Platt Perspective on Business and Technology

Innovators, innovation teams and the innovation process 7 – acquiring innovation from outside of the organization 1

Posted in HR and personnel, strategy and planning by Timothy Platt on June 9, 2013

This is my seventh installment in a series on innovators and the process of innovation (see HR and Personnel, postings 154 and following for Parts 1-6.)

I have been focusing up to here in this series on in-house developed and “home grown” innovation.

• That means innovation where all expenses and risk and all asset and resource allocation decisions and commitments that would go into enabling it, have been carried by the organization that would be the principle user and beneficiary of innovation results obtained.
• And that means that in most cases, prioritization on what would be actively worked upon and developed in an innovative, research and development effort would be designed and built so as to specifically fit into the ongoing needs of the developing business. But this also means that any dead-end and failed innovation initiatives would also be carried by that business too.

But in-house innovation as a path to the disruptively new, is not the only available route to accessing and using the fruits of innovation and even with exclusive rights. I initially touched upon the possibilities of acquiring innovation from outside sources, earlier in this series. There, the initial costs and risks of maintaining resources and systems that would be devoted to long-term potential benefits would be reduced and even eliminated for the acquiring business, and they could at least in principle select realized innovation products that look to fit closely with their current and emerging needs. I noted three possible sourcing routes for this type of innovation sourcing. Innovation acquisition through:

1. Collaborative and supportive relationships with outside researchers and developers such as university labs, or through purchase or licensing from third party small business owner innovators,
2. Through acquisitions of smaller, innovative businesses as a whole that hold innovative potential of specific strategic value for the acquiring business, and
3. Through purchase or licensing of innovative potential from larger businesses or organizations.

And my goal for this posting is to begin to at least briefly and selectively outline some of the issues that arise from pursuing these three innovation acquisition channels, with a goal of clarifying the processes and the third party sourcing of innovation per se. I begin this discussion with the complexities of numbered point one above, and with the outright purchase or license acquisition of innovation from university labs. And to clarify my approach to that, I note that I have spent a number of years working at and with research and innovation centers of this type, so I view the issues that arise here from the perspectives of both sides of the business negotiations and transactions table.

At one point, university-based research scientists who developed innovations with commercial potential may have been in a position to operate as more or less independent business owners. But this perhaps mostly mythical state effectively ended when granting agencies, public and private began to financially support college and university-based research as serving a larger societal need, and when research and development began to be seen as significant as a defining source of value for the educational institutions involved in this as a whole.

• The schools that these faculty member/researchers work for have always paid their basic salaries and have in general provided both laboratory and office space and facilities upkeep and maintenance. So the institutions these innovators work for see themselves as holding investment equity in any commercially viable fruits that develop out of the endeavors that they have at least in part financially supported.
• When a researcher applies for and receives outside grant money in support of their research and development efforts, funds received are in fact often divided into two basic domains. One of them comprises the grant’s direct funding that goes more or less directly to the researcher and their laboratory itself, and that are used to purchase equipment and supplies, and to pay salaries of technicians and any postdoctoral fellows working at the lab, plus other expenses directly related to supporting that laboratory’s specific activities. The other, often set as being equivalent to some set percentage of direct funding received, is called indirect funding and this goes to the school – the supporting institution, to help defray its operating and other expenses that it expends in making that research laboratory possible on an ongoing basis, with office support and building maintenance and more included. And for a large university with multiple academic departments that each include multiple active, and actively funded research labs, this can and does add up to substantial incoming revenue flows.
• My point here is that the individual researcher who operates as a research facility member and lab manager, and the institution that they work for are joined in many ways, and one consequence of this is that when an outside business seeks to outright purchase an innovation or invention from a university-based researcher, a great deal of this is going to involve negotiating with and reaching agreement with an office of the university itself that manages this on behalf of the school as a whole as well as for the individual researcher/innovator who works there. Patents that may be in place or pending are acquired through an institutional patent filing and management office and are often jointly held by the researcher and their school employer. At the very least, university-level offices, processes and systems would largely manage their side of any negotiations and agreements reached.

So I initially set up some distinctions between types of innovation sources, and one of them was small and entrepreneurial versus big and institutional – and I immediately begin blurring the lines between them when viewing this as a matter of hands-on, real world transaction detail. Nevertheless, there are some important distinctions here, and I begin addressing that by noting that purchasing and licensing from a university per se can be very different from purchasing from a strictly for-profit commercial enterprise, and certainly where this means coming to agreement with a university that actively operates and runs a startup incubator for launching new business successes out of potentially viable innovation starting points.

• A university system of this type is almost always thinking and planning, and making here-and-now decisions with long-term planning and goals in mind, where a more strictly commercial enterprise selling off an innovation opportunity is more likely to be thinking and planning short-term and particularly if they seek to sell outright and walk away with immediate profits.
• This determines what the sellers in this are looking for and in what timeframes, and that impacts, or at least should meaningfully impact on how the acquiring business negotiates and does business here too.

I am going to continue this discussion in my next series installment where I will look into acquisition of third party innovation from smaller and perhaps still early stage businesses. And I will also at least begin looking into the second numbered point as well, and the complete acquisition of that smaller innovating business too. Meanwhile, you can find this and related postings at HR and Personnel and also at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.

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