How can your R&D program benefit from external tech?

We frequently talk about the importance of having a culture of innovation that allows a business to generate and commercialise new ideas. This innovation doctrine usually focuses on gaining first-mover advantage and brings to mind a singular approach to R&D: in-house innovation, from-scratch, where a business develops a technology, incubates it, and brings it to market.

 In reality, there are alternative options to the ‘’innovation from scratch’’ model. These generally involve taking advantage of externally generated knowledge. When used with caution, such approaches can make for a highly competitive R&D strategy.

The use of strategic alliances

Entering strategic alliances and collaborating with outside partners is one way to access external knowledge to advance an R&D program. This can be a valuable prong in the R&D strategy when outcomes are mutually beneficial, and when specific capabilities or facilities are absent from a business.

The readiness of Australian businesses to enter such strategic alliances is a bit of a mixed bag. The 2019 Global Innovation Index[i] (GII), an annual ranking of countries by their capacity for, and success in, innovation, has us ranked at 39th for Innovation Linkages. The report lists this a weakness relative to the other top 25-ranked GII economies.

One input to this ranking is University/Industry Research Collaboration where we ranked 35th (another weakness) despite a strong QS University Ranking. Another is JV/Strategic Alliance Deals where we ranked 7th (a strength).

The Federal Government dedicates a portion of its R&D spend to programs that encourage strategic alliances. The Co-Operative Research Centre (CRC) program[ii] provides funding for medium to long-term industry-led research collaboration between at least one Australian industry organisation and one Australian research organisation. There has also been some talk of incorporating a collaboration premium into the R&D Tax Incentive program to further propel these arrangements[iii].

It’s likely that one of the disadvantages that businesses see when considering strategic alliances is the co-ordination needed between the parties involved. For example, what each partner can and cannot access, who is responsible for what, and who can exploit the resulting intellectual property in different ways.

Licensing as a catch-up R&D strategy

Licensing-in technology is one option that can give access to externally generated knowledge, with a lower co-ordination burden than a strategic partnership.

The Harvard Business Review recently covered some research examining the benefits of licencing as a ‘’çatch-up’’ R&D strategy to close the gap with competitors[iv]. The study[v] looked at 206 publicly listed biotech firms and found that, rather than innovating from scratch in-house or partnering with others in strategic alliances, the most effective solution to bring technology closer to or in line with a rivals may be to buy access to an already existing technology and incorporate it into an R&D program.

As well as the speed at which a business can gain access to a technology, a big advantage of licensing is the ability to define and address a specific deficiency in an R&D program that could help bridge a gap with competitors. If the information is out there and accessible, why not licence it in and work to build on it?

Acquiring technology firms

Another approach that businesses incorporate into their R&D strategy is acquisition of technology or companies that complement their general business strategy. This strategy is not only for large businesses. A widely publicised example is Bill Gates’ purchase of DOS for ~$75,000, which he then on-sold to IBM for $50,000 on the condition that Microsoft be allowed to licence it to other PC makers[vi].

This strategy does however play to a general opinion that smaller businesses are more innovative. While this isn’t necessarily correct, an acquisition strategy can and does play a part in a wider approach to R&D. But be warned: a culture of relying solely on acquisitions for innovation could see that same culture stifle innovation in the acquired firms.

The importance of innovating internally

The obvious risk to overreliance on these supplementary strategies is the possibility that they weaken a business’ ability to innovate internally. So while licensing, partnering and acquisition can be important parts of R&D strategy and save a business significant time and money, they should be used wisely, and not at the expense of ability to innovate internally.

If you would like to talk more about how we can help you foster your ideas, please don’t hesitate to reach out.

[i] https://www.wipo.int/edocs/pubdocs/en/wipo_pub_gii_2019.pdf

[ii] https://www.business.gov.au/Grants-and-Programs/Cooperative-Research-Centres-CRC-Grants

[iii] https://consult.industry.gov.au/r-d-tax/r-d-tax-incentive-review/supporting_documents/Researchanddevelopmenttaxincentivereviewreport.pdf

[iv] https://hbr.org/2020/06/when-licensing-new-tech-is-better-than-building-it-in-house

[v] https://pubsonline.informs.org/doi/abs/10.1287/orsc.2019.1337?af=R&

[vi] https://www.businessinsider.com.au/a-famous-part-of-ms-dos-is-finally-being-retired-2016-12