Six practices can help companies implement licensing as part of an open innovation strategy.
In today’s challenging economy, many industrial companies are trying to capture additional value from their technologies by licensing their intellectual property to other organizations, including direct competitors. Such outward transfer of a company’s own proprietary technology has only recently become an important dimension of corporate strategy, as part of a trend toward open innovation. (Open innovation can involve both bringing knowledge from outside into the corporation and also transferring technologies from within the corporation to external partners.) By licensing their proprietary technology, companies attempt to achieve a sufficient return on R&D, and licensing often goes beyond a marginal activity involving residual technology.
Some companies license technology primarily to achieve additional revenues. A few, such as Hewlett-Packard and Dow Chemical, generate hundreds of millions of dollars in annual royalties. Other companies license technology primarily to achieve strategic benefits, such as establishing a technology standard in an industry, entering new markets or cross-licensing to gain access to external knowledge. Despite these potential benefits, licensing also involves substantial risks. In particular, a company that transfers its “corporate crown jewels” — in other words, competitively relevant technology — may weaken its strategic position by strengthening potential competitors. For that reason, many companies traditionally have been reluctant to transfer technology.
Even companies that are actively seeking to license technology frequently fail to reap benefits from their efforts. Companies often have difficulty identifying licensing opportunities and potential licensees. A company owns a potential technological solution for specific problems, yet it faces the challenge of identifying other profitable applications, which may be in completely different industries. What’s more, transferring technology is a complex process, and the licensor often needs to actively support the technology adoption at the licensee. These managerial challenges underscore the importance of organizing technology licensing activities effectively.
To identify organizational success factors for technology licensing, we conducted a benchmarking study in medium-sized and large industrial European companies. After analyzing the academic and managerial literature on technology licensing, we carried out exploratory interviews with 35 experts in 25 companies to gain a detailed understanding of organizing for technology licensing.