Thursday, January 15, 2009

Technology Fountainheads: The Management Challenge of R&D Consortia

This book is a study of six R&D consortia in the US – Sematech, Semiconductor Research Corporation (SRC), Microelectronics and Computer technology Corporation (MCC), the Electric Power Research Institute (EPRI), the Gas Research Institute (GRI) and Bell Communications Research (Bellcore).

“The six consortia…were borne out of sense of industry crisis and/or deeply sensed need to advance the cause of industry R&D. In each instance, industry and/or government leaders articulated the need, advocated collective endeavor, and called for action.”

Why was Sematech successful?:

1. A viable, sustainable nationally important mission
2. Worked at precompetitive level
3. Outstanding leadership
4. Secured government funding
5. Industry led with 80% participation

Classification of R&D consortia;

1. Open membership
2. Exclusive membership
3. closed membership

Functions of R&D consortia:

• Development & dissemination of new industrial process technologies
• Technical education & training
• Environmental research (safety 7 health)
• Supply-industry infrastructure development
• Academic research & graduate education support
• End-product development & commercialization
• Industry standard-setting
• Industry disaster & crisis response

Strategy: “Vision is the basis for a call to action. The validity of a vision may depend upon the stature of those sounding the call, and on the premise that certain objectives can be met more effectively in a collective endeavor rather than the undertaking of a single firm.

If the vision is the basis of collective action, mission is an articulation of purpose. To be sustainable, a mission must promise the fulfillment of some broadly perceived need at the industry or sector level. It should attract the support of relevant constituencies – those whose backing can contribute to the consortium’s success, or whose lack of support could jeopardize its success from the onset.”

“A viable mission has several characteristics. First, it must not deal in domains of corporate core competencies or threaten consortium members’ competitive advantage. Second, it must offer firm-specific economic value. To the extent that a consortium reflects public purpose and the national interest, it will have validity and legitimacy. As a primary mission, however, collective or public purpose may attract support only in the short run. In the long run, return on R&D investments, becomes more the compelling objective – and at least for the United States, that measure tends to give priority to short-term results.”

Basic elements of consortium strategy:

1. its membership constituency, as well as other founders (that is, the markets it will serve
2. It’s R&D sourcing modes (basically the choice between an internal staff and external contracting)
3. Its product line, or range of services it will provide
4. Its pricing modes (that is, the forms in which its revenues are derived – e.g., one time shareholder fees, annual membership dues, cost per project charges)
5. Its R&D delivery systems (the channels used in the diffusion of new technology to member companies, their suppliers and their markets)

Theory of Consortia

“”The relevant theory, developed largely by Olson and Hardin, may be summarized as follows. A collective good is likely to be provided if the economic gain is great enough for one party or group that it alone would be willing to pay the full cost. Others may join the group if the net benefits to them contributing to the collective effort are positive, or if some attractive by-products are available through membership. Non economic benefits – for example the psychic rewards of belonging – may be relevant in small groups, but may decrease in importance for larger groups.”

“Current theory also holds that large groups will be less effective than small ones, on the grounds that:

‘The larger the group, the smaller the share of the total benefit going to any individual and the less likelihood that any small subset of the group, mush less any single individual, will gain enough from getting collective good to bear the burden of providing even a small amount of it.’”

I’m not sure that I agree with this. It seems like the premise is based upon additive rather than synergistic value. It would seem to be true if there was a decreased value for adding members. But, I don’t believe it’s true in general.

Benefits of Collaboration

“In theory, the economic rationale for the formation of a collaborative group is the anticipation of gain by some member or core group – a greater gain than if the member or core group were to undertake the same mission independently.”

• Cost sharing opportunities
• Sharing complementary knowledge
• Transitioning opportunities for firms moving into new fields of technology or diversifying into new businesses
• Risk reduction opportunities
• Monitor technological advances
• Risk of not collaborating
• Non economic motivations (especially for the core group)
• Potential for economic gain
• Improving the health of the industry
• Networking opportunities
• Sense of mutual dependence (smaller firms)
• Potential for selective and proprietary product offerings

Technology Fountainheads: The Management Challenge of R&D Consortia, E. Raymond Corey, Harvard Business School Press, 1997

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