Fighting “Not-Sold-Here” Tendencies

“Not-sold-here” tendencies, the instinct to not want to give away a company’s “crown jewels” through strategic licensing, are an impediment for companies looking to pursue open innovation practices. Monetary and non-monetary incentive mechanisms in support of technology transfer, such as an open innovation award, can help break this instinct.

Companies are hesitant to share their corporate “crown jewels,” even when strategic licensing could have significant financial and strategic benefits.

Image courtesy of Flickr user archer10 (Dennis).

Back in 2003, author David Kline told this story in “Sharing the Corporate Crown Jewels,” an article for MIT Sloan Management Review :

Procter & Gamble designed new packaging for deodorants. The company was asked by a competitor if it could use the same packaging. First instinct: “no way.”

But P&G ended up concluding that it wouldn’t lose much business from the competitor having the same packaging. As well, P&G’s supplier asked to license the design and sell it to other customers. Said P&G’s Jeff Weedman, vice president of external business development and global licensing: “Our competitor paid us a royalty. Our supplier paid us a royalty. And the combined volume of all those additional packaging molds saved us a lot of money in supply costs and lowered our capital requirements.”

Win-win-win, right? That only happened, though, because the company was able to overcome a mindset that that is skeptical about transferring company technology, a mindset known as the “not-sold-here” tendency. Most people are familiar with “not-invented-here,” a mindset which favors internal innovation, but “not-sold-here” is also an impediment for companies looking to pursue open innovation practices.

“Not-sold-here” is, of course, easy to understand. As Kline observed in 2003, “The practitioners of this strategic licensing, as it is called, are betting that any loss of market exclusivity that may result from making available their ‘crown jewel’ technologies will be more than offset by the financial and strategic benefits gained.” At the time, Kline wrote, P&G was “one of a small but growing number of Fortune 500 firms such as IBM, BellSouth, Boeing, Rohm and Haas, and Motorola that are moving away from a strict reliance on the ‘exclusivity value’ of their patents and other intellectual property.”

Eight years later, “not-sold-here” is still a challenge for companies, write Ulrich Lichtenthaler, Martin Hoegl and Miriam Muethel in “Is Your Company Ready for Open Innovation?” in the Fall 2011 issue of MIT SMR. The authors conducted a large-scale benchmarking study which revealed four groups of companies with different attitudes toward transferring technology through open innovation. The smallest group was the Technology Brokers, who “actively pursue both inbound and outbound open innovation and have a very limited level of not-invented-here and not-sold-here tendencies.” This group accounted for just 16.1% of companies in the sample.

One of the tools companies can use to get employees to embrace outbound open innovation is different incentive systems. Procter & Gamble, the authors write, “has established reward systems that value the identification of licensing opportunities.”

Managers in other companies, the authors recommend, “may revise incentive systems to reduce emphasis on internal innovation, or they may design particular monetary and non-monetary incentive mechanisms in support of technology transfer, such as an open innovation award.”