Besides applying technology in their own products, industrial firms increasingly exploit their technologies externally, for example through out-licensing. Earlier studies cannot explain the discrepancies between a few pioneering firms in active technology licensing and the managerial difficulties of many others. In diversified firms, diverging interests of the corporate and business unit level in the keep-or-sell decision constitute a central barrier to active licensing. Therefore, this article examines two essential dimensions of designing the corporate/business unit interface in diversified firms: the centralization of the activities on the corporate level and the alignment between the organizational levels. The study tests three hypotheses regarding the interaction and consequences of these organizational dimensions with data from 152 firms. Consistent with the hypotheses, the data provide support for the benefits from medium levels of corporate centralization and corporate/business unit alignment. The results have implications for technology exploitation, open innovation, markets for technology, and corporate strategy.
In the past, most industrial firms focused on internal technology exploitation, whereas external technology exploitation, for example technology licensing, was relatively neglected (Auh & Menguc, 2005 and March, 1991). Recently, many firms have adopted open technology exploitation strategies, which go beyond marginal activities of commercializing residual knowledge (Lichtenthaler and Lichtenthaler, 2009). Some pioneering firms, such as Texas Instruments and Honeywell Inc., achieve enormous monetary and strategic benefits from transferring technology, for example licensing revenues (Fosfuri, 2006 and Rivette & Kline, 2000). However, prior research relatively neglects external technology exploitation (Lichtenthaler and Ernst, 2009). The literature thoroughly addresses internal technology application in new products (Lin et al., 2006 and Simpson et al., 2006) and external technology acquisition (Lichtenthaler, 2009, Nielsen, 2005 and Norman, 2004). By contrast, most earlier research into external technology exploitation focuses on descriptive issues, and only some recent studies deepen the understanding of environmental antecedents of licensing (Fosfuri, 2006, Gambardella et al., 2007 and Nagaoka & Kwon, 2006). However, an empirical analysis of internal antecedents is lacking (Lichtenthaler and Ernst, 2009). Therefore, this article analyzes the impact of two essential dimensions of designing the corporate/business unit interface in external technology exploitation in diversified firms: the centralization of the activities at the corporate level and the corporate/business unit alignment.
The discrepancies between some pioneering firms in active licensing and the substantial managerial difficulties of many others underline the research deficit (Chesbrough, 2007). In particular, a close alignment of external technology exploitation and the technology source's product business is necessary because of the substantial risks of transferring technology. The technology source's primary potential downside is the negative “profit dissipation effect” based on a weaker competitive position, which may result from transferring relevant knowledge (Fosfuri, 2006). The examples of some pioneering firms in active licensing underline that the organizational design constitutes a major challenge (Davis and Harrison, 2001). These managerial challenges are especially high in diversified firms in comparison with more focused companies. In particular, the business units in diversified firms may have competitive interests that may differ from the firm's overall corporate strategy, and these interests may limit outward technology transfer (Porter, 1987 and Ramanujam & Varadarajan, 1989).
The decision to refrain from technology transfer may be beneficial from a single business unit's perspective. From a corporate perspective, however, it may be sub-optimal because the firm misses the potential benefits from technology licensing, and these benefits might overcompensate licensing's potential downsides. Consequently, the organization of licensing activities concerning the corporate/business unit interface plays a particularly important role in diversified firms because it may strongly limit outward technology transfer. Various pioneering firms have corporate technology transfer units, which receive support from the business units (Arora et al., 2001 and Chesbrough, 2007). Moreover, prior managerial works suggest involving business units to ensure the implementation of corporate licensing strategy (Parr, 1996 and Sullivan & Fox, 1996).
This study offers several contributions. In particular, it helps to explain the discrepancies between some active licensors and many others (Rivette and Kline, 2000). Drawing on a dynamic capabilities perspective, this article is among the first quantitative studies into managing technology licensing. It tests three hypotheses with data from a large sample of firms. Because of interdependencies between internal and external technology exploitation, the study's implications go beyond licensing. In particular, this article provides new insights into capturing value from technology in open innovation processes (Chesbrough, 2007). Furthermore, the results contribute to understanding the technology markets, which differ substantially from product markets (Fosfuri, 2006). Finally, the findings have implications for research into university technology transfer (Markman et al., 2005) and corporate strategy of multibusiness firms (Chang and Harrington, 2000).
