A recent study conducted by researchers from Mansoura University and the University of Guelph, soon to be published in the Journal of Marketing, delves into the negative impact misaligned contracts can have on the innovative output of high-tech companies. This study, entitled “Collaborating to Innovate: Balancing Strategy Dividend and Transactional Efficiencies,” was contributed to by Nehal Elhelaly and Sourav Ray.

The research highlights a scenario where a large multinational corporation, such as Unilever, enters into a partnership with a critical supplier like Novozyme, a producer of industrial enzymes. This collaboration is designed to accelerate innovation and enhance overall business performance. Combining the expertise, technologies, and resources of both entities to develop new products, services, or solutions, collaboration is seen as a vital tool for innovation by up to 85% of companies, according to industry reports.

Bristol-Myers Squibb, a global pharmaceutical giant, has publicly acknowledged the significant role external innovation and partnerships play in their strategy. This approach has achieved commercial success and expanded its product pipeline, with twelve of its twenty blockbuster medicines being products of such collaborations. Moreover, over sixty per cent of their development pipeline comes from external sources, enhancing their internal innovation capabilities.

Despite the apparent benefits, these partnerships come with challenges, including potential knowledge leaks and opportunistic behaviours. Firms might be disadvantaged if they fail to align their strategic and functional capabilities with their innovation collaboration contracts. This misalignment can hinder a company’s ability to reap long-term benefits from its marketing strategies.

Elhelaly suggests that companies should critically assess whether their contracts will support their strategic goals, emphasizing the need for a synergy between a firm’s strategic positioning, functional capabilities, and the governance structures of co-development initiatives.

The study also examines the role of Joint Venture (JV) partnerships, particularly during economic downturns, highlighting that such partnerships are most beneficial when firms possess solid technological capabilities. Technological prowess is linked to a 5.2% increase in innovation performance in JVs for companies with similar efficiency goals, a trend not observed with technology licensing contracts and joint development agreements.

Conversely, strong marketing capabilities in the same scenario are tied to a 17.9% decrease in innovation performance for JVs. However, in firms oriented towards high differentiation, marketing capabilities positively impact joint development agreements, boosting innovation performance by 7.8%.

The study points out the critical concept of ‘fit’ in co-development collaborations and misalignment costs, underscoring the importance of a company’s strategic positioning in innovation partnerships. As the research suggests, misalignments can lead to inefficiencies and a gradual erosion of innovation outcomes.

For Chief Marketing Officers (CMOs), the research offers several insights:

– Choosing the correct form of collaboration is essential to encouraging partners to share expertise, ensuring efficient knowledge transfer, and protecting against opportunistic threats.

– Developing the appropriate functional capabilities is critical to maximizing the benefits of innovation collaborations. For instance, companies focused on differentiation should enhance their marketing capabilities and opt for more distant arrangements like joint development agreements with suppliers. Meanwhile, efficiency-driven firms should bolster their technological capabilities, particularly when considering joint ventures.

– Firms are advised to consider their strategic positioning and capabilities before unquestioningly adopting industry practices. The effectiveness of contracts depends significantly on these factors, and what works for one company during economic downturns, such as joint ventures, may not be suitable for another.

This study underscores the complex dynamics of innovation collaborations in high-tech industries and provides a roadmap for companies looking to navigate these partnerships successfully.

More information: Nehal Elhelaly et al, Collaborating to Innovate: Balancing Strategy Dividend and Transactional Efficiencies, Journal of Marketing. DOI: 10.1177/00222429231222269

Journal information: Journal of Marketing Provided by American Marketing Association