyond the scope of the major deal terms.
Definitive documents, the legal papers that document the final transaction. Generally includes:
Stock purchase agreements - the primary contract by which investors exchange money for newly minted shares of preferred stock
Buy-sell agreements, co-sale agreements, right of first refusal, etc. - agreements by which company founders and other owners of common stock agree to limit their individual ability to sell their shares in favor of the new investors
Investor rights agreements - covenants the company makes to the new investors, generally include promises with respect to board seats, negative covenants not to obtain additional financing, sell the company, or make other specified business and financial decisions without the investors’ approval, and positive covenants such as inspection rights and promises to provide ongoing financial disclosures
Amended and restated articles of incorporation - formalize issues like authorization and classes of shares and certain investor protections
Due diligence. Simultaneously with negotiating the definitive agreements, the investors examine the financial statements and books and records of the company, and all aspects of its operations. They may require that certain matters be corrected before agreeing to the transaction, e.g. new employment contracts or stock vesting schedules for key executives. At the end of the process the company offers representations and warranties to the investors concerning the accuracy and sufficiency of the company’s disclosures, as well as the existence of certain conditions (subject to enumerated exceptions), as part of the stock purchase agreement.
Final agreement occurs when the parties execute all of the transaction documents. This is generally when the funding is announced and the deal considered complete, although there are often rumors and leaks.
Closing occurs when the investors provide the funding and the company provides stock certificates to the investors. Ideally this would be simultaneous, and contemporaneous with the final agreement. However, conventions in the venture community are fairly lax with respect to timing and formality of closing, and generally depend on the goodwill of the parties and their attorneys. To reduce cost and 162
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speed up transactions, formalities common in other industries such as escrow of funds, signed original documents, and notarization, are rarely required. This creates some opportunity for incomplete and erroneous paperwork. However, disputes are rare and few if any deals unravel between final agreement and closing. Some transactions have “rolling closings” or multiple closing dates for different investors. Others are “tranched,” meaning the investors only give part of the funds at a time, with the remainder disbursed over time subject to the company meeting specified milestones.
Post-closing. After the closing a few things may occur
Conversion of convertible notes. If there are outstanding notes they may convert at or after closing.
securities filing with relevant state and/or federal regulators
Filing of amended Articles of Incorporation
Preparation of closing binder - contains documentation of entire transaction
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Rights and privileges Venture investors obtain special privileges that are not granted to holders of common stock. These are embodied in the various transaction documents. Common rights include:
Anti-dilution protection - if the company ever sells a significant amount of stock at a price lower than the investor paid, then to protect investors against stock dilution they are issued additional shares (usually by changing the “conversion ratio” used to calculate their liquidation preference). There are various formulas including full ratchet and “weighted average”
guaranteed board seats
positive and negative covenants by the company
registration right - the investors have special rights to demand registration of their stock on public exchanges, and to participate in an initial public offering and subsequent public offerings
representations and warranties as to the state of the company
Liquidation preferences - in any liquidation event such as a merger or acquisition, the investors get their money back, often with interest and/or at a multiple, before common stock is paid any funds from liquidation. The preference may be “participating”, in which case the investors get their preference and their proportionate share of the surplus, or “non-participating” in which case the preference is a floor.
dividends - dividend amounts are usually stated but not mandatory on the part of the company, except that the investors will get their dividends before any dividends may be declared for common stock. Most venture-backed start-ups are initially unprofitable so dividends are rarely paid. Unpaid dividends are generally forgiven but they may be accumulated and are added to the liquidation preference. 163
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Round names Venture capital financing rounds typically have names relating to the class of stock being sold:
Seed round where company insiders provide start-up capital
Angel round where early outside investors buy common stock
Series A, Series B, Series C, etc. Generally, the progression and price of stock at these rounds is an indication that a company is progressing as expected. Investors become concerned when a company has raised too much money in too many rounds, considering it a sign of delayed progress.
Series A’, B’, and so on. Indicate small follow-on rounds that are integrated into the preceding round, generally on the same terms, to raise additional funds.
Series AA, BB, etc. Generally used to denote a new start after a crunchdown or down round, i.e. the company failed to meet its growth objectives and is essentially starting again under the umbrella of a new group of funders.
mezzanine finance rounds, bridge loans, and other debt instruments used to support a company between venture rounds or before its initial public offering
Topics on Private Equity and Venture Capital Basic Investment Types: Buyout • Venture • Growth • Mezzanine • Secondaries Terms & Concepts: 1. Buyout Financial sponsor • Management buyout • Divisional buyout • Private Investment in Public Equity (PIPE) 2. Venture Seed money • Startup company • Angel capital • Angel investor • Venture capital financing • Pre-money valuation • Post-money valuation • Venture round 3. Structure Private equity firms and funds • Limited partnership • Limited liability company • Carried interest Investors: Institutional Investors • Pension funds • Insurance Companies • Endowments • Fund of funds
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Related financial terms:
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Initial Public Offering (IPO) • Mergers and Acquisitions • Leverage • High Yield Debt • Capital structure Lists : Private Equity and Venture Capital Investors • Private equity firms • Venture capital firms Pre-money valuation A pre-money valuation is a term used in private equity or venture capital that refers to the valuation of a company or asset prior to an investment or financing. External investors, such as venture capitalists and angel investors will use a pre-money valuation to determine how much equity to demand in return for their cash injection to an entrepreneur and his or her startup company. This is calculated on a fully diluted basis. Example For example, if an investor makes a $10 million investment into a company in return for 20% of the company’s equity, the implied post-money valuation is $50 million. To calculate the pre-money valuation, the amount of the investment is subtracted from the post-money valuation. In this case, the implied pre-money valuation is $40 million. The process to commercially exploit research varies widely. It can involve licensing agreements or setting up joint ventures and partnerships to share both the risks and rewards of bringing new technologies to market. Other corporate vehicles, e.g. spin-outs, are used where the host organization does not have the necessary will, resources or skills to develop a new technology. Often these approaches are associated with raising of venture capital (VC) as a means of funding the development process, a practice more common in the US than in the EU, which has a more conservative approach to VC funding. In recent years, there has been a marked increase in technology transfer intermediaries specialized in their field. They work on behalf of research institutions, governments and even large multinationals. Where start-ups and spin-outs are the clients, commercial fees are sometimes waived in lieu of an equity stake in the business. As a result of the potential complexity of the technology transfer process, technology transfer organizations are often multidisciplinary, including economists, engineers, lawyers, marketers and scientists. The dynamics of the technology transfer process has attracted attention in its own right, and there are several dedicated societies and journals.
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ANGEL INVESTOR An angel investor or angel (known as a business angel or informal investor in Europe), is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital. Description Source and extent of funding Angels typically invest their own funds, unlike venture capitalists, who manage the pooled money of others in a professionally-managed fund. Although typically reflecting the investment judgment of an individual, the actual entity that provides the funding may be a trust, business, limited liability company, investment fund, etc. Angel capital fills the gap in start-up financing between “friends and family” (sometimes humorously called “friends, family, and fools”) who provide seed funding, and venture capital. Although it is usually difficult to raise more than a few hundred thousand dollars from friends and family, most traditional venture capital funds are usually not able to consider investments under US$1–2 million. Thus, angel investment is a common second round of financing for high-growth start-ups, and accounts in total for almost as much money invested annually as all venture capital funds combined, but into more than ten times as many companies (US$25.6 billion vs. $26.1 billion in the US in 2006, into 51,000 companies vs. 3,522 companies. Of the 51,000 US companies that received angel funding in 2006, the average capital raised was about US$500,000. Healthcare services, and medical devices and equipment accounted for the largest share of angel investments, with 21 percent of total angel investments in 2006, followed by software (18 percent) and biotech (18 percent). The remaining investments were approximately equally weighted across high-tech sectors. Investment profile Angel investments bear extremely high risk, and thus require a very high return on investment. Because a large percentage of angel investments are lost completely when early stage companies fail, professional angel investors seek investments that have the potential to return at least 10 or more times their original investment within 5 years, through a defined exit strategy, such as plans for an initial public offering or an acquisition. Current ‘best practices’ suggest that angels might do better setting their sights even higher, looking for companies that will have at least the potential to provide a 20x-30x return over a fiveto seven-year holding period. After taking into account the need to cover failed investments and the multi-year holding time for even the successful ones, however, the actual effective internal rate of return for a typical successful portfolio of angel investments might, in reality, be as ‘low’ as 20-30%. While the investor’s need for high rates of return on any given 166
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investment can thus make angel financing an expensive source of funds, cheaper sources of capital, such as bank financing, are usually not available for most early-stage ventures, which may be too small or young to qualify for traditional loans.
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Profile of investor community The term “angel” originally comes from England where it was used to describe wealthy individuals who provided money for theatrical productions. In 1978, William Wetzel, then a professor at the University of New Hampshire and founder of its Center for Venture Research, completed a pioneering study on how entrepreneurs raised seed capital in the USA, and he began using the term “angel” to describe the investors that supported them. Angel investors are often retired entrepreneurs or executives, who may be interested in angel investing for reasons that go beyond pure monetary return. These include wanting to keep abreast of current developments in a particular business arena, mentoring another generation of entrepreneurs, and making use of their experience and networks on a lessthan-full-time basis. Thus, in addition to funds, angel investors can often provide valuable management advice and important contacts. According to the Center for Venture Research, there were 234,000 active angel investors in the U.S. in 2006. Beginning in the late 1980s, angels started to coalesce into informal groups with the goal of sharing deal flow and due diligence work, and pooling their funds to make larger investments. Angel groups are generally local organizations made up of 10 to 150 accredited investors interested in early-stage investing. In 1996 there were about 10 angel groups in the U.S.; as of 2008 there are over 300, with a roughly equal number in all other countries combined; these groups accounted for approximately 10,000 individual angel investors in 2008. The more advanced of these groups have full time, professional staffs; associated investment funds; sophisticated web-based platforms for processing funding applications; and annual operating budgets of well over US$250,000. A recent development, particularly in North America, has been the emergence of networks of angel groups, through which companies that apply for funding to one group are then brought before other groups to raise additional capital. Summary
The assistance available in implementing technologies which have an important bearing upon the effectiveness and efficiency of technology transfers.
Intellectual property Management characterize the intellectual protectionism or intellectual monopoly
IP related issues like rights, litigations, royalty audits and auctions argue the public interest is taken care by protectionist legislation.
Market/feasibility studies bring out the cost benefit analysis.
Product marketing enables the awareness of the new technology and product. 167
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DBA 1734
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Technology valuation, its methods, Contract negotiation, Subcontracting and sublicense brings out the pricing criteria involved.
Technology investment practices reflect the investment judgment of an individual.
Finally arranging financial assistance sources, option fund, angel investment , Finance syndication, loan, venture capital, debts, grants and incentives are dealt.
Review questions 1. What is the assistance available in implementing technologies? 2. Discuss the role of intellectual property as applied to technology transfer 3. How can IP related help in intellectual monopoly? 4. Explain Market/feasibility studies in technology transfer? 5. Product marketing enables the awareness of the new technology and product? 6. Explain technology valuation and the pricing criteria involved? 7. What are the technology investment practices ? 8. What are financial assistance available and the methods of payment for a technology?
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