What are the external sources of innovation?

1. What are external sources of technology and innovation development, and when are they best used?

The external processes for developing and acquiring technology and innovation include a variety of options. They are most successfully used under the following circumstances:

1. The product line or the processes of the firm have fallen behind those of its competitors.
2. A new entrant into the market of the industry has changed the competitive dynamics.
3. A firm believes that its product mix or way of doing things is not going to be successful in the long run.

The major advantage of using an external process is speed—for the focal firm, the time needed to blend an acquired technology or innovation is usually much shorter than the time required to try to make a discovery and bring it to market or implement it within the firm. Often, the external processes are less costly. The disadvantages are tied to the need to blend different firms or bring “others” into the activities of the firm. For example, there may be cultural conflicts in an acquisition or there may be resistance to acceptance of the newness that is brought into the firm.

The most common types of external processes used to enhance technology and innovation in a firm include:

1. Mergers/acquisitions (M&A), which involve ownership changes within the firms. For an acquisition, one firm buys another; for a merger, the two firms come together and form a new firm. The essence of both of these approaches is that a new, larger organizational entity is formed. The new firm should have more market power (be larger) and should gain knowledge about a technology or domain of activity. The blending of two cultures, two sets of processes, and two structures are all potential disadvantages of M&A activity.
2. Joint ventures are long-term alliances that involve the creation of a new entity to specifically carry out a product/process innovation. The entity is usually governed by a contractual relationship that specifies the contributions and obligations of the partners in the joint venture. There are potential culture clashes as well as the potential for strategic drift—losing strategic focus on the reasons for the joint venture.
3. Franchise agreements are usually long-term agreements that involve long payoffs for the sharing of known technology. Fast food restaurants, such as McDonald’s, use franchise agreements with store owners. McDonald’s provides R&D for new processes and new products. The store owners (franchisees) pay a fee for the use of the name and the marketing of the product. The contract and monitoring costs associated with franchise agreements are the big disadvantage of this type of alliance.
4. Licensing agreements involve technology acquisition without R&D. For example, Dolby contracts with producers of various type of sound equipment to allow them to use their technology to have better sound quality. Licensing agreements are quite common in high-tech industries. The contract costs and constraints are the disadvantages of licensing agreements.
5. Formal and informal contracts are used to allow firms to share technology between them. For formal contracts, the length of time the contract is enforceable is a defining characteristic. The more formal a contract, usually the longer it is, and it usually includes more details about the usage and limitations of the technology. For the informal contract, the advantage is that if the activity is no longer beneficial, it is much easier to disband.

All of the methods are of use to firms large and small. In the opening case, Acer used a number of methods to externally acquire technology.

Concept Check

Look at the Acer case at the beginning of the chapter and respond to the following items.

1. Identify the times Acer used external methods of acquiring newness for their organization.
2. What goals did they accomplish?

Our primary source of ideas for innovation is founded in the challenges and concerns of our clients and staff. ABS began thirty-one years ago based upon the observation that a large amount of a researcher’s time was often spent growing cells and sourcing and preparing tissues (both animal and human) prior to even beginning an actual experiment. These tasks delayed discovery and expended valuable resources. This knowledge led us to become the first company to address this problem by providing custom cell culture services, prepared membranes and cell extracts, and founding a global network of human biospecimen collection sites. Today, such outsourcing is commonplace. In 1990, it was highly innovative.

In addition to the voices of our clients and associates, we also look outside our industry to see how others have solved their problems. Through these insights we continue to improve our IT, inventory, and other systems along with our business processes. There are many examples of innovations that began in one industry and were applied to other industries. Gaming controllers have morphed into car navigation and media systems. Subscription models for magazines have been applied to software and various services. Car rental models have been applied to vacation homes. Apple Music and similar formats evolved from pirated music minus the legal and ethical issues. Blockchain for cryptocurrency has applications in clinical trial data management. The permutations are nearly endless.

Decades ago, we used the concept of just in time inventory management. This concept was used in many industries, but it was not generally applied to human biospecimens collections. ABS formed a large global biospecimen network to quickly collect samples across a large network rather than storing most of them in a central location in hopes that they might be utilized. At about the same time, several companies had attempted to store large quantities of samples but failed in part because biospecimens were too often collected in ways that did not meet researchers’ specifications as technologies, data needs, and consent requirements changed. The unfortunate result was that expensive collections with substantial storage costs were not useful for many research applications. Our network solved this problem by quickly providing highly customizable collections.

It is hubris to think all good ideas must originate with ABS. Competitors may also have good ideas. Although we were the first company to provide cells, tissues, and their extracts for biomedical research, our goal is not necessarily to be first with an idea, but rather to be the best at what we do for our clients. For over three decades, we continue to look for ways to deliver more value to our clients. We invite our clients to share your needs and frustrations so that we can help speed your research.

What is external innovation?

What are the 5 main sources of innovation?

What are the 4 sources of innovation?

What is external focus on innovation?