Companies fail to secure sale of technology licenses
The technology market has grown significantly in the past years, but many high-tech companies fail to sell their technologies. It does not benefit the earning of the companies, and the market will not see inventions inspired by these technologies either.
For this reason, a researcher from Copenhagen Business School (CBS) has participated in the development of a model to explain how companies organise their technology license business best. The model is now published in the scientific journal Management Science.
- The sale of technology licenses that are obvious to put on the market never see the light of day, because the people who are involved in the sale not necessarily consider the total earnings of the company. If the decision-making processes are centralised, we are going to see an increase in the sale and several new products on the market in the long run, says Thomas Rønde, Professor of Organisational Economics, who has developed the model together with and Italian and an American researcher.
Lack of motivation impedes important sale
The model has been developed on the basis of the organisation of American companies, but Danish companies face exactly the same challenges, says Thomas Rønde. The model demonstrates that the motivation of some employees may play a large part in technologies being sold.
- Some employees do not have the incentive to sell a technology if their own job is at risk. They might fear that a consequence of the sale is that the company takes a weaker position on the market and has to lay off employees, says Thomas Rønde.
It is often employees with special knowledge who are able to spot an obvious license sale. Thomas Rønde recommends that companies in these cases may choose to give a bonus to employees who license the technologies.
Centralise decisions to sell broad licenses
Researchers would recommend most companies to centralise the decision to sell licenses. This applies in particular to the sale of broad technologies, such as computer and nano technologies, which can be sold to several markets.
Thomas Rønde uses IBM as an example. The company managed to maximise technology earnings by restructuring the business. The annual income based on technology sale increased from a minor amount to several billion dollars, he says.
- IBM chose to centralise the sale of technology licenses. The sale took place from a central license unit instead of different local units in the company. The people in the central unit paid attention to the sale of technology licenses as well as the interests of the entire company. The earnings increased significantly, said the professor.
However, there are always exceptions where it does not pay to move the decisions closer to the C-suite. Narrow technologies with small markets, e.g. patent sales to protect certain medicaments.
- It involves some risk to sell a narrow technology. The worst case scenario is that you might create a competitor, who you cannot compete with. In these cases, the specialised units in the company should make the decisions themselves. They will have the right knowledge to assess whether a sale is a good idea or not.
For more information, please contact Thomas Rønde, Professor, tel: +45 3815 25 73, email: thr.ino@cbs.dk or Matilde Hørmand-Pallesen, Journalist, tel: +45 4020 4454, email: mhp.ea@cbs.dk
The research
The paper ”Managing Licensing in a Market for Technology” has been authored by Thomas Rønde, Ashish Arora from Duke University in North Carolina, and Andrea Fosfuri from Universidad Carlos III in Madrid.
This research team has developed a game-theoretic model on the basis of existing research on licensing and interviews with American business executives. The model depicts the information, interests and behaviour of the top management and the individual business units. This model can help researchers analyse how technology sale must be organised and how the individual business unit managers can be motivated to ensure the most value for the entire company.