While the Advantages of External Partnerships are Plenty, Success Requires a Keen Management Strategy

The locals in mountainous New England dismiss vacationers as “flatlanders,” but aren’t we all? Globalization chronicler and oracle Thomas Friedman saw it coming, enunciating the virtues of a flat 21st-century world where “connect and collaborate” is the norm. Then A.G. Lafley, CEO of Procter & Gamble, helped reconfigure the art of innovation by declaring that henceforth P&G would outsource 50 percent of its R&D. Earnings tripled in seven years.

Corporate towers of vertical integration, the old way of doing business, tilt and topple in today’s times. In the flat world, captains of industry “horizontalize” by selecting external partners who will do the job better, cheaper, quicker. Two traditional solutions to pump up corporate growth—internal or organic growth, and mergers and acquisitions—are being nudged aside by strategic external alliances seen to offer faster and surer return on investment.

Companies aggressively shop their core competencies globally, inviting in prospective external partners. Management gurus and business leaders weigh in with partnering paradigms, touting open R&D models such as “transformational growth,” “transnational innovation” and “innovation 3.0.” And as the linkage between national competitiveness and R&D firms up, governments around the world convene big thinkers and policy advisors to address the innovation imperative.

Cost benefits, access to better technologies, global talent pools, complementary skill sets—there’s plenty to like about external partnerships. Scientists, says Dr. J. Stewart Witzeman, chairman of the Industrial Research Institute (IRI) and director of Eastman Chemical Company’s Eastman research division, are skilled at leveraging relationships to achieve their goals, and external partnerships are a logical extension of that capability. Logical perhaps, “but not automatically simple, nor does it necessarily take the same skill set that makes someone a good internal manager.”

An array of partnership business models has emerged from the slow dance and courtship between industry, academia and government. Joint ventures, in-and-out licensing agreements, material transfer agreements, corporate-sponsored research agreements and joint development alliances—these are the structures of the contractual marriages partners enter into. But the matrimonial state is fraught with uncertainty. There are risks to be managed. R&D was once kept under lock and key as the crown jewels and doesn’t necessarily travel well, but outsourcing requires lab managers to collaborate with external partners, often sight unseen. “Good partnerships,” says R&D innovation guru Dr. Gene Slowinski, “begin with good lab practices.”

The partnership dynamic is interpersonal. People partner with people, not institutions, “but run-of-the-mill lab rats are not people persons. We’re used to dealing with inanimate objects,” says Sam Straight, a pharmaceutical industry veteran and executive-in-residence at N.C. State University’s College of Management. Others echo this. “Who resists innovation sourcing?” poses Slowinski, “... technical staff and middle management…. many professional scientists want to be scientists, not project managers. Their skills sets and interests lie in making technical discoveries, not integrating external technologies.”

Mentoring, says Straight, “is obviously the biggest way of acquiring these skills. Within your organization there are going to be people that handle relationships all the time. Set up a program to have them mentor those who’ll run relationships with external providers. You’re looking for an individual who wants to own that external relationship. That’s the person you entrust with it…. And you need someone on either side to act as ombudsperson, someone to take problems as they arise and resolve them, and it’s not always a win for [either partner]. But it’s got to be fair, and over time you build trust.”

The new generation of lab managers “needs to be much more skilled at external partnerships,” says Witzeman. Many are “bandwidth limited,” says Slowinski, director of Strategic Alliance Research at Rutgers University’s graduate school of management, and resist taking on added administrative burdens. “If budget is redirected externally, it may decrease internal spending, disrupting teams and decreasing capabilities.”

Even relatively straightforward external collaborations like outsourcing can be complex and exasperating, says Jennifer Peckham, a DPU operations manager for GlaxoSmithKline who oversees supplementary chemistry work with Chinese contract research organizations. “Although we set all the rules and priorities, I have to be very firm with the CRO about what they’re working on. It’s taken me a while [to have the comfort level] to say ‘You’re straying off onto X, Y and Z.’ That’s part of the reason it’s so important to have someone dedicated to outsourcing. You’ve really got to stay on top of it.”

Building the foundation for successful external alliances is an inside job. Organizational silo mentality and internal politics can poison partnerships, which are ill advised without the full support of upper management and a company culture that embraces external collaboration.

In 2001, Cisco CEO John Chambers announced that command and control management was passé and set out to network the world. Cowboys still ride herd over swaths of corporate America, but that mentality—the antithesis of collaboration—is seen ebbing as the world flattens.

New research into this cultural sea change, from command and control to a more collaborative mindset, bodes well for future partnerships. Many younger, up-and-coming team members in corporations with a prevailing command and control style are inclined to “work around” corporate policy and collaborate via social media applications. (A 2010 global “Collaboration Nation” study by Insight Express, funded by Cisco, surveyed over 3,000 IT users in 10 nations.)

According to the survey, users in the United Kingdom and France were most aggressive in taking matters into their own hands, while those in China were most compliant. Still, China and India had higher adoption rates of collaborative tools than the U.S. or U.K. did, most likely because the former are rapidly evolving competitive infrastructures with more flexible protocols about crossfunctional interactions.

IT lines of communication is the stuff that connects and facilitates external partnerships and drives collaborative behaviors that “promote the mission of the research lab,” says Dr. Paul Tiffany of the Haas School of Business at University of California, Berkeley. “More companies are starting to realize that [social technologies] are really powerful platforms for enhancing communication among geographically dispersed teams.

“When the question is how to build relationship partners, you want everybody in the same eco-zone, as it were, where they can informally bounce ideas off one another. Innovation often begins with ‘Aha, so that’s what you’re doing,’ and researchers can see where a certain approach has applicability to what they’re working on. The point is to get them to share insights, because one person can’t do it all. So the issue is really one of communication.”

Bigger, faster systems to improve lines of collaborative communication are just over the horizon. Boeing’s massive 787 “Dreamliner” project is a case in point: a team of global partners designs and manufactures all components, leaving Boeing to focus on overall integration. Dassault Systemes’ digital 3D CAD mock-up virtually designs and models each of the plane’s 10,000 parts before they are manufactured.

Partnerships are front-loaded and often require inordinate initial effort—assessments and decisions regarding IP and nondisclosure, strategic intent, technical capabilities, business development, and operational structures and systems must be finalized. It is easy to underestimate the work involved.

“Most of my challenges are at the start of partnerships,” says Bem Culiat, retired senior ORNL scientist and chairman of the scientific advisory board for NellOne Therapeutics, Inc. But she uses the time to evaluate prospective partners and establish trust. “You can get a sense during these negotiations if folks are delivering and if they will reasonably compromise.” As partnerships progress, she insists on face-to-face meetings at critical junctures because “so much input is nonverbal. You can’t read body language by video conferencing.”

Before embarking on external partnerships, managers must vet all internal contributors to minimize risk. “Every partnership is really three partnerships in one,” says Witzeman. “If I strike a deal with you, that means I have to depend on somebody in my organization to fulfill my end of the bargain, as do you.

“Everybody understands that diverse teams like partnerships tend to be much better at coming to a good solution. But one of the dirty little secrets of this diversity is there’s going to be conflict, because not everybody thinks the same way. Teams have people with complementary skill sets. One scientist has a more rigorous scientific approach; another has a more general applied approach. Good managers see both sides and they play the equivalent of a scientific marriage counselor. Constructive, data-driven conflict is one thing. Personalitybased conflict is toxic.”

At the same time, managers must take pains to communicate to internal staff the importance of the collaboration at hand. Even the best partnership agreements, notes Slowinski, are a poor substitute for enthusiastic team members who understand the potential of their R&D work to create marketplace value.

Partnerships sometimes harness teams of rivals, and they demand vigilance at every turn. “Not every partner is your friend,” cautions research from IRI. “At 8 a.m. they are your partner; at 8:15 a.m. they may be your competitor.... Partners can simultaneously be collaborators at the R&D level, competitors at the business-unit level, major suppliers to each other in the supply chain, and adversaries in court.”

Entry into external alliances is indeed governed by competitive considerations. The life sciences face an acute R&D crisis, but the industry was late to take the partnering plunge, restrained by unresolved IP issues. Industry leader Pfizer took the M&A route with mixed success before building a relationship R&D network in China using virtual technologies.

“We must make sure that confidential information remains confidential,” says Jon Coffman, principal engineer in biotherapeutics research at Pfizer. “Technical methods of communication have to involve significant security… not something that is easy to achieve. Beyond the technical methods, many of us prefer to meet face to face at the beginning of a long-term relationship to establish a level of personal trust. The face-to-face meeting has positive long-term impact on the trust relationship.”

The R&D universe is cluttered with partnership conferences and symposia, proof of partnership’s gravitas. The Government University Industry Research Roundtable, an arm of the National Academies, is an example. Topics on the table for its summer meeting include IP, trust, cultural differences (language, standards, behaviors), responsibility and authority, research integrity, ethical standards, and safety and security.

Rigorous management of both lab notebooks and carefully defined research expectations are key best practices. Lab staff must update notebooks daily and know what confidential information can be shared and under what circumstances—a “firewall” that industry welcomes in its academic partnerships, says David Chen, director of the Coulter Foundation translational research partnership in biomedical engineering at the University of Virginia.

The fallout from the Bayh-Dole legislation still clouds industry-university research. The pace, says Witzeman, can be “maddeningly slow,” driving business to overseas institutions that are “much more enlightened about how to deal with IP.” But Chen sees the cultural gap between industry and academia narrowing, as universities trend toward process-oriented methodologies and demonstrate the “will to kill”—making the tough calls to pull back funding for campus labs that don’t measure up.

Maryland is among the states that incubate partnerships that tap into its university and federal lab research. “As an intermediary, we bridge the culture gap between the different worlds of small business and the federal government,” said Ron Kaese, director of federal programs for The Maryland Technology and Development Corporation.