Organizations do not have to develop every technology or innovation internally. They can acquire knowledge, capabilities, or established processes from outside the firm through arrangements such as acquisitions, joint ventures, franchises, and licenses. These approaches can help a firm respond more quickly to competition, but they also bring challenges related to integration, control, and collaboration.
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When are external sources of technology especially useful?
They are useful when a firm has fallen behind competitors, when a new entrant changes competitive dynamics, or when the firm doubts its current product mix or way of operating will succeed in the long run.
What are the main advantages and challenges of external sourcing?
External sourcing can be faster and often less costly than developing technology internally. It can also create integration challenges, cultural conflict, resistance to new practices, and relationship or contract costs.
What is a joint venture, and what is strategic drift?
A joint venture is a long-term alliance in which partners create a new entity to pursue a particular product or process innovation. Strategic drift occurs when the venture loses focus on the reason it was established.
How does licensing differ from franchising?
Licensing grants permission to use technology, often without the licensee conducting the related R&D. Franchising generally shares an established business model, name, or technology with franchisees through a continuing agreement.
How do formal and informal technology-sharing contracts differ?
Formal contracts tend to be more detailed and specify enforceable usage terms and limitations. Informal arrangements can be easier to end when the activity is no longer beneficial, but may offer less certainty.
Quiz questions
Which statement accurately distinguishes a merger from an acquisition?Answer: A merger brings firms together to form a new firm; an acquisition is one firm buying another.
What is a defining feature of a joint venture?Answer: Partners create a new entity for a particular product or process innovation.
What does a licensing agreement primarily allow another organization to do?Answer: Use specified technology under agreed terms.
Which challenge can arise when a firm obtains technology or capabilities externally?Answer: Integrating different cultures, processes, and structures.
When choosing an external sourcing method, what should a firm assess about its objective?Answer: Whether it seeks an organization, a shared innovation, a business model, or technology-use permission.
Based on Principles of Management by David S. Bright, Anastasia H. Cortes, Eva Hartmann, K. Praveen Parboteeah, Jon L. Pierce, Monique Reece, Amit Shah, Siri Terjesen, Joseph Weiss, Margaret A. White, Donald G. Gardner, Jason Lambert et al. (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.