OpenTTO - DILIGENT Phase 4– Alliances Distribution & Clusters

1. OpenTTO.org - DILIGENTPhase 4– Alliances Distribution & Clusters ADC Objective SIPOC Process What are the Key Forces? Winners and Losers Nature of Market

2. ADCObjective The context of channels and distribution is important: • Helps further understand the industry structure • Identifies where and how value is added en-route to customers • Further clarifies the economic benefit of a product or service to all partners in the chain • The economic chain identifies partners who may be most interested in an invention. In a time of rapid change distributors and distribution channels tend to change faster than anything else. Drucker, Management Challenges for the 21st Century, 1999.

3. Alliances Distribution & Clusters 1.0 CPA 2.0 MVP 3.0 IDA 4.0 ADC 4.1 Describe Customer 4.2 Understand Whole Product 4.3 Workshop Distribution and Channels 4.4 Review Cluster Leverage 4.5 Develop Value Chain Leverage Model Overview Determine channels to market for the technology, and activities and costs associated with the delivery of the total product offer, and which cluster firm are sources of optimum leverage for the technology development & distribution. Process Output Supplier 4.1 Describe ultimate customer for IP or embedded IP and how they buy the product/service 4.2 Understand the “whole product” as the accumulation of everything needed to deliver to the end customer 4.3 Workshop the distribution chain and channels to understand how value is supplied to the customer 4.4 Review industry and regional clusters to see where leverage for the valuation can be obtained 4.4 Develop the optimum value chain model for distribution and leverage over product lifecycle 4.6 Complete and review Confidence Index for ADC Business Lead Customers Product Development Cost/Financial Analyst Partner/Cluster Firms Channel Strategy Alliance/Cluster Strategy Prelim Delivery Cost Models Input Customer Market Value Proposition Industry Dynamics Analysis Industry Cluster Capabilities Product & Partner information 5.O FCS Business Lead

4. I O S P C Transform Templates ADCSuppliers and Inputs Typical questions for suppliers and inputs: • Which partners and collaborators stand out from previous phases? • Do we have knowledge of their collaboration history? • Are their any specific collaboration criteria – positive or negative?? • Do we have sufficient knowledge of the complete “product”? • Is their enough expertise to describe the buyer value chain? • Are there “influencers” in the chain that are important? • Which industry clusters are most relevant? • Do we have sufficient information to understand their purpose? • Is the cluster track record know and relevant? • Can we identify cluster companies that are most important?

5. I O S P C Transform Templates ADCProcess and Transformation Analysing and knowing the strategic alliance partners: • Adds value to the potential commercialisation • Identifies potential investors or collaborators • Adds to the business case and plan for financial investors • Adds to the reality of how the technology will get to market • Starts to focus on cultural and management issues • Helps add and refine the value proposition and elevator pitch There are valuable lessons to draw upon in the market

6. ADCAlliance Partners Understand the partner’s alliance capabilities: • What is their collaboration history e.g. Eli Lilly’s 80+ yrs • Do they have an Alliance Management Organisation? Know their process - usually three stages: • Research Acquisition screens down against criteria • Commercial does the negotiation and finance • Alliance Management implements and improves The initial commercialisation customer is Research Acquisition

7. ADCStrategic Alliances – Success Factors The success factors for strategic alliances: • Intent – common or overlapping alliance objectives • Why is this alliance important to us? • Ability to leverage different organisational cultures • Leadership – the cause has an attention quota • Support and integration processes • How will we make decisions? • How will we handle conflict? • How will we know whether or not the alliance is a success? Make sure that the alliance is clearly grounded in the corporate strategy and commercialisation strategy of the potential partner

8. ADCStrategic Alliances – Intent Intent (objectives) must be clear to the alliance team: • Important to tease out unstated objectives • Clarify the capabilities expected on either side • Understand the partner’s strategic rationale • Understand how value will be created for both sides • Understand how value will be distributed for both sides • Check the shared view within the commercial team(s) Avoid becoming a minor partner in an orphan project that will continually have to fight for resources

9. ADCStrategic Alliances – Culture & Leadership Take advantage of cultural differences: • Assume that there will be differences in culture • Must have flexibility and self-awareness • Check the capabilities to bridge the gap and to create synergies Leadership • Want clear definition of roles and responsibilities • Must have strong, decisive, clear, committed leaders • Need appropriate authority within the governance structure In the absence of clarity around roles and responsibilities alliances tend to drift (Eli Lilly: Alliance Management Office)

10. ADCAlliance Management Office To increase the chances of success for all partners: • An “account manager” and “ombudsman” should be assigned • An “alliance champion” - a senior BU executive is needed • Have a domain expert as the “Alliance Leader” • The Alliance Leader is assigned day-to-day leadership • Have tools to quantify progress and quality of the alliance • processes • guides • surveys

11. ADCAlliance Management Office Critical Success Factors to be managed include: • Compatibility of values and goals • Clarity of roles • Leadership • Communication • Trust • Fairness • Flexibility

12. ADCAlliance Management Office Typical tools to ensure success e.g. start-up: • Workshops to gain consensus on strategic intent • Capability identification for all parties • Means of aligning capabilities • Communication styles and “soft” issues e.g. values • How progress with be measured and communicated • How different types of problems will be escalated • Exit criteria for each party – and termination criteria • How success will be measured or determined A partner with alliance methods and training is preferable

13. ADCAlliance Management Tools Devices to allow managers to better handle alliances: • Standardized methodology that details the steps of a successful alliance • Sample alliance contracts • Standard alliance proposal forms • Partner-selection criteria • Benchmarking post-mortems (post-negotiation, turning points) • Three to five pages alliance mapping system (including scope, contract, names, brief history) • Detailed case studies of a few successes and failures • Hierarchy of preferred partners for different technologies and markets • List of external advisors • Set of alliance policies to guide the TTO in its alliance-related activities

14. ADCCollaborative R&D Success The probability of technical success increases when#: • The duration of the project increases, • Collaborating firms are related through ownership, and • Firms possess complementary abilities. #Bizan, O., The Determinants of Success of R&D Projects: Evidence from American-Israeli Research Alliances, (STE-WP 8-2001) Working Papers Series, September 2001.

15. ADCCollaborative R&D Success Determinants of successful commercialisation: • Findings - technically successful projects take less time to commercialise when: • The project budget increases • Revenue of the larger firms in the alliance increases • Firms are related through ownership #Size influences project success and there is a positive relationship between the organization of R&D and its effectiveness. Thus, these findings favour discriminating towards larger, more established firms. #IBID.

16. I O S P C Transform Templates ADCProcess and Transformation Analysing the distribution and channel structures: • Is there a “traditional” distribution and channel? • Is there potential to disrupt or redefine the channels? • Which channels match the market-cycle of the product? • What do partners have to add to the “product” to sell it? • What is the compelling reason to buy for an end-user? • What do partners add to the product in order to sell it? • Which parts of the chain provides the major sources of profit? • What technical expertise is needed to support the product? • How is demand created? • Are their new customers not targeted by traditional players? • What is the least cost way of delivering this product to customers?

17. ADCDistribution – Whole Product Successful distribution requires: • Understanding of the Whole Product# • Having the market lifecycle linked to the appropriate channels • The distribution value chain – who makes money • Product readiness – what has to be in place across the channel The gap between the marketing promise made to the customer - the compelling value proposition - and the ability of the shipped product to fulfil that promise. #The whole product concept originated with Theodore Levitt, The Marketing Imagination (New York: Free Press, 1991) and is used by William Davidow in Marketing High Technology: An Insiders View (New York: The Free Press, 1986).

18. ADCDistribution – Whole Product Differentiating the Whole Product – Levitt’s view: Differentiating value is not so much in the product you deliver as in the way that you deliver it.

19. ADCDistribution – Whole Product The totality of what the customer buys: • Have to create a whole product, which • Creates a compelling reason to buy • By creating a whole product, we make the product easy to buy, which in turn expedites sales. • How is the whole product being supplied and by whom? • Answering each question and concern customers may have concerning the product or their needs for such a product, and from that gain an understanding of how the technology or product will enter the marketplace and through whom. Great devices are invented in the laboratory. Great products are invented in the marketing department. William Davidow. Intel

20. ADCDistribution – Whole Product Gaps between generic product and whole product: • Adopt one of four options to satisfy the market • Build: Add required features to your product • Buy: Acquire technology to complete the whole product • Partner: Use other companies' products and services • Ignore: Explain why the customers' concern is not critical Understand the role of the invention in these scenarios

21. ADCMarket Life-cycle Distribution partners have to be matched to life-cycle#: • Most likely innovators and early-adopters • Probably solutions-focused and vertical channels Chasm Mainstream Market Early Market #Geoffrey A. Moore, Crossing the Chasm: Marketing and Selling Technology Products to Mainstream Customers (New York: Harper Business, 1991), and William Davidow, Marketing High Technology (New York: The Free Press, 1986).

22. Information Needs Logistics Needs Manufacturers Direct (Transactional) Dell BeDirect Compaq DirectPlus ShopIBM BuyHP eSun Indirect Influencers, Agents, & Services Consultants SI’s ISP’s ISV’s ASP’s Single Tier Retailers Integrators Tier 1 Wholesaler Distributor VOLUME VALUE Tier 2 Retailer VAR Relationship Vertical Expertise Customers Buying Building Blocks Vertical Solutions ADCDistribution Channel Example

23. ADCDistribution Value Chain Understand how value is distributed: • Who has the costs? • Who makes the money? • Who has the best return? • What is the timing and volume of money flow? • Can funding come from the value chain? • How can it be expanded? May provide an alternative source of funds for growth

24. ADCAlliance Mapping Alliance and strategic partners linked by relationships: • Many different forms of links • Financial & equity links • Business alliances – e.g. sales alliances • Technical cooperation • Joint Ventures • Cooperative research • Unofficial alliances e.g. strong personal connections Helps to understand where & how to position invention

25. Steel Industry : Global Alliance Map (NSC 2001) KOREA & PRC 29Mt & 18Mt NORTH AMERICA 31.1Mt JAPAN USX Co-ownership of shares 3% JV POSCO HOKKAI BAOSTEEL A3 DONGBU JV Examining investment NSC TRICO STEEL ISPAT INLAND JV LTV NAK CR Steel sheet NSC 40% Galvanized steel sheet NSC 50% 25% A1 SMI A1 CALIFORNIA STEEL Investment 5% 50% 10% A1 JV DOFASCO 25% HR steel sheet SMI 25%/ Corus 25% Galvanized steel sheet SMI 40% A1 JV JV JV Gavanized Steel Sheet NSC 40% Steel sheet development for automobiles Hot-dip galvanizing plant (Ontario) A3 NISSHIN Semi-finished products supply EUROPE ARBED A1 USINOR 71.7% USIMINAS 23.4% A1 75% Steel sheet products for automobiles JV 56.5% SOUTH AMERICA 13.9Mt CORUS SIDMAR JV Merger NewCo CST COCKERILL 38.9% 37.3% A1 EKO Stahl ACERALIA 100% 69.7% A1 ACESITA ACINDAR BELGO Voting Stake 59% 35% SARBERG BREMEN 20.1% JV 20.5% Steel Business Alliance Technical Co-op (Stage I) – Full merger (Stage II) Alliance (Technical) Joint Venture Unofficial Alliance A1 Rod, Steel-cord Alliance A2 A1 A3 JV

26. I O S P C Transform Templates ADCProcess and Transformation Industry clustering# is another form of leverage: • Is there information about cluster activities that is relevant? • Which clusters centre around the technology? • Which cluster innovations complement the technology? • How does the cluster gain its energy and where does this fit? • Which intermediaries and supplies circle the cluster? • Which firms are linking, competing and complementary with respect to the technology? • Which buyer-supplier relationships or technologies link the cluster? # A group of business enterprises and non-business organizations for whom membership within the group is an important element of each member firm’s individual competitiveness. Binding the cluster together are "buyer-supplier relationships, or common technologies, common buyers or distribution channels, or common labor pools (Enright 1997, p. 191)." See Porter (1990).

27. ADCClustering – Vibrant Networks THE critical constitution of regional industrial systems: • Connects all of the “regional resources” with each other • Engenders collaboration and cooperation among “regional resources” • Connects with entrepreneurs • Give entrepreneurs real-time information on money, people, technology developments, market developments, and job opportunities • Transmits the values of the culture: • e.g. “Homebrew Computer Club” in Silicon Valley; CED in Research Triangle Park; IC2 in Austin; VC networks in SV Industry cluster analyses spotlight the key targets for technology development and program interventions to build “regional resources”

28. ADCElements of Regional Clustering Values: What is honored, rewarded? • Cooperation + competition vs. competition • Collaboration + interdependence vs. independent and even antagonistic action • Start-up vs. climbing the corporate ladder • Building companies vs. making money • Spinning off or out vs. staying w/ employer • Loyalty to the networks vs. loyalty to employer

29. ADCElements of Regional Clustering More Values Choices: • Change + adaptation vs. stability + consistency • Openness + sharing info vs. secrecy • Risk-taking + honor and learning in failure vs. risk-avoidance + stigma for failure • Speed vs. deliberation • Democracy + networks vs. hierarchy Does a cluster offer the best commercialisation option?

30. I O S P C Transform Templates ADCOutputs and Customers Alliances, channels and distribution conclusions: • What are the compelling alliance or distribution dynamics? • How do they impact on the value of the invention? • Which players stand out as strategic for the invention? • Which players will likely be most attracted by the invention? • How is value created for those players? • What value would they seek to capture? • Which distributors and channels would have most interest? • Which new channels and distributors need to be built? • Which cluster companies add value and have resources to invest? The more specific the potential alliance and distribution strategy is understood, the more value can be created and captured

31. I O S P C Transform Templates ADCTemplates The ADC Phase Summary Report: • Part of the evolving Business Plan • Contains sections describing: • Which parties • Add value • Add disproportionate value • Seek to capture disproportionate value • Provide partnering advantages • Provide clustering advantages • Process to understand industry • Describe the partnering and value stream to customers • Describe value propositions to partners • Create partnering and strategic investment models • Actions for further work may precede or run in parallel with the next Phase - FCS

32. ADC Confidence Index How confident are you that: • The potential alliance partners have been identified? • The best alliance partners have been analysed? • The partner processes fit the commercialisation objectives? • The partner culture is compatible and offers synergies? • Distribution and channel arrangements are well understood? • The potential “whole product” is well described? • The contributors to the whole product have been identified? • The timing of readiness of the distribution system is clear? • Clusters of interest and value have been identified? • Industry dynamics and knowledge has been enhanced?