Alliances/Partnerships and Innovation
For various reasons (technological barriers, cost, time to market, uncertainty about the final result, market immaturity, complexity of the industrialization phase, etc.) a company may hesitate to take the risk to start a project of innovation on its own.
Yet the Alliance/Partnership model is a common way to organize the exploration phase, often uncertain, of a given innovation project.
Of self-reliance to the opening
It becomes clear to a vast majority of leaders that innovation is in need of diversity, i.e. external inputs.
Let us recall that innovation is not only technical (or technology), it is also about the way going to market, the economic model that the company will use to monetize its offer, the positioning of its offer in the value chain, the services related to this offer, the corresponding manufacturing processes, etc.
Actually a whole range of areas where to look what is best, or simply different, outside its usual perimeter, including beyond its core business, may give the company a decisive competitive advantage.
Thus a well-organized and proactive process to “connect” the company to outside innovation will enable it:
(A) to identify sources of innovation (technology, product, service, expertise, etc.), or elements of innovation, to differentiate its offering, improve its positioning, create a new market or a new usage, to expand to adjacent markets, etc.
(B) to “capture” the expertise of these sources before the competition does it.
Good practices that allow achieving point A are supported by methods, tools, software platforms, and various concepts of the so-called “Open Innovation” which we refer the reader to and are not discussed here.
But how to capture the expertise of these sources (point B), and if possible with exclusivity (at least for a period of time), falls under two fairly distinct economic models.
Capturing external expertise
To no surprise what can be grouped under the term “financial transaction”: licensing, majority of shares, cross-participation, or even merger/acquisition represents one of the access mode to external expertise.
The second access mode to external innovation is collaborating with the third party who holds the element (technologies, know-how, expertise, means of production, access to the market, etc.) required for the innovation project of the enterprise, eventually leading to a successfully marketed offer.
The list, probably not exhaustive, of the reasons which may lead the company to go for a collaborative relationship rather than going through a financial transaction may be:
- That the company does not have the necessary financing to complete a financial transaction.
- That the third party (innovation’s holder) does not consider a one shot financial operation as sufficiently rewarding, even raising auction among potential buyers, against the potential gains of its innovation in the long term.
- The innovation, or the critical element that will make it possible, provides a competitive advantage to the company only if it is “acquired” through exclusivity, thereby depriving the third party (innovation’s holder) of any other possible operation (and therefore gain).
- The innovation is exploitable in the business of the company only through a close “co-development” (System/Global Solution) between the company and the third party (innovation’s holder).
- The third party (innovation’s holder) wants to, especially in a perspective of learning for the purposes of subsequent evolution, control the adaptation of its innovation to the different possible uses of it, rather than totally “delegating” these, thus losing hands on yet unexplored business potential.
- That the economic risk relating to this innovation and/or the offer in which the company wants to incorporate it implies to share the corresponding investments and, in case of failure, being able to retreat with lesser (or without) cost (staff, equipment, various capital, etc.) that a “financial transaction” would have imposed.
Collaboration between parties does not directly relate to the process of innovation (Open Innovation) initiated by the company, but is actually one of its consequences, i.e.: implementation of the considered innovation requires, at least in part, expertise(s) of external origin(s) without using a financial transaction.
That is indeed what a well conducted Alliance/Partnership strategy can achieve.
After going throughout the innovation process and best practices it is now about applying best practices that will ensure success of the collaboration between independent economic actors.
Moreover the market success of the first (the innovation) eventually relies on the quality of implementing and running the second (the collaboration).
We all know that articulation of competitive advantages between independent economic actors, potential partners, is a mode of operation that is not self-evident.
It is not enough to leverage one’s networks to approach a partner intuitively thought to be the good one, and then gather around a lawyer to immediately write and sign a contract, followed by the mounting of a legal-financial structure.
Instead, successful partnership does require following a precise process, and corresponding best practices, as done for the innovation discovery and qualification phase.
These have been formalized over the past two decades by Alliance Management practitioners, from various industries, who gathered within the Association of Strategic Alliance Professionals (ASAP) to exchange their experience of nurturing and governing successful Strategic Alliances/Partnerships.
Instead of only considering financial/transactional type of relationships innovation leaders must learn to make a much more ambitious use of the Alliance/Partnership model, implementing it in a professionalized way.
CEO BACARAU Consulting
Certified Strategic Alliance Professional/Association of Strategic Alliance Professionals (ASAP)
Co-founder and General Secretary ASAP France chapter