Alternatives to Strategy: Luck, Chance and Relations -- Annaleena Parhankangas -- June 3, 2003
Symposium: "A New Base for Corporate Relations: From Strategic Deceit to Trustworthy Action", Nokia House, Espoo Finland, Tuesday, June 3, 2003.
This digest was created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. These should not be viewed as official transcripts of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. These notes have been contributed by David Ing (daviding@systemicbusiness.org) at the IBM Advanced Business Institute ( http://www.ibm.com/abi ).
[Annalenna Parhankangas]
A story about the development of technologies in large Finnish corporations as governments: related to governance
For a systems science conference, looking for comments
A project of TEKES and Foundation of Finnish Technologies
Non-core technologies:
Technologies not used and can't be used
Fortune says 50% of patents can't be used.
How should these be used?
Are differences that can be explained through
national culture?
Do changes in governance structure affect the direction and speed of technology development?
This last question is interesting
Many technologies undergo many changes in governance
structures
May start as a venture.
If it doesn't fit, divested or spin off
May form alliances
Launch products to markets, then taken over other companies, then the cycle starts over.
Went to large corporations in Finland, Sweden and the U.S.
How do radically new technologies emerge?
Three questions:
How did managers choose from novel technologies?
Why study applications?
How did they decide on the governance structure
Background from previous literature
Diversification / alliance literature:
Characteristics of technologies and
technology-based firms are largely ignored.
Most focused on transactional, little on innovation.
Snapshot
Overemphasis on rationality and intentionality
Avoidance of issues connected to luck
Also an agency theory: managers want to grow
the size of company, due to personal benefits
Literature really doesn't take account that there isn't any rationale for diversification.
Will talk about Finnish examples, compared to Sweden and U.S.
Three technologies: chemical industry basic ventures
What did we find out?
Alice in Wonderland
Managers have no clue of where they're going.
No agenda or long-term plan on how to proceed.
They didn't know how to choose, no criteria amongst possibilities
In most cases, no well defined goals for technology diversification
Said that they want to explore
Only one company had a goal, but they never achieved it, and did something else with the knowledge
How did they achieve milestones?
Not that they didn't plan, or do market
activities. They did. But they said that these systematic
activities don't work.
Usually met someone at a conference, and then said
that you could apply a technology.
Social contacts and human capital is extremely
important.
One manager able to find an application, based on previous pulp-and-paper industry.
Process based on chance and luck, coincidences
When they realized could take advantage of the
opportunity, there was almost always a change in culture.
Maybe joint venture, spin off
Important to change the context
One venture manager said after they found the application, it was important to get rid of the old context to get full potential.
Benefits to parent firms
Parents were looking for new business areas
This didn't happen.
Parents were able to generate revenues from
divestment and licensing.
Otherwise didn't benefit that much.
On new-to-the-world technology, smaller firms were better
Can we say these companies fail?
In a hierarchical sense, yes, they failed.
In a more systemic sense, they were successful.
Conclusions:
In order to succeed when bringing new technologies to
market, need changes in governance structures to avoid embeddedness.
Open relationships work well in early stages of
development
When corporations started to generated profits,
then ownership became an issue
At this point, only one company doing this, focusing on a narrow application, it's not a network.
Not sure if the companies narrowly focused are
innovative in the long run.
When they want to find new applications, they may need to change their governance structure.
Governance structures important - rare formal
corporate strategies
Corporate strategy added to chaos.
E.g. CEO change and corporate strategy, then the
new technology wasnt interested, so unexpected changes.
In few cases were corporate strategy relevant; even more non-rational.
Corporations that start innovations may not be the
best to bring the technology to market
Next skills for technology transfer that can benefit.
Similar study in Sweden and the U.S.:
Stories are the same.
As chaotic and messy
In Finland, technology management was most
systematic.
In Sweden, good at using different financial
instruments (partnerships, IPOs) to get cash from technologies
In Finland and Sweden, rely on open networks and
trust.
Small populations, if you cheat, everyone will know.
In the U.S. (on small sample), the protection of
intellectual capital is more important.
Reliance primarily on internal development, rather
than an open network
It's important to not be scared about the messy
nature.
People should be more comfortable with chaos and
the unexpected
Finns may be a little more comfortable. At least the managers are more open and honest. They admit that they don't know what they're doing.
[Question]
Infer that there's a continuum from the movement from an idea to commercial; from idea to ownership. Are there signposts or signal, so that that a person knows it's time to change the structure of governance? Do the persons need to switch?
At prototype.
When you see the money, you don't want to share it.
Then the scientists are the not the right persons
to be heading to commercialization.
Their connections are too science-based.
Finland as a network, people mostly trained in universities. Are these networks different?
Yes, but people also collaborated with other
networks.
Want to be cautious about this.
In U.S.: Small ventures don't operate with each other. Feel the universities are academic. Lawyers want to hold them apart
In U.S., more transaction based
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