A rich menu of good industry practices awaits companies wishing to initiate or improve their technology sourcing efforts.
OVERVIEW: Interest in capturing external technology is clearly rising within the R&D management community, and companies are exploring many forms of business relationships with external technology sources. However industry practitioners have experienced a number of problems, the most important being the failure to recognize and manage technology sourcing as a strategic business process. The author offers a conceptual model of this increasingly important business process, and presents a number of useful industry practices, identified by an IRI working group, for planning and organizing search efforts, evaluating merits of identified opportunities, negotiating and finalizing agreements, managing collaborative R&D activities, and ensuring organizational learning and improvement.
Recent surveys, publications and conferences clearly indicate that interest in external sources of technology is increasing within the R&D management community (1-6). The Industrial Research Institute (IRI) as well as the European Industrial Research Management Association (EIRMA) have, therefore, organized working groups aimed at identifying and documenting good practices being used by member companies to access external technology. This article is based on the conclusions of a working group of some 20 IRI member companies (which met in July 1994 and January 1995), and supplemented with the author's own observations.
My primary focus here is on the process of finding, evaluating, acquiring, and internalizing useful technical knowledge from external sources to complement or extend internal efforts or to diversify the current business and technology base. Useful technical knowledge may arise in the form of innovative new products, processes or services, specific problem-solving know-how, new scientific or engineering tools and techniques, and/or exploration of new research frontiers.
Outsourcing, on the other hand, generally refers to the hiring of third parties for routine services; e.g., chemical and structural analysis, software development, materials testing and evaluation, etc. This article makes only passing references to management issues associated with R&D outsourcing.
Why the Increasing Interest?
Demand as well as supply factors are fueling the rising interest in external sources of technology. Increased global competition is pushing companies to ever-shorter product and service life cycles, which, in turn, require faster development cycle-time. Companies are recognizing that they must turn to all sources of technology-internal as well as external-to improve speed. Another factor favoring the demand side is the increasing pressure on operating margins and costs. Companies are trying hard to contain or reduce whitecollar wage and benefit cost-and gain operational flexibility-through headcount reduction. Drastically reengineered companies are finding themselves short of technical expertise, sometimes in critical areas, and are turning to outside consultants and organizations for scientific and engineering knowledge. A third factor relates to the desire to pursue technology and business development options in a risk-sharing manner through collaboration with external sources. Finally, reports from industry peers on technology sourcing successes are helping to create greater interest in such efforts.
On the supply side, at least three factors are driving up the availability of technology from external sources. Scientific and engineering knowledge is growing at a rapid rate all over the world in almost all major disciplines. This phenomenon is creating new and useful sources of knowledge and innovation, available for tapping by interested parties, often in seemingly unrelated fields. Another factor favoring the supply side, especially in high-technology areas such as biotechnology, electronics and software, is the availability of venture capital and the formation of numerous start-up companies. …