Strategic Collaborations–Essence of Survival

Abstract

Traditional organization and management structures, inherited from the Industrial Revolution, are no longer adequate for the 21st century. They were designed for an era when product and process life cycles often lasted for decades, but rapidly advancing technology now has collapsed life cycles in most industries to just a few years. Corporate survival, let alone sustainable and profitable growth, will increasingly depend upon intensive, continuous development of next-generation technologies. Management, consequently, has become the management of continuous change--in other words, innovate, automate or evaporate! The opportunity for continuous innovation is significantly greater today because in the early 1980s the U.S. put in place a unique environment conducive to investments in higher-risk, very-early-stage product and process developments. This involved creating strong capital gains incentives for investment, legislating modifications of the antitrust laws that allowed large companies to collaborate in R&D and manufacturing programs, providing private sector access to about $100 billion in advanced government-funded technology previously bottled up in bureaucratic processes, and creating specific incentives for increased quality and productivity. The reduction in the capital gains tax to 20 percent (it had been 49 percent in 1979), almost overnight generated several hundred million dollars in venture capital and jump-started new business formations four fold to about 800,000 per year. Since 1982, 600,000 to 800,000 new businesses have incorporated each year in the United States, even during recessions. The direct result has been the astonishing incorporation since 1982 of some 23 million new small businesses, the generation of 87 million new jobs (offsetting 40 million jobs lost by big businesses over the same period), the creation of 94 percent of all household wealth, and the production of about 70 percent of all the growth in the gross world product. Europeans have called this historically unprecedented phenomenon the American Miracle. I attribute this loss of 40 million jobs to the fact that entrenched bureaucracies in many large firms are often resistant to change, and that their intrapreneurial innovation processes have in many cases become ineffective. This may help explain why 80 percent of the famous corporate names originally among the Fortune 100 are no longer listed (1). Moreover, at the current rate of attrition, many of those now listed may also disappear. Fortunately, there exists an important synergism between entrepreneurial small businesses that are developing next-generation technologies and large smokestack businesses, which are in urgent need of renewal. Small businesses often lack access to critical skills and resources, as well as to early-stage risk capital that large businesses can provide. As I have written before in these pages, the R&D Limited Partnership model of organization and management, originally developed in the early 1980s by the Technology Office in the U.S. Department of Commerce to allow large businesses to collaborate without antitrust concerns, provides an excellent format for such synergistic collaborations (2). Such partnerships can be structured outside the corporate structure, insulated from bureaucratic impediments, and provide a process for the large companies (as Limited Partners) to access the next-generation technologies which they need for survival but are unable to generate internally. The Strategic Alliance Model The R&D Limited Partnership model, which was the basis for the 1984 CRADA legislation, initially was developed to allow large companies to collaborate in developing next-generation technologies without antitrust concerns. Sematech was organized on this basis, and later Genentech was the first to use it for funding development of its gamma interferon and growth hormone products. …