CHAPTER 7

TECHNOLOGY
COMMERCIALIZATION
BUSINESS MODEL AND
STRATEGY
Topics:
• Moving from R&D to Operation
• Constructing the Most Effective
Commercialization Business Model
• Commercialization Strategy (JV, Licensing,
Outright Sales, Franchising, etc)
• Understanding Why Commercialization Fail
 MOVING FROM
BUSINESS PLANNING,
R&D TO OPERATION
 Business Model

• The business model is the manager’s

logic that will allow a venture to:
• Capture the market opportunity;
• Mitigate risks;
• Identify the required resource set;
and
• Create value for investors and
founders.
What is Business Model?

A business model depicts the content, structure, and governance of

transactions designed so as to create value through the exploitation of
business opportunities.
Amit & Zott (SMJ, 2001, p.511)
 What is a Business Model?

• A business model depicts the content, structure, and governance of

transactions designed to create value through the exploitation of
business opportunities (Amit & Zott, 2001).
• A framework or plan that outlines how a company creates, delivers,
and captures value.
• It encompasses the core aspects of how a business operates,
generates revenue, and sustains its operations.
• A robust business model articulates the fundamental elements of a
company's strategy and helps align its activities with its objectives.
 The Content of Business
Model
• The good or information that is being
exchanged
• The resources and capabilities that are
required to enable the exchange
• e.g., transparency of transaction, vertical &
horizontal expansion of product/service,
the degree of customization, technologies
of transaction
 The Structure of
Business Model

• The parties that participate in the

exchange
• How these parties are linked
• The order process and the adopted
exchange mechanism
• E.g., the providers of complementary
assets, transaction speed, mode,
simplicity, safety & reliability, integration
of online & offline supply chains
Importance of a Business Model
Having an articulated business model is important because it does
the following:
1. Serves as an ongoing extension of feasibility analysis. A business
model continually asks the question, “Does this business make
sense?”
2. Focuses attention on how all the elements of a business fit
together and constitute a working whole.
3. Describe why the network of participants needed to make a
business idea viable are willing to work together.
4. Articulates a company’s core logic to all stakeholders, including
the firm’s employees.
CONSTRUCTING THE
MOST EFFECTIVE
COMMERCIALIZATION
BUSINESS MODEL
Business Models vs
Business Strategy

• The business model bridges

ideas and actions. It answers
the question of why a venture
will be viable and valuable.
• Business models relate to
business strategy as logic
relates to the algorithm.
Dell’s Business Model
Dell’s Approach to Selling PCs versus Traditional Manufacturers
 Business Model
Formation

• Business models are formed through a process

of addressing a series of questions:
• What is the value proposition?
• What are the target markets?
• Who are the critical members of the team?
• Where does competitive advantage exist?
• Why is there a competitive advantage?
• When will development, launch, and cash
flow breakeven occur?
From Business Model to Financial Model

Value Financial
Team Advantage
Proposition Implications

Analysis Market Core Competency Internal & Pro Forma

Segmentation External Analysis Analysis

Data Price Expenses Expenses Capital

Units Budgeting &
Timing Cash Flow
Assumptions
Conclusions Risk (k) Risk (k) Risk (k) Viability &
Value
(RAROC)
 • The value chain is the string of activities that
moves a product from the raw material stage,
How Business through manufacturing and distribution, and

Models Emerge ultimately to the end user.

• By studying a product or service’s value chain,
an organization can identify ways to create
additional value and assess whether it has the
means to do so.
• Value chain analysis is also helpful in
identifying opportunities for new businesses
and in understanding how business models
emerge.
Examples of
Business Model

1. Ansoff Matrix Product

2. Business Model Canvas (BMC)
3. Porter’s Diamond Model
Business Model 1:
Ansoff Matrix
Product

• An analytical tool that helps

managers devise their product and
market growth strategies.
• It shows the various strategies that
a business can take depending on
whether it wants to market new or
existing products or enter new or
existing markets.
Four Options:
• Market Penetration
Strategy – current
products and current
markets.
• Product Development
Strategy – new products
and current markets.
• Market Development
Strategy – current
products and new
markets.
• Diversification – new
products and new markets
ANSOFF MATRIX PRODUCT

2
4

1 3
 Option 1: Market
Penetration
• Is the preferred and common route to growth for
many businesses because it is safe.
• The emphasis is on increasing market share
through more marketing promotions, more
effective marketing, and by strengthening the offer
by creating more customer value.
• Focus is on selling more of the existing products
to
1. existing customers
2. Customers similar to your existing customers
who are buying from your competitors
3. Customers similar to your existing customers
who should be buying the product because
they have a clear need but aren’t doing so.
 Option 1: Market Penetration
(Example: McDonald's introduction of its all-day breakfast menu in 2015)
 Option 2: Product
Development

• Businesses continue to focus on the needs of current

customers and the wider customer market they represent
but they seek to understand their underlying needs and
wants better so they can see opportunities for new products:
1. To replace existing products with something better.
2. To provide complementary products that customers
need to buy before, during, or after the purchase of
the main product sold by the business.
3. To sell other products the customer buys as a way to
strengthen or leverage the relationship and to provide
added convenience. Think “one-stop shop”.
• The business can work with existing supplier businesses
with established resources and capabilities and offer them
new routes to market.
 Option 2: Product Development
(Example: Apple Inc.’s new product creation either by improving existing ones or entering new markets)
 Option 3: Market
Development
• Take the current products and find new markets for
them.
• There are different ways to do this
1. Opening up previously excluded market
segments through pricing policies e.g. discounts
for students and old age pensioners at theatres.
2. New marketing and distribution channels -
making a product available on the Internet with
the necessary search engine optimization means
that anyone looking can find it.
3. Entering new geographic markets by moving from
local to regional to national and finally
international.
• The strength of this option is that it puts pressure on the
marketing and sales functions of the business and
leaves the operations/supply side to concentrate on
what it does best.
 Option 3: Market Development
(Example: Starbucks’s new expansion strategy on product lines and new geographical markets)
 Option 4:
Diversification
• Developing new products for new customers.
• There are three levels of diversification:
1. Diversification into related markets – while the
customers and products are both new, there is a
logic about the move that makes sense to the
outside world
2. Diversification into unrelated markets - using
existing resources and capabilities – while the
customers and products are different, they all rely
on the existing strengths of the business. Metal
fabricators and plastic extrusion manufacturers
can move across markets and produce custom-
designed products relatively easily because
customers are buying access to the core
competencies.
3. Diversification into unrelated markets that require
new resources and capabilities.
 Option 4:
Diversification

• The riskiest growth strategy in Ansoff’s

growth matrix especially if it requires
the development of new resources and
capabilities.
• The big advantage of diversification - if
it is successful, it reduces the overall
risk of the business to factors outside
of the control of the business like the
wider economic environment, climate
change, etc.
 Option 4: Diversification
(Example: Disney started with an animation studio and grew to include theme parks, television networks, movie
studios, and consumer products.)
Business Model 2: Business Model Canvas
(BMC)

7 4
2 1
8

3
6

9 5
Business Model
Canvas’s NINE (9)
Elements:

1. Customer Segments
• the users to whom the product
and/or the technology is useful
and what for – such as basic
needs, solving problem
• Types of customers – mass
market, niche market, segmented
2. Value Proposition
• the value created for users by the
product or service containing the new
technology;
• Describes the bundle of products that
create value for a specific customer
segment
• What value do we need to deliver?
• Newness – new set
• Performance
• Customization
• Getting the job done
• Design
2. Value Proposition
• Brand/status
• Price
• Cost reduction
• Accessibility,
• Usability
3. Channels
• How a company communicates
with and reaches its customer
segments to deliver the value
propositions. Depending on the
types of channels.
• Channels types – sales force,
website, own store, partners
store, wholesaler
• Channel phases - awareness,
evaluation, purchase, delivery,
after-sales services.
4. Customer Relationship
Describe the types of relationships
a company establishes with
specific customer segment
Types of relationship:
• Personal assistance –
communicate directly
• Self-service
• Automated services
• Co-creation –
YouTube/Facebook
5. Revenue Stream
The cash a company generates from each
customer segment
Two types of Revenue streams:
• Transaction revenue – cash payment
• Recurring revenue – ongoing payment

Ways to generate revenue streams:

• Assets sales – products
• Usage sales – phone calls
• Lending, licensing
• Subscription fees
• Advertising
6. Key Resources
Resources require to make a business
model work
Key resources:
• Physical – building, machines
• Intellectual – brand, knowledge, IP
• Human – expertise
• Financial
7. Key Activities
Things a company must do to
make its business model work
Category of key activities:
• Organizing
• Production
• Problem solving
• Marketing
8. Key Partnership
Network of suppliers and partners that
makes the business model work
Four different types of partnership:
• Strategic alliance
• Cooperation
• Joint venture
• Buyer-supplier relationship

3 motivations for partnership

• Optimization of the economy of
scales
• Reduction of risks
• Acquisition of resources and
activities
9. Cost Structure
All costs involved in operating
business models
Two types:
• Cost driven – minimizing cost
• Value driven – concern of value

Characteristics of cost structure:

• Fixed cost – salaries, rental,
physical facilities
• Variable costs
Business Model Canvas (BMC)
Components
 Business Model 3: Porter’s Five Forces Model
● Five Forces Model: A framework for shaping competitive strategy

● Like SWOT, gives a repeatable set of criteria to judge a situation.

12/7/2024
 Threat of New Entrants

● AKA, “Barriers to Entry”

● Essentially: How hard is it for other firms to enter
your business?
• Do you have IP protection, trade secrets, etc.
that everyone else doesn’t have?
• Is there a significant cost associated with
entering your market?
• Are there regulatory barriers?
• Branding, marketing, advertising?
• Network effects? (More on this in a minute)
• Does one firm enjoy a production cost
advantage?
• High switching costs?
12/7/2024
 Barriers to Entry -
Examples

● Microprocessors: Large capital $$$$

required to build a fab
• NOT true anymore!
• More companies going fabless, more
quality competition from foundries
● Pharmaceuticals: FDA approval required
for sale of new drugs + patent protection
• Lengthy process, thousands of pages
of documents + multiphase clinical
trials = massive nonrecurring costs
 Barriers to Entry -
Examples

● Automobiles: Big 3 + foreign firms have

extensive relationships with suppliers and
large, modern factories
• Extensive regulatory protection
• Collective bargaining: UAW in play (gets a
great deal from Big 3)
• Is this still true? New electric car firms
popping up to take advantage of the
‘green’ shift
● Back-office software: High switching costs
keep existing IT infrastructures in place
● WARNING: Today’s barrier to entry could be a
liability tomorrow!
 Barriers to Entry –
cont.

● Network effects: Arise when your product

is used by a large group of users…
• …and the value of the product
increases the more people who use it
• Examples: Telephone, iPod,
MySpace, Facebook (and all social
networking media & content),
Windows, MS Office, Xbox Live!,
● Network effects can be an extremely
powerful barrier to entry
• Your entry forces other people to
change their behavior. VERY tough to
do!
 Barriers to Entry,
cont.

● One more thought on network effects:

• Network effects often determine winners
and losers, even if the loser is the superior
product.
● Example: Network effect loser
• Sony Betamax
• Better picture quality than VHS, better
sound, smaller tape size
• But JVC opened up the VHS standard
and allowed it to proliferate in the
market, sacrificing high prices for
volume
• End result? Consumers snapped up
cheap VHS VCRs.
 Barriers to Entry,
cont.

● Example: Network effect winner

• Apple’s iPod
• Dozens of MP3 players on market +
millions of songs
• Apple launches iPod using MPEG-4
encoding (.mp4)
• Co-launched iTunes as a
complementary product. Users could
easily buy a full album or 1 song at a
time legally from a central point
• iPod/iTunes sales took off, dominating
the market (Apple now the world’s
largest music retailer)
Power of Suppliers

● Put simply: How much influence do

suppliers have over your business?
• Are you dependent on a
component to succeed?
• Are people buying your product
because it contains x or y from
another supplier?
• Are there high switching costs to
use another firm?
• Are there any substitutes?
 Power of Suppliers -
Examples
● (High power example)
• PC Business: Intel >>> Dell, Compaq, etc. for
computers (the buying decision was Intel
Inside)
● (Low power example)
• Dell computer: Dell is ruthless at keeping parts
costs low. (Also Apple)
• US Auto industry: Parts suppliers dependent on
Big 3 for large orders (changing. Why?)

12/7/2024
 Power of Buyers

● Flip side of supplier power

● Put simply: How much influence do
buyers/customers have over your business?
• Are you a commodity? (Customers can get
what you have from anywhere)
• Do buyers of your product have significant
negotiating leverage?
• Are you dependent on 1 or 2 buyers for the
majority of your business?
• Are you developing a standard product?
• Low switching costs to go to something else?
• Can your buyer threaten to produce your
product themselves?
• Where are the end-users eyeballs?
 Power of Buyers -
Examples

● PC Memory vendors – Prices are set on the

open market, designs driven by JEDEC, so
no ability to differentiate or charge more
● Suppliers to MSFT – MSFT has enough
resources to work around most software
inputs
● Apple’s iPhone – Customers head to AT&T
Wireless to buy the phone, not the service
● Orange sellers to Tropicana
● Lettuce to Subway or McDonald’s
 Threat of
Substitutes
● Put simply: Is there something else out there
similar to your product that’s “Good Enough”?
• Interwoven with the power of
buyers/suppliers
• Undifferentiated products never earn high
profits – market mechanisms (supply and
demand) take over
• When there is an acceptable substitute
out there, you will require another edge
(marketing, branding, regulatory edge,
etc.)
• New technologies can make products
obsolete
● Sometimes economic conditions come into
play, making other substitutes more attractive
Threat of Substitutes - Examples
● Landlines vs. cell phones
● DSL vs. FIOS vs. Cable Internet
• Steve very happy with his new Cable internet service
● Cable TV vs. Satellite
● New technology displacing old:
• Zip Drives → Killed by CDRs → Killed by Flash → Killed by
net backup
● Economic conditions: (In this case, the weak dollar)
• Rising aluminum prices make carbon fiber more
competitive
• Biodiesel vs. Regular diesel
● Sometimes, substitutes can cross industry lines (we’ll see this
when we look at Southwest Air next time) – the key is the proper
frame of reference (in this case, the *travel* industry)
Rivalry Among Competitors
● The more energy you put into fighting off competition, the less
you have for profitability
• Potential for price wars (everyone loses) – the subject of
game theory
• Increased expenditures for marketing, ads, etc.
● Intensity increases where there are:
• Mature, slow-growth industries ($$$ pie is fixed)
• Participants enjoy roughly the same amount of power
• Products and services are indistinguishable
• Fixed costs are high, marginal costs low
● Rivalry can be good for all:
• For the average consumer, competition tends to lower prices
and drive new offerings to the market
• For market participants, competition leads to better
products and profitable market segmentation (Blue
Ocean Strategy module – Toyota example)
 Rivalry - Examples
● Airlines:
• Fare cuts and price wars are common
● Cell phones:
• Warring rate plans and feature offerings
● Boeing/Airbus
● Intel/AMD
● Microsoft/Google
● Fox/MSNBC/CNN
● Automotive Industry
• Interesting one: Different types of competition
across different market segments
• Who makes the highest MPG car?
• Who makes the toughest truck?
• Who makes the fastest sports car?
 Rivalry - Examples
● Steve’s friend Sean in grad school:
• Every 2 months, would get a call from a long-distance
phone provider
• “Hi, this is ---- from Sprint and we have a deal for
you! Would you be willing to switch your long-
distance service?”
• Sean: “Sure. What are you offering?”
• The next month, he’d get a call from AT&T asking why
he left
• Needless to say, Sean was a nightmare customer
• He wheedled better and better deals out of all of
his suitors every other month
• Also had a way to get “free” electronics from
Target
● Example of rivalry leading to better deals for end users. Of
course, in the end, no phone company ever made any
money off of Sean.
Business Strategy
Choices

• The requirements for success in

industry segments change over
time.
• Strategists can use these changing
requirements, which are
associated with different stages of
industry evolution, as a way to
isolate key competitive advantages
and shape strategic choices
around them .
Business Strategy in
Emerging Industries
• Emerging industries are newly formed or re-
formed industries that typically are created
by technological innovation, newly emerging
customer needs, or other economic or
sociological changes.
• There are no “rules of the game”.
• Technologies that are mostly proprietary to
the pioneering firms and technological
uncertainty will unfold.
• Competitor uncertainty because of
inadequate information about competitors,
buyers, and the timing of demand.
Business Strategy in
Emerging Industries
 High initial costs but steep cost
declines
 Few entry barriers
 First-time buyers requiring initial
inducement to purchase
 Inability to obtain raw materials and
components until suppliers gear up to
meet the industry’s needs
 Need for high-risk capital because of
the industry’s uncertain prospects
Emerging Industries

❑ To succeed in this industry setting, business

strategies require one or more of these features:
✓ The ability to shape the industry’s structure.
✓ The ability to rapidly improve product quality and
performance features.
✓ Advantageous relationships with key suppliers and
promising distribution channels.
✓ The ability to establish the firm’s technology as the
dominant one.
✓ The early acquisition of a core group of loyal
customers and then the expansion of that customer
base.
✓ The ability to forecast future competitors
Examples of Emerging Industries
❑ Newly established industries driven by innovation,
technology, and changing consumer needs.
✓Artificial Intelligence and Machine Learning
✓Quantum Computing
✓Space Tourism and Commercial Space
Exploration
✓Electric Vehicles (EV) and Autonomous Driving
Technology
✓Metaverse Development and Virtual Reality
Applications
✓Carbon Capture and Storage Technologies
✓3D Printing and Additive Manufacturing
Growth Industries
To succeed in this industry setting, business strategies require
one or more of the following features:
✓ The ability to establish strong brand recognition.
✓ The ability and resources to scale up to meet increasing
demand.
✓ Strong product design skills to be able to adapt products and
services.
✓ The ability to differentiate the firm’s product[s] from
competitors entering the market.
✓ R&D resources and skills to create product variations.
✓ The ability to build repeat buying from established customers.
✓ Strong capabilities in sales and marketing
 Examples of Growth Industries
❑ Experiencing rapid expansion, with
increasing demand and significant market
entry opportunities.
✓Renewable Energy (e.g., Solar, Wind, and
Hydrogen Energy)
✓E-commerce and Online Marketplaces
✓Biotechnology and Genomics
✓Healthtech and Telemedicine
✓Cybersecurity Solutions
✓Plant-Based and Cultured Meat
Alternatives
✓EdTech (Educational Technology)
 Mature Industries
❖Strategy elements of successful firms in maturing industries
often include the following:
✓ Product line pricing.
✓ Emphasis on process innovation that permits low-cost
product design, manufacturing methods, and distribution
synergy.
✓ Emphasis on cost reduction.
✓ Careful buyer selection to focus on buyers who are less
aggressive, more closely tied to the firm, and able to buy more
from the firm.
✓ Horizontal integration to acquire rival firms whose
weaknesses can be used to gain a bargain price.
✓ International expansion to markets where attractive growth
and limited competition still exist
Examples of
Mature Industries
❑ Have stable growth, established players,
and intense competition with limited new
market entrants.
✓ Automotive Manufacturing (Internal
Combustion Engine Vehicles)
✓ Oil and Gas Extraction and Refining
✓ Fast-Moving Consumer Goods (FMCG)
✓ Telecommunications
✓ Banking and Financial Services
✓ Real Estate Development
✓ Pharmaceutical Manufacturing
(Traditional Medicines)
Competitive Advantages
and Strategic Choices in
Declining Industries
 Declining industries are those that make
products or services for which demand is
growing slower than demand in the
economy as a whole or is declining.
 Focus on higher growth or a higher return.
 Emphasize product innovation and quality
improvement.
 Emphasize production and distribution
efficiency.
 Gradually harvest the business.
Examples of
Declining Industries
❑ Reduced demand, technological
obsolescence, or regulatory pressures.
✓ Coal Mining and Traditional Fossil Fuels
✓ Landline Telephone Services
✓ DVD and Blu-ray Disc Manufacturing
✓ Print Media (e.g., Newspapers and
Magazines)
✓ Textile Manufacturing (Low-Tech
Segments)
✓ Traditional Retail Stores (Brick-and-
Mortar Only)
✓ Cable TV Services
 Competitive Advantage in
Fragmented Industries

• A fragmented industry is one in which no

firm has a significant market share and
can strongly influence industry outcomes.
• Tightly managed decentralization
• “Formula” facilities
• Increased value added
• Specialization
• Bare bones/no frills
Examples of
Fragmented Industries
❑ Characterized by many small players with no
dominant market leaders, often in highly
localized or niche markets.
✓ Restaurants and Food Services
✓ Handicrafts and Artisanal Goods
✓ Boutique Fashion and Apparel Brands
✓ Local Construction Companies
✓ Independent Bookstores
✓ Specialty Food Products (e.g., Organic or
Gluten-Free)
✓ Freight and Logistics Services (Small
Regional Players)
 BUSINESS
COMMERCIALIZATION
STRATEGIES
Business Strategy - 4 Major Routes of
Commercialization
Licensing/Franchising

Contract Manufacturing

Spin-off Companies

Joint Venture (JV)

4 Major Routes of
Commercialization
Business Strategy
1. Licensing/Franchising
✓ A research Project is defined, carried out, and
financed without the contribution of an
industry partner ("market/technology push").
✓ The licensable result might be a by-product
of a project or a line of research
• A contractual arrangement whereby the
licensor (selling firm) allows the licensee
• (the buying firm) to use its – technology
patents, trademarks, designs, processes,
know-how, intellectual property
1. Licensing
✓ A strategy for technology transfer for
a fee.
✓ Note that this is not the same kind of
licensing for example when a
government issues a license or gives
permission for a bank to open a
branch, or a firm to manufacture a
particular product, or to explore for
gold or oil
Reasons for Licensing:

• Lack capital, management resources, and

market knowledge to exploit directly by export or
FDI, so license to a local firm.
• Use licensing as a way to test the market (but is
this unfair to local licensees?)
• We can get money for an invention or technology
which is outside our core competence.
• Local market may be too small – a problem of
economies of scale.
• Avoid or minimize political factors/risks.
- restrictions on imports
- restrictions on FDI
- require majority foreign ownership
- high risk of nationalization
• Possible high rate of obsolescence / short product
life cycle for new technology.
- maximize scope for exploitation
Advantages for Licensee (buyer):
1. Quick
2. Cheap
3. Low risk

• Gets marketing advantages - brand image, promotion

Problems for Licensor:

1. What rate to charge?
2. Does that maximize profits?
3. What about getting feedback from customers on uses?
4. What about getting feedback from customers on improving
the technology?
5. Lose control over the use of the product
- sales into what markets?
- what about sub-licensing?
- how to monitor conformity to terms of license?
- how to monitor maintaining quality standards?
License agreements usually include
considerations such as:

• Definition of the brand being licensed.

• Definition of the sales to which the royalty
percentage is to be applied.
• A restriction of the use of the brand to
specific products, channels, and
territories.
• A specific period, say 3 years.
• Brand use and authorization procedures.
• Commitments by licensee to brand
marketing.
• Other legal rights and obligations such as
necessary records and returns and access
to audit each other’s accounts.
2. Contract Manufacturing
• Contract manufacturing is a process that
establishes a working agreement between two
companies.
• As part of the agreement, one company custom
produces parts or other materials on behalf of
their client.
• In most cases, the manufacturer also handles the
ordering and shipment processes for the client.
• As a result, the client does not have to maintain
manufacturing facilities, purchase raw materials,
or hire labor to produce the finished goods.
• Also called outsourcing.
• The general concept of contract manufacturing is
not limited to the production of goods.
• Services such as telecommunications, Internet
access, and cellular services can also be
supplied by a central vendor and privately
branded for other customers who wish to sell
those services.
 Advantages of Contract Manufacturing

For the manufacturer: For the client:

- There is the guarantee of steady work since having - There is no need to purchase or rent production facilities,
contracts in place that commit to certain levels of buy equipment, purchase raw materials, or hire and train
production for one, two, and even five-year periods employees to produce the goods.
makes it much easier to forecast the future - There are also no headaches from dealing with
financial stability of the company. employees who fail to report to work, equipment that
breaks down, or any of the other minor details that any
manufacturing company must face daily.
- All the client has to do is generate sales, forward orders to
the manufacturer, and keep accurate records of all income
and expenses associated with the business venture.
Example:
• Apple Inc. outsources the
production of iPhones to
companies like Foxconn (also
known as Hon Hai Precision
Industry Co., Ltd.) and Pegatron
Corporation.
• These contract manufacturers
handle the assembly of iPhones
based on Apple's specifications
and design, allowing Apple to
focus on design, marketing, and
sales while leveraging the
manufacturing expertise and
capabilities of these companies.
3. Spin-Offs
• The company created based on
commercial research products
• A firm creates a subsidiary to hold a
portion of its assets and distributes
shares of its subsidiary to its
shareholders to create an
independent company.
• Two separate companies after the
spin-off.
• No cash inflow to the firm from the
spin-off. (Subsidiary is not being
sold.)
Reasons for Spin-Offs
Improved focus and reduction of negative synergies. Daley,
et al (1997)
Improved investment efficiency. Diversified firms allocate
investment funds inefficiently. Ahn-Denis (2004).
Reduction of information asymmetry.
Krishnaswami-S(1999).
Ability to offer more effective incentive contracts to
managers.
Tax and regulatory-related reasons.

Wealth transfer from bondholders. (Marriott)

Example: The Creation of Agilent Technologies
from Hewlett-Packard (HP) in 1999
Parent Company: Hewlett-Packard (HP)
Spin-off Company: Agilent Technologies.
Reason for Spin-off: HP wanted to separate its scientific
instruments and measurement businesses from its core computing
and printing businesses to focus on their respective areas.
Result:
• HP shareholders were granted shares in Agilent Technologies,
making it an independent company.
• HP did not sell Agilent, so there was no immediate cash inflow to
HP from the transaction.
• Agilent became a separate entity with its own management and
operational focus.
➢ This example demonstrates the characteristics of a spin-off,
where a subsidiary becomes an independent company with no
cash exchange between the parent company and the spin-off
entity.
Example:
Hewlett-
Packard (HP)
4. Joint Venture (JV) Company
• A contractual agreement
joining together two or more
companies to execute a
particular business
undertaking.
• All companies agree to share
in the profit and losses of the
business.
Example: “Mobility Connect” – a JV between Sony Group Corporation and
Honda Motor Co., Ltd. in 2020 (technology-driven mobility experiences )
❑ A joint venture can help your
business grow faster,
increase productivity, and
generate greater profits.
❑ A successful joint venture
can offer:
• access to new markets and
distribution networks.
• increased capacity.
• sharing of risks and costs
with a partner.
• access to greater resources,
including specialized staff,
technology, and finance.
The Risks of Joint Ventures:
Problems are likely to arise if:
• the objectives of the venture are not
clear and communicated to everyone
involved.
• the partners have different objectives
for the joint venture.
• there is an imbalance in levels of
expertise, investment or assets brought
into the venture by the different
partners.
• different cultures and management
styles result in poor integration and
cooperation.
• the partners don't provide sufficient
leadership and support in the early
stages
Green And Natural Group Of
Companies
• Established on year 1994 as a trading &
marketing company.
• Manufactures and distributes a range
of oleochemicals, covering Palm
Methyl Ester, Oleic Acid, Soap Noodles,
and Fractionated Products (Caprylic-
Capric Acid, Lauric Acid, Myristic Acid,
Palmitic Acid & Triple Pressed Stearic
Acid). Green & Natural Sdn Bhd (GNN).
• In the year 2000, GNN joint ventured
with an international Fatty Acid &
Glycerine manufacturer in Indonesia.
• Under this JV, they cooperate in raw
material procurement, production, risk
management & marketing in
fractionated products
 UNDERSTANDING
WHY
COMMERCIALIZATION
FAILED
1. Start-Up
(Business) Risks
• Risk if the uncertainty of an outcome
• Three types of risk for businesses:
i. Economic
ii. Natural
iii. Human
Economic Risks
• The risk that an endeavor will be economically
unsustainable
• Can include:
• Changes in demographics
• Business cycle
• Competition
• Government regulations
Natural Risks
• Probability of harm to human health,
property or the environment posed
by any aspect of the physical world
other than human activity

• Can include:
• Perishability
• Weather
• Fires
Human Risks
• Risks related to the actions of those inside and
outside the company
• Can include:
• Employee theft or incompetence
• Accidents
• Shoplifting
• Fraud
• Computer-related crime
Impact on Profits
1)Economic:
• Loss of potential consumers
• Product/Service popularity may end quicker than expected
• Competition may increase and you could lose customers
• Increased regulations could prevent certain business practices or production
2)Natural:
• Loss of goods = loss of profits
• Damage of goods/resources
3)Human:
• Loss of goods/resources
• Injuries
• Lawsuits
• Loss of information
2. Risk
Management
• Risk: The organization’s
exposure to accidental loss.
• Management: Planning,
organizing, Leading and
controlling.
• “Everyone on campus must
be a risk manager.”
In Order to • Understand risks associated with your
objective.

Manage • Understand your role as a part of the risk

management team.

Risk • Expand your knowledge base of risk

management principles.

Effectively, • Take an active role in the risk management

effort.

You Must: • Seek creative solutions to risk management

issues.
 The Importance of Risk Management
• Accountability
• Raises Awareness
• Financial impacts
✓Program cuts
✓Premiums
✓Deductibles
✓Claims
Six (6) Steps of Risk Management
1. Identify and Analyze Exposures
2. Analyze the Feasibility of Alternative
Techniques
3. Select Method of Risk Control
4. Implement Chosen Techniques
5. Monitor Results
6. Modify Techniques
Step 1: Identify & Analyze Exposures
• Identification Tools:
• Loss History
• Program Outlines
• Annual Budget
• Meeting Agendas
• Purchase Agreements
• Inspection and Maintenance Records
• Contracts and Leases
Step 2: Feasibility of Alternative Techniques
• Avoidance
• Transfer of Risk
• Retention of Risk
• Reduce Risk through Loss Reduction Efforts
• Finance Retained Risk
• Define Meaningful Standards and Expectations
Step 3: Select Method of Risk Control
• Evaluation Techniques
• Frequency/Severity of Claims
• Publications/Periodicals/Other Universities
• Political/Litigation Climate
• Anticipate
Mitigation Options
➢Control It (prevention & detection
techniques)
➢Share It (co-source; warrants;
guarantees)
➢Transfer It (insurance; hold harmless
contracts)
➢Avoid It (process re-design; eliminate
process)
➢Accept It (cost/benefit analysis)
➢Residual Risk (Opportunity To Manage)
Step 4: Implement the
Chosen Technique
• Management Support
• Documentation and Notification
• Governing Board Approval for Major
Actions
• Develop Policies and Procedures
Step 5: Monitor Results
• Compare Actual Results to Anticipated Results
• Consider Environmental Changes
• Keep Records/Documents
Step 6: Modify Techniques
• Document Decision-Making Process
• Maintain a Safety/Loss Control Program
• Continue to Monitor Results
• Start over at Step 1 !!!
 • Changing environment – remodel
• Budget issues – Circumvent procedures/taking
shortcuts
• Policies & Procedures – Clearly defined
3. Current • Safety environment – Constant changes
• Communication – Sharing of information
Challenges • Equipment – Purchasing & Insurance
requirements
• Maintain a teamwork philosophy, share
information, focus on the objective of the college
and the impact to future programs.
4. Product
Failures
Reasons for New Product Failure