The Management of Technology at Carnegie Corporation - Essay Example

CONTENTS Sl.No. Chapter Page No Introduction 3 2 Technology Transfer Mechanisms 3 3 Strategies to Protect Intellectual Property 7 4 GlobalizationStrategies on Geographic Basis 9 5 Globalization of Manufacturing and Marketing 11 6 Conclusion 14 7 References 15 MANAGEMENT OF TECHNOLOGY At Carnegie Corporation Introduction: Carnegie Corporation, located in Australia owns proprietary CETO technology for the generation of power from Wave energy from the ocean. CETO, named after the Greek god also enables desalination of seawater. CETO is the only technology that can help pump high pressure sea water ashore. The company acquired CETO technology from Renewable Energy Holdings (REH). The company also has an agreement with EDF Energies Nouvelles SA (EDF EN). The relationship with EDF EN is a joint venture license relationship to own and operate CETO Wave Power Projects in the northern hemisphere and Reunion Island in the Indian Ocean. The company has a slew of innovations, most in different stages of patenting. It assiduously protects its intellectual property. Its business model relies on license fees accruing from the deployment of its technology in the Wave Energy Projects. Apart from license fees, the company participates in equity of the Special Purpose Companies that implement the projects. Being an innovation driven company in the frontiers of technology, technology management is its area of special emphasis. Technology Transfer Mechanisms: Carnegie Corp. acquired CETO technologies from REH. CETO, named after a Greek god, is the only technology that enables pumping high pressure sea water ashore. This method is the most efficient method to desalinate sea water (PESWiki.com). The acquisition was in return for REH taking 35% stake in Carnegie. In addition to the intellectual property, Carnegie acquired REH’s commercial site pipeline. REH’s agreements with EDF EN also devolved upon Carnegie. Consequent to the agreement with REH, Carnegie would Build, Own and Operate CETO wave forms in the southern hemisphere, which was the domain of REH (CETO over View). The relationship with EDF EN is a joint venture license relationship to own and operate CETO Wave Power Projects in the northern hemisphere and Reunion Island in the Indian Ocean. While Carnegie will have the right, it is not bound by any obligation to participate in any CETO wave power project developed by EDF EN in the Territory of Exclusivity. In the event REH does not exercise its right to participate in any such project, EDF EN can exercise the right in developing such project with a partner of its choice. Carnegie’s project with EDF EN, will be implemented by a Special Purpose Company (SPC). In this SPC, Carnegie receives an equity interest between 25% and 49% related to the scale of the project. The financing of the project will be through equity and debt instruments. The equity share of the partners will depend on the each partner’s ownership interests. Carnegie will however own the intellectual property rights relating to CETO and will grant access to SPC. SPC in turn will pay license fee of 3% (dropping to 2% in certain circumstances) of the total costs of each project (Carnegie Press Release, 2007). Carnegie’s business model envisages development and operations of wave energy projects with earnings coming from licensing its proprietary technology through license fees. In addition, Carnegie envisages investing in projects in core markets and also earns dividends. It will also sell its unique services and provide know How for CETO projects and the special proprietary equipment (Carnegie Corporation Annual Report 2009). The company had several options to commercialize its technology. The important amongst them are Exporting, licensing, franchising, strategic alliances, Joint Ventures, Multi country strategies and global strategies. Exporting strategy will not be suitable for Carnegie, due to high manufacturing cost at the local country. It does not intend to franchise due to the risk of dissipation of know how. Carnegie’s Commercialization mechanism is depicted in Figure 1 (Carnegie Corporation Annual Report, 2009). Licensing makes sense when the firm has a valuable knowhow but does not possess capabilities to enter the foreign markets. When the company is risk averse to committing resources in an unknown terrain due to its political and economic instability, licensing would be preferred. Carnegie has resorted to technology licensing. Carnegie Corporation has also adopted the strategy in technology commercialization through achieving global competitiveness through cooperation. It has therefore resorted to Joint ventures with EDF EN in certain geographic segments, while holding proprietary rights to technology. Further by opting for Build, Own and Operate model, the proprietary technology is protected. While for the southern hemisphere, Carnegie has complete control over the projects, in the northern hemisphere it has joint venture model in place with EDF EN. The northern hemisphere offers substantial opportunities, where a symbiotic relationship between Carnegie and EDFEN is likely to yield substantial benefits. This arrangement is not without disadvantages. In case of conflicting interests, misunderstandings, cultural barriers and mismatch of cultures, this arrangement becomes fragile. Some of the problems are sought to be ironed out by floating project specific Special Purpose Corporation, where the partners hold stakes. The management team in the SPC should consist of proportionate membership in the board and at top management level to ensure synergy. The commercialization process in Carnegie is depicted in Figure-1 below: Source: Carnegie Corporation Annual Report 2009 Figure 1: Revenue Flows from Proposed Carnegie Wave Energy Projects Strategies to Protect Intellectual Property The Economist magazine estimates that nearly 75 percent of the value of a U.S. publicly traded company is entirely due to its intellectual property. This is a whopping increase from 1980, when it was 40%, of the value (Brown, 2009). While formidable intellectual property portfolio is a robust competitive weapon, it is also a major attraction to the venture capitalists. Patent confers upon the holder, the exclusive right to use and deter others from using the same during the duration of the patent, which is 20 years from the date of filing. In this era of knowledge driven economy, patents are necessary but not sufficient condition to protect the intellectual property. This explains a current surge in patent applications (Brown, 2009). The protection of intellectual property demands a coherent strategy. It would require constant scanning of the environment to ensure that the intellectual property is not infringed. Carnegie’s core competencies are innovation related. They are; idea generation and assessment, intellectual property management, design and engineering, prototype manufacturing and testing; and computational fluid dynamic (CFD) modeling (Our Competencies, Carnegie Corporation Website). These competencies are assiduously nurtured by the company in the past. Acquisition of CETO technology from RHS is in the direction of consolidation of ownership rights on that technology. Carnegie’s emphasis on IP security is borne out by its substantial investment in maintaining and protecting its intellectual property portfolio and reckons its core competency as one of creation and protection of Intellectual Property. Its patent portfolio is replete with patent families covered globally in various stages of provisional to awards. The company has also designated an Intellectual Property Manager charged with the responsibility for capture and protection of Intellectual Property. Carnegie’s efficacy in protecting intellectual property is borne out by the report of an independent expert who hailed it as a barrier to entry for the competitors and said that it endows the company with a strong global capacity to leverage its CETO Intellectual Property. It is avowed by Carnegie, that it will ensure generation and protection of intellectual property as CETO hits the path towards maturity. These measures are to enable sustained competitive advantage through Intellectual Property. Carnegie has envisaged a strategy of licensing technology in its business model. Its revenues will be through license fee, services and dividends. It invests up to 100% in the projects in the Southern Hemisphere, but will cede 51% to EDF EN in the Northern hemisphere. Their tie up EDF EN is a significant move, since EDF EN is among the largest power producers in the world. A tie up with them would give greater market access as well as provide synergy between their scale and experience and the Intellectual Property of Carnegie. In all the projects Carnegie will collect license fees for deploying its technology. Apart from Patents, the company should think of developing a formidable trademark for its brand and also copyright for some of the programs used in power generation system. This will ensure that the intellectual property extends through the entire value chain and will be difficult for the competitors to replicate. It should be remembered that while patent lasts for twenty years, copyrights last for life of the author plus 50 years. Similarly, the trademark will remain with the company for ever. In addition, the protection could be sought for industrial designs. Its licensing agreements all carry ‘Non Disclosure Agreement’ which is valid indefinitely. Globalization Strategies on Geographic Basis Carnegie has made substantial progress in the development of CETO wave technology through 2009. This year witnessed the successful operation and completion of the CETO 2 pilot plant in its Wave Energy Research Facility in Fremantle, Western Australia. Simultaneously the company has finalized the design specifications for CETO 3 system ahead of schedule for deployment in 2010. The company will initially focus on power generation, which is an easier market to crack as compared with the market for desalination plants. The renewable energy power has $50 billion global market to be harnessed in comparison with $5 billion market for desalination plants (Carnegie Corporation AGM Presentation, 2008). The Technology/Country matrix is given in figure 2 below FIGURE 2: TECHNOLOGY - COUNTRY MATRIX COUNTRY   Zero Emission Electricity Australia   New Zealand   Canada EDF EN - JV Hawaii   French Polynesia   Chile   South Africa   Mauritius   Reunion EDF EN - JV Japan   Ireland EDF EN - JV France EDF EN - JV Portugal EDF EN - JV Bermuda   Bahamas     Current Sites     Current Investigation Sites   Figure 2: Technology – Country Matrix The company adopts joint venture strategy with EDF EN in its markets in USA, UK, Canada, Europe, and Asia. While in other markets in Australia, South America and South Africa it plans to have dominant holding up to 100% of equity. Being in the non-conventional green energy business, its choice of strategy is strongly influenced by the economic and regulatory environment in the country. Normally, these projects are highly resource intensive and need local talent to run the plants. The company needs the financial support from the local governments and organizations to kick off with investigation. Its licensing agreement should ensure the protection of the intellectual property. Since the main driver of the business is technology, which rests with its R&D center, it has to coordinate globally for the deployment of technology. The energy industry is a globalized industry. The competitors in this industry are same throughout the world. For instance in the business of wind energy, Enercon, Vestas and Suzlon compete across the world. In such industries, the global strategy is most relevant. These are industries which are characterized by high cost pressures, relatively local responsiveness pressures and convergence of product requirement across the countries. This strategy seeks coordination across the world (Jain, 2006). In case of Carnegie’s offering, it does not change according to local preferences. The non-conventional energy is sought all over the world. Its products are reasonably standardized. There is a pressure on costs, since non-conventional energy is still substantially costlier than conventional fossil fuel based energy. The company estimates that the initial power generation cost will be at the level of wind and would reduce to that of fossil fuel in a decade (Ottaviano, 2008). In terms of the product, it is amenable to the economies of scale. Globalization of Manufacturing and Marketing Carnegie is a pioneer in the market for Wave energy. It will therefore skim the market with high price before the competition intensifies with new entrants. During that time, the company would have harnessed the experience curve reducing its cost substantially. The market for energy is enormous and hence the company need not envisage any revolutionary marketing strategy. But the company as it is now should be innovation driven. It should ensure that the products are killed periodically superseding with new high technology products. Since the technology is unique and the needs regarding the requirement of energy does not vary across the countries, it need not be tailored to the local needs. Since the company harnesses its profits from its license fees and service activities. Manufacturing is not in its business model. In the product portfolio matrix, Carnegie’s product, when launched would be a star product as shown in figure 3 below. After it is launched it will for some period hold high relative market share and high growth. When in the product life cycle, the wave technology plateaus, it will render it an imperative for Carnegie to bring in substantial technology up gradation. Meanwhile, Wave technology will be a cash cow for Carnegie. The cash generated from its cash cow should be earmarked for innovation and technology development. During the declining phase of the technology, the product in the current form will be a dog and has to be divested. Meanwhile, new products would enter the star quadrant. Source: NetMBA.com Figure 3: Product Portfolio Matrix The product portfolio is built on the premise that growth in relative market share would cause augmented cash flow. This assumption is credible, since the phenomenon of experience curve would reduce costs and enhance productivity. As the company moves up the experience curve, it acquires cost advantage with reference to its competitors. The second premise is that growing market share would need allocation of resources and investment resulting in greater cash consumption. Therefore, the position of a product or offering on the product portfolio matrix would denote its cash generation and consumption (Net MBA.com). Carnegie is focusing only on the countries which have very little political risk inherent in them. Therefore its offerings lie on the top left quadrant of the portfolio matrix shown below. Figure 4: Political Risk Profitability Portfolio Owing to the high technology nature of the business pursued by Carnegie Inc., it will have organizational implications. The technological complexity would need a process production setup. The number of vertical levels would be fewer with narrower span of supervisory controls. The setup would require large number of skilled workers and lower ratio of manager to employees. There would be lesser formalization and centralization. According to Perrow’s Technology Classification, the tasks in Carnegie Corp. would be non routine ill defined and non-analyzable. In the organizational life cycle, the organization is decidedly in the growth phase, which is a collectivity stage with high commitment and informal communication and structure. Conclusion Carnegie Corporation is poised for great times ahead. It’s assiduously acquired and protected Intellectual Capital will stand in good stead in the years to come. It has a robust business model to commercialize its proprietary technology. The mechanism for the protection of IP is well orchestrated with a proper structure. Its globalization measures hinge on global coordination for implementing power plants with its technology. Its marketing mechanism is through the government agencies and through its capable partner EDF EN. References About our competencies, http://www.carnegiecorp.com.au/index.php?url=/about/our-competencies Brown, Don, Protecting Intellectual Property Right from Start, E-Commerce Times, 22, Sep, 2009 http://www.ecommercetimes.com/rsstory/68175.html Carnegie Corporation AGM Presentation, Nov.13, 2008 http://www.carnegiecorp.com.au/files/asx-announcements/2008/Carnegie_AGM_Web%20Release_081113.pdf Carnegie Press Release http://www.carnegiecorp.com.au/files/asx-announcements/2007/CNM%20release%20of%20REH_EDF%20announce_July07.pdf Carnegie Corporation, 2009 Annual Report CETO Overview http://www.carnegiecorp.com.au/index.php?url=/ceto/ceto-overview Jain, Vinod, Globalization and Localization, will the Twain Ever Meet,Oct 6, 2006 www.rhsmith.umd.edu/ciber/events/2006/def/.../VinodJain.ppt Net MBA, Business Knowledge Center, 2007, The BCG Growth Share Matrix, http://www.netmba.com/strategy/matrix/bcg/ Ottaviano, Michael, Dr, CETO Wave Technology, Mar 12, 2008 http://www.carnegiecorp.com.au/files/asx-announcements/2008/CleanTech%20Presentation_080312.pdf PESWiki.com, http://peswiki.com/energy/Directory:Ocean_Wave_Energy#Companies Read More