Strategic Alliances and Innovation - Case Study Example

 Table of Contents Introduction 1 Definition of Innovation 2 Overview of Innovation 2 Theories on Innovation 2 Technological Transfer 3 International R&D 3 Evidence 4 Technological Transfer 4 International R&D 5 The advantages of innovation 7 Recommendation 8 Conclusion 8 References 10 Introduction Around the globe companies have formed alliances due to different reasons. The reasons vary from one alliance to another. The reasons for an alliance could be for marketing, research, distribution, innovation, production, or management. Innovation can be achieved when these alliances are formed. The paper will major on how alliances can foster innovation. The focus of this paper is how strategic alliances that have been formed by companies could influence positive innovation. Definition of Innovation Innovation can be defined as the creation of a new thing or rearranging an old thing into a new thing. In business, innovation can be defined as the exploitation of new ideas that find acceptance in the market. These ideas, most often, are incorporated into new processes, technology, best practices and designs (Sarkar 2007, p.2). Some of these ideas may end up causing a complete overhaul to an organization’s operation and range of products. Overview of Innovation Most of the innovated products are based on the ideas of others or a modification of existing products. In summary, innovation process encompasses; getting a new idea or modifying an old one, reorganization of existing opportunities or those that can be promoted, choice of best alternatives and application of the process and the idea (Sarkar 2007, p.2). Innovation may be as a result of the need to meet the needs of consumers or improve the way of doing things. Companies that fail to embrace innovation have often found themselves left behind by their competitors, leading to the loss of their market niche. Theories on Innovation The focus on the theories of innovation varies because there are different views on the process of innovation and the factors that lead to the development of innovation. The theories may focus on; (a) technological development, R&D and technical research functions in a company, (b) the individual who creates and develops the new elements, and (c) issues of innovation in the market place (Sundo 1998, p.4). Technological Transfer It involves the exchange of technology between two or more companies. Strategic alliances are characterized by risk sharing and mutual commitment in respect to the attainment of specified economic and technological goals and objectives. These alliances tend to arise from the willingness and desire of one firm to assist the other in overall development of the firm business and/or exploitation of certain technological assets portfolio. An example is when the firms in the alliance want to (a) form a joint venture in research and distribution, or (b) enter a joint development agreement, or (c) enter into a funded research and development contract that is dedicated to manufacture and distribution of products that were created during the joint venture (Gutterman 1994, p.9). International R&D It is an alliance aimed at making fundamental changes in or improvements of a specified core technology or innovation. R&D is important in acquiring knowledge, keeping up with the global trends, making use of the knowledge in local circumstances and advancing knowledge especially in innovation. The trend is driven by economic activities, advancement in technology, strengthening of intellectual property and favourable tax treatment of R&D in foreign countries. The research may be performed by one firm in return to the capability of utilizing the resulting technology in various applications. Where the firms have complimentary technical assets and skills, the development of the product may include sharing of the engineering and scientific personnel. Most universities are being used by firms through strategic partnership in doing basic research and development on promising technologies (Gutterman 1994, p.10). In most cases, partnerships between companies and universities, as well as other research institutions, have led to great innovations. Evidence Technological Transfer There are many examples of technological transfer in innovation among alliances. Examples of such alliances include the following: Alliance between Xerox and Fuji Xerox; technology that was transferred between the two companies include basic xerographic technology to Fuji Xerox and Total Quality Control (TQC) methods to Xerox company. The two companies shared innovation on low-end printers and colour copying in the 1980s and 1990s. Alliance between HP (Hewlett-Packard) and Yokogawa-HP; technology transferred was instrumentation technology and computer technology to Yokogawa-HP and TQC methods to HP. The two companies increased joint work in basic sciences in 1990s in HP lab in Japan. Alliance between Honeywell and Yamatake-Honeywell; technology transferred between the two companies was industrial process, building controls, and Micro Switch technology to the Yamatake-Honeywell. Shared innovation between the two companies was a joint development in industrial control systems in the 1970s and 1980s. Alliance between Fujitsu and Amdahl; technology transferred was computer architecture technology to Fujitsu. Shared innovation between the two companies was a joint development in the successive generations of computers. Alliance between IBM and Toshiba; both companies, IBM and Toshiba transferred technology to a joint venture. The two companies shared innovation by creating a joint R&D projects to develop advanced colour display technology (Gomes-Casseres 1996, p.79). Alliance between Kinko’s Service Corp. of Ventura and Xerox Engineering Systems; Kinko’s Service Company is a copy centre and its aim of alliance with Xerox Engineering Systems is to set up a national network for faxing large-format documents. This type of service is crucial and beneficial for contractors, architects and advertising agencies (Rigsbee 2010, p.1). Alliance between IBM and Apple; the alliance is aimed at developing a new computer operating system that enables both hardware type to communicate. Alliance between Nynex Corp, and Philips Electronics; Nynex Corp. and Philips Electronics have formed an alliance to come up with a screen telephone for residential use (Rigsbee 2010, p.1). International R&D An example is the Eurocopter Company; alliances occur through three dimensions in this company. (a) The company has made alliances with other companies and it has various joint manufacturing projects with them. The company has partnered with a Japanese manufacturer called Kawasaki and the two companies manufacture twin-engine helicopter BK 117. Kawasaki provides cabin and electrical systems and Eurocopter manufactures the dynamic system, the tail boom and the engine equipment. The result of such a partnership is a helicopter model with a superior technology, reliable and with a good flight performance (Terziovski 2007, p.81). (b) The company partners with other industrial companies in the aerospace industry. The company is also in close contact with aerospace institutes such as the German Aerospace Center and the French Aeronautics and Space Research Center. The collaboration is on a research basis and the aim is to develop a business structure that allows simultaneous innovation processes. (c) The company has a close collaboration with its suppliers of blades; the company is very keen on the design of the blade. The collaboration discussions assist in the clarification of the materials to be used and parts of developments that can be outsourced to the suppliers. This ensures that the final product is of high quality and that both the Eurocopter and the supplier(s) benefit (Terziovski 2007, p.82). DuPont is a chemical company and a major producer of gasoline, oil, special materials and natural gas. The company has had many strategic alliances with other companies and institutions around the world. They include Oak Ridge National Laboratory, Tecumseh Products, Whirlpool, and University of Hannover in Germany, University of Houston, City College of New York Ciyt, University of Delawere and Stuttgart University. A joint venture with these companies and institutions of learning has lead to several innovations like creation of food management system, creation of new catalyst system, and development of a new manufacturing process for Lycra spandex fiber (Boutellier, Gassmann and Zedtwitz 2008, p.304). Kao is a company that specialises in chemicals, consumer products and info systems products. It has a research institute in Europe called Kao Europe Research Institute and the institute links three major R&D corporations around Europe. These corporations are Kao Corporation in France, Goldwell GmbH in Germany and Kao Corporation S.A. in Spain. The main function of the institute is the transfer of technology and communication between the R&D facilities to make its products accustomed to the European market. The joint venture between these companies has lead to the development of new products and diversification of the products (Boutellier, Gassmann and Zedtwitz 2008, p.354). The advantages of innovation Open innovation refers to that done through partnering. Companies that embrace open innovation have a number of advantages over those that do not. First, such companies speed up time taken to market their products. This essentially means their products or services reach their target market much faster than those that do not embrace innovation. Second, open innovation greatly reduces the risks that come with innovation. This is mainly because the partner companies are able to share any losses that arise should the innovation fail to go as planned. Third, innovation enables companies to know exactly what its target market wants as opposed to speculation and guess work. This way, the companies can concentrate only on functions that meet market demands, and leave out the unnecessary ones. Fourth, open innovation allows the community to tell the company exactly what it wants as opposed to the company telling the community what it (the community) wants. Fifth, companies engaged in open innovation integrate the community into it. This is a very good strategy because it is all-inclusive and various ideas are bound to emanate from the stakeholders. Sixth, open innovation is easy since it can come from anyone at any time. Furthermore, open innovation makes it possible for solutions to an organization’s problems to come from anywhere, whether from within or without the organization. In addition, open innovation greatly lowers the costs that come with research and development since it actually supplements it. Some of the companies that make use of open innovation include; Apple, Google, Meebo, BASF, DuPont, Dow Chemical, General Mills, Glaxo Smith Kline, Kimberly-Clark and Zimbra (Kameran 2007). Recommendation Companies that still use closed innovation system should adapt to open innovation system. Strategic alliances can be made with institutions of learning and research and they have proved to be very efficient. This is a new opportunity for faster innovation because most of these institutions have the latest technology available. This is because institutions of learning have the necessary resources and personnel to carry out research, while companies have finances to fund this research better than the institutions would have funded it. Future customer satisfaction will greatly depend on the partnerships between learning institutions and companies. Conclusion Innovation is very vital for any company if it wants to succeed. Ideas are evolving each day and keeping up with the pace of innovation has become difficult for many companies. In order to keep up with the trend, companies have resulted in formation of alliances to foster innovation thus widening their customer base. From this paper, it is evident that alliances can foster innovation. The pace at which innovations develop is quite when alliances are formed. Although these alliances have their drawbacks, in most cases they have come out very successful. A key thing in strategic alliances has been the joint venture between companies and institutions of research and learning. This is very evident with most health care and engineering companies. Eurocopter is a helicopter manufacturing company and it has made joint ventures with other plane manufacturing companies and research institutes. The collaboration between these companies has lead to the innovation of an efficient helicopter. International Research and Development, other than creating new products, are a way to expand the market of the company. R&D assists in the development of a new product and better way of services. Open innovation is a good complement to R&D and makes the whole process efficient and much more rewarding for the companies. Integrating open innovation into R&D has seen many companies develop new products, or improve existing ones, thereby meeting the needs of their target market. In addition to making such companies more profitable, it has enabled them to stay way ahead of their compation. DuPont is an example of a company that has excelled through international R&D. This is a testimony that strategic alliances can greatly foster innovation in companies. References Boutellier, R., Gassmann, O. & Zedtwitz, M. (2008) Managing global innovation: Uncovering the secrets of future competitiveness. Springer-Verlag Berlin Heidelberg. Gomes-Casseres, B. (1996) The alliance revolution: The new shape of business rivalry. Cambridge, MA: Harvard University Press. Gutterman, A. S. (1994) Technology-driven corporate alliances: A legal guide for executives. Westport, CT: Greenwood Publishing Group. Herzog, P. (2007) Open and closed innovation: Different cultures for different strategies. Wiesbaden: Gabler Verlag. Kameran, A. (2007) Advantages of Open Innovation. [Online]. Available at: http://gotastrategy.typepad.com/innovation/2007/10/open-innovation.html (Accessed: 27 November 2010). Rigsbee, E. (2010) Developing strategic alliances – What’s in it for me?, Ed Rigsbee. Sarkar, S. (2007) Innovation, market archetypes and outcome: An integrated framework. New York, NY: Physica-Verlag Heidelberg. Sundbo, J. (1998) The theory of innovation: Entrepreneurs, technology and strategy. Glos, UK: Edward Elgar Publishing. Terziovski, M. (2007) Business innovation capability in organizations: An international cross-case perspective. London: Imperial College Press. Read More