INNOVATION


Structure and IP: Keeping Innovation in Sight with Corporate Partnerships

Too many corporate partnerships intended to promote innovation fail, because they do not solidify two critical areas upfront: structure and IP. The agreements are left too vague, making them unmanageable.

partner with academia. Partner with startups. Partner with clients, suppliers, and unrelated businesses. These are all suggested business strategies for developing incredible innovations. But no matter what entity is chosen, partnerships and collaborations need structure and clearcut agreement on complex areas such as sharing of Intellectual Property (IP). Structure and IP are the two main areas that determine the success or failure of new forms of partnerships and collaborations, while creating a strong relationship must be accompanied with accountability and flexibility. Whether partnering with a university or business, a fine balance must be established and nurtured, as the work of the partnership or collaboration pursues innovation while meeting goals.

Structure for a Foundation of Progress

Strategic alliances are agreements between two entities in which they both commit resources to achieve a common set of goals. Partners or collaborators can be almost any group of people, businesses, or institutions. Selecting potential partners is based on the recognition that each can bring opportunities and resources that benefit both. The goals can vary and will influence the structure and sharing of IP, so the first step is mapping reasonable expectations for all the involved parties in a give-and-take negotiation process. According to research by Roosens, Lievens and Dens, the first stages of a co-creation process are the most important ones and will determine the process used. Outcome expectations include innovation, knowledge, and collaboration outcomes. Process expectations are co-creation orientation and themes, structure and timing of the co-creation process, intellectual property, and finances.

Developing the right structure for the partnership or collaboration is based on the outcome expectations. There are different legal ways to structure a partnership, with the typical forms being joint ventures, contracts, and minority equity investments. Negotiations concerning structure determine the investments, processes, flow of information, governance, formation of teams, rights to current and potential IP, and monitoring of progress.

Founded by business executives and now an independent global-reach academic institution, IMD has deep knowledge of corporate partnerships and collaborations based on research. A joint venture structure is selected when there are differences in partner sizes, or when the organizational cultures are different to ensure partners make the right commitment. The recommendation is to recruit independent people for the team instead of using employees from both companies to minimize the risk of culture clashes, conflicts of interest, and the human tendency to prioritize the goals of their own companies. Negotiations on structure should focus more time on the areas of highest risk, such as the business model and structure, as opposed to deal terms.

Contracts can be traditional or non-traditional. The non-traditional contracts include joint R&D, shared services and distribution, and long-term sourcing. IMD research and experience has found that non-equity contracts are chosen when there is high market uncertainty, several possible partners that will need to maintain competition over time, a good organizational fit, and a need to minimize the risk of hurting existing partnerships.

IMD and PricewaterhouseCoopers (PwC) both identify a common pitfall as giving too much attention to one detail at the sake of other issues that bring more value. Negotiations tend to spend considerable time building partnership models to support negotiations of deal terms, and those terms stray from larger factors that could have an impact on the partnership. PwC also names two other common issues. One is that the partnership team is not clearly defined, so confusion and inefficiency results. The second is a failure to fully consider the key regulatory, accounting, and legal issues.

Before and After IP

Points of contention are almost always the protection and sharing of Intellectual Property. There are two aspects to IP sharing. Background IP is the intellectual property each partner brings to the agreement. The foreground IP is intellectual property the partners develop together. The business should consider whether the IP that results from the collaboration will need a license, in context of the IP brought to the partnership. During the project, the work needs careful documentation, to track what was brought to the process and what is created, to ensure no one takes control of the existing IP and that all new IP is managed under the terms of the collaboration agreement.

IP sharing is a particularly difficult area of corporate partnerships. Corporate partners will say they funded the project so they should own the IP. Their partners say they invested in the collaboration and produced the innovation, so they should own the IP. Resolving the different perspectives is challenging. There are five IP collaboration models to choose from. They are IP licensing (technology licensing to convey a transfer of technology), IP-based component business (for offering licensed products embedded with technology rights), contract R&D, and joint venture (which is the most collaborative arrangement, in which IP assets are combined). Recommendations for choosing the best IP partnership arrangement include recognizing this is a strategic decision; considering a broad set of IP models; evaluating models on a range of risk criteria and on business, legal, and financial criteria; considering the potential target partners; and investigating prioritized models by testing with the right people and getting feedback from potential partners.

Partnerships and Collaborations Require Trust

Every successful partnership and collaboration for developing innovation has a strong trust element. Trust is built on actions such as accountability, follow-through, respecting boundaries, and communication. Even the best structured agreement can fail, when a partnership is not nurtured. Though the formal agreement is essential to getting the process started, the scope of any agreement is going to shift over time. Sometimes, restructuring is needed as the partnership progresses because markets may shift, new technologies emerge, new opportunities arise, unforeseeable challenges develop, and/or the partnership team is caught in a conflict between the partnering companies. Despite the risks, partnerships are one of the best ways to co-create innovation because they fill gaps in capabilities and bring diverse perspectives.