How to Develop a Successful Technology
Six practices can help companies implement licensing as part of an open innovation strategy.
BY ULRICH LICHTENTHALER, HOLGER ERNST AND JAMES CONLEY
In today’s challenging economy, many industrial companies are trying
to capture additional value from their technologies by licensing their
intellectual property to other organizations, including direct competitors. Such outward transfer of a company’s own proprietary technology
has only recently become an important dimension of corporate strategy, as part of a trend toward open innovation. (Open innovation can
involve both bringing knowledge from outside into the corporation
and also transferring technologies from within the corporation to external partners.) By licensing their proprietary technology, companies
attempt to achieve a sufficient return on R&D, and licensing often goes
beyond a marginal activity involving residual technology.
Some companies license technology primarily to achieve additional revenues. A few, such as Hewlett-Packard and Dow Chemical,
generate hundreds of millions of dollars in annual royalties. Other
companies license technology primarily to achieve strategic benefits, such as establishing a technology standard in an industry,
entering new markets or cross-licensing to gain access to external
knowledge. Despite these potential benefits, licensing also involves
substantial risks. In particular, a company that transfers its “
corporate crown jewels” — in other words, competitively relevant
technology — may weaken its strategic position by strengthening
potential competitors. For that reason, many companies traditionally have been reluctant to transfer technology.
Even companies that are actively seeking to license technology
frequently fail to reap benefits from their efforts. Companies often
have difficulty identifying licensing opportunities and potential licensees. A company owns a potential technological solution for
specific problems, yet it faces the challenge of identifying other profitable applications, which may be in completely different industries.
What’s more, transferring technology is a complex process, and the
licensor often needs to actively support the technology adoption at
the licensee. These managerial challenges underscore the importance of organizing technology licensing activities effectively.
To identify organizational success factors for technology licensing,
we conducted a benchmarking study in medium-sized and large industrial European companies. After analyzing the academic and
managerial literature on technology licensing, we carried out explor-
atory interviews with 35 experts in 25 companies to gain a detailed
understanding of organizing for technology licensing. Then we conducted a questionnaire-based benchmarking study among licensing
and intellectual property managers. Of the 412 companies contacted,
usable responses were received from 136 companies, for a response
rate of 33%. A profile of the final sample shows a reasonable spread
across industries: automotive and machinery (42%), chemicals and
pharmaceuticals (28%), electronics and semiconductors (18%) and
other (12%). After analyzing the study results, we conducted further
interviews in 10 companies to discuss the findings.
Six Essential Success Factors
The findings from our study underscore that strategic intent alone is
insufficient for profiting from licensing; companies also need to organize effectively for technology licensing. After examining a range of
factors in the study, we identified six organizational factors that have a
strong positive effect on companies’ licensing performance. These six
success factors make it more likely that companies will overcome the
managerial difficulties inherent in actively licensing technology.
1. Assigning dedicated employees. Some companies assign
dedicated employees to work full-time on identifying licensing opportunities and implementing licensing deals. These employees are
the contact persons for all issues concerning licensing.
2. Leveraging external networks. Companies may rely on their