Technology transfer
Allan Afuah
Technology can be described as the body of knowledge that underpins a product’s design, manufacturing, marketing, sales, and delivery to customers – or simply as the body of know ledge that goes into making and selling products (the concepts and tools discussed apply to ser vices as well). Thus, technology transfer is about transferring a body of knowledge. When the R&D unit of a chip maker transfers a new chip design to the fabrication area, it is transferring technology – the body of knowledge that under pins the new design – from one unit to the other. When an entrepreneur takes the knowledge and practices from his or her old company to found a new company, he or she is transferring techno logy to his or her start up. When a car assembly plant is built in a developing country, technology is being transferred to the country. Most of the activities performed by the different units of a firm during new product development are technology transfer activities. Effectively, the success of many entrepreneurial ventures and of major firms whose revenues and profits come from new products/services depends on successful technology transfer.
Whether technology transfer is taking place within an organization or between organizations, there are certain factors that determine the effectiveness and efficiency of the transfer. Let us consider the inter organizational factors first.
Inter-Organizational Technology Transfer
Effective and efficient inter organizational technology transfer depends on five factors: the characteristics of the organization that is receiving the transfer, the attributes of the organization from which the technology is being transferred, the nature of the technology being transferred, the transfer environment, and how well the transfer process is managed.
Characteristics of the Receiver
Four characteristics of an organization deter mine the extent to which it can effectively and efficiently receive the technology being transferred, thereby facilitating the transfer: its absorptive capacity, its culture, its people, systems and structure, and the firm’s strategic incentive for receiving the technology.
Absorptive capacity and complementary assets. To evaluate, assimilate, and transform new know ledge into say, new products/services, a firm needs to have some level of related knowledge. In other words, it takes related knowledge to absorb knowledge (Cohen and Levinthal, 1990). For example, one cannot expect medical doctors to be able to absorb the latest microchip technology and use it to design a ‘‘cutting edge’’ microchip – they do not have the related know ledge to absorb the new chip knowledge. The stock of related knowledge that a firm uses to evaluate, assimilate, and transform new know ledge is called its absorptive capacity (Zahra and George, 2002). A firm with the right absorptive capacity has an easier time diffusing technology into its divisional organizations and other units than one that does not. In addition to having related knowledge, a firm often needs complementary technologies and assets. For example, a bank that buys computers for its activities must also acquire the appropriate software and inter connectivity for the computer to be useful for bank transactions.
Culture. A firm’s culture plays a very strong role in its ability to facilitate inter organizational technology transfer. Many definitions of culture exist but I refer here to Uttal and Fierman’s (1983) definition of culture as ‘‘a system of shared values (what is important) and beliefs (how things work) that interact with the organization’s people, organizational structures, and systems to produce behavioral norms (the way we do things around here).’’ If the new technology conflicts in any way with a firm’s shared values, its beliefs or norms, it will have a difficult time convincing the people who must perform the transfer activities. For example, an organization that suffers from a not invented here syn drome (NIHS) is not likely to be very successful at bringing in new technologies from outside because its internal culture is likely to conflict with it. More importantly, if there are differences between the cultures of the transmitting and receiving organizations, the two organizations are likely to spend more time fighting than cooperating on transfer activities. This does not facilitate technology transfer.
People roles, systems and structure. Because people transfer technology, the roles that such people play can be critical. A technology transfer project with a champion who can articulate a vision of what the technology means to the organization and its value to participants in the transfer is more likely to succeed than one that does not have a champion. An organization with good gatekeepers – to translate questions from the organization’s internal culture to what the out side world can understand, and vice versa – has a better chance of succeeding than one that does not. An organization’s systems also matter. That is, the way the firm measures and rewards performance or punishes failure during technology transfer also matters. Structure is another important factor. A functional organizational structure, for example, favors technology transfer in which very deep knowledge in specific functional areas is needed, while a networked structure favors technology transfer in which the organization depends on other organizations for different technologies that can be integrated into its products.
Strategic incentives. The effectiveness and efficiency of a firm in evaluating and absorbing a new technology depends on where the techno logy fits in the organization’s overall strategy. If a technology is critical to a firm’s success, the firm will allocate more resources to the transfer process, supporting the technology with the necessary attention and investments. Such resources help build or augment the relevant absorptive capacity and build the appropriate culture and systems for transfer. For example, information technology is more critical to banking than to pharmaceuticals, and therefore information technology transfer is more critical to the former than the latter. Thus, banks invest more heavily in information technology than do pharmaceutical firms. Rather, pharmaceutical companies invest more in R&D and drug development.
Characteristics of the Transmitter
The organization from which a technology is being transferred also plays a major role in the success of the transfer process. In a way, the characteristics of the transferring firm that are important to the transfer process are analogous to those of the receiver.
Strategic incentives. The strategic incentives for a transferring firm are critical. One reason is because technology transfer is not always appropriate – a firm may not want its technology transferred to other companies when it wants to keep it proprietary. If a firm does not want its technology transferred to other firms, it can be protected through intellectual property rights or other blocking strategies. Although there usually are ways around blocking strategies, they nonetheless can reduce transfer effectiveness and efficiency. The organizations that block or limit the transfer of their technology usually need the technology to produce goods or services that provide an advantage in the markets in which they compete. For example, Intel fervently protected its microprocessor technology from being copied from the mid 1980s on.
If an organization wants to transfer its technology, it will invest in the transfer process. Organizations that want to transfer their technologies usually make their money from the transfer process, normally through licensing or product sales. In fact, even firms that do not want the technology embodied in their products to be copied still promote the use of their products. Product use also involves technology transfer.
Nature of the Body of Knowledge
Technology transfer also depends on the nature of the technology: (1) whether the knowledge is explicit or tacit and (2) whether the knowledge is complex or simple.
Explicit versus tacit. The body of knowledge on which a product is based has two components: explicit and tacit. Explicit knowledge is easy to describe in words or encode in some form that can be understood by others. The material that is found in textbooks, including information on how to design products, manufacture, or deliver them, is explicit knowledge. The knowledge in design schematics, computer programs, or what a firm obtains when it reverse engineers a product is explicit knowledge. Because it can be encoded, explicit knowledge can be easily transferred over different media. Tacit know ledge, on the other hand, is difficult to express in words or encode in a form that can be under stood by others. A great tennis player’s know ledge of the game is largely tacit. When she plays the game she just does it. It is difficult for her to describe the exact force on the ball when it is being tossed up for the serve, how high the ball has to go before dropping back for the racket, how far back to take the racket, the rate at which the racket turns as it is approaching the ball, the torque on the racket, the speed at which she moves, and so on. Technology has important tacit components similar to tennis. Explicit knowledge has been described as knowing about and tacit knowledge as knowing how. In any case, explicit knowledge is easier to transfer because it can be encoded and communicated over media such as books, the Internet, products, etc. Tacit knowledge is more difficult to transfer and, as discussed below, it usually entails movement of people. Most technologies have both tacit and explicit components.
Complexity. The complexity of the technology to be transferred also matters. Transferring toaster technology is easier than transferring air plane technology. Complexity here refers to both the depth and breadth of total knowledge required. One measure of complexity is the number of components and linkages among them, and the depth and breadth of knowledge that underpins each component and linkage. Thus, transferring a complex technology means conveying the deep and far reaching knowledge that underpins each of the many components and the linkages among them. Human beings and organizations have cognitive limitations. These limitations make the transfer of complex and tacit knowledge very difficult.
Transfer Environment
The receivers and transmitters of a technology do not undertake transfer activities in a vacuum. The external environment in which transfer takes place also plays an important role. A firm’s coopetitors – the suppliers, customers, and complementary and related institutions with which a firm must cooperate and compete – also are important. This is because a receiver of a technology usually wants to use it to create value for its customers. But offering value using a technology usually requires the participation of coopetitors and the use of complementary technologies. Thus, we can expect the transfer of semiconductor technology to be easier in Silicon Valley than in Detroit, while the transfer of car technology will be easier in the latter than in the former. (One reason is because most people in the environment have the necessary absorptive capacity.) The macro environment also matters. Quite simply, the country within which technology transfer takes place plays a critical role. A country’s infrastructure, legal system, and physical and monetary policies, plus the existence of related industries and an educational system – all are important. For example, the transfer of a complex techno logy is easier in a country with an educated workforce than in one without such a workforce.
Managing Transfer
Managing technology transfer requires under standing the principles of effective and efficient transfer outlined above and using them to make the decisions that transfer the technology via the right media using the right mechanisms.
Transfer Mediums
The body of knowledge and practices that com pose a technology is usually transferred via three media: people, electronic means, and product and organizational routines. The best medium for transferring tacit knowledge is the 236 technology transfer individuals who hold the knowledge. One reason is because it is difficult for an individual to describe his tacit knowledge of what he does. Thus, the best way to transfer that knowledge to someone else is to observe the person in action and then learn from those actions by experiencing and practicing them (Nonaka, 1994). That is one reason why it is important to move around people with core knowledge or skills, allowing them to work with different units within an organization. Sometimes tacit knowledge is embodied in the actions of an organization. In that case, the best way to transfer the knowledge is to have the receivers of the knowledge come to the transmitting organization and learn by interacting, experiencing, and working with employees of the transmitting organization. The Internet, telephone, and other electronic media are best for explicit knowledge because they require encoding for transmission. The final transfer medium is a product. Products often embody much information for a potential imitator with the appropriate absorptive capacity. Thus, firms can learn a lot about the technology that under pins a product by trying to replicate its components and linkages.
Transfer Management Mechanisms
Separate firms pursue technology transfer in different ways. Some hire key individuals from other firms and develop the technology intern ally around those people (Roberts and Berry, 1985). Some form strategic alliances, while others acquire companies. Finally, some acquire equity positions in start ups that have the relevant knowledge. An important question for a manager is when each of these mechanisms is most appropriate. One model for exploring when to pursue each technology transfer mechanism is shown in figure 1. The vertical axis measures the extent to which the body of know ledge and practices that constitute the techno logy are tacit and complex, while the horizontal axis measures how much absorptive capacity the firm in question has. In Quadrant I, the firm has very little or no absorptive capacity and the knowledge to be transferred is simple and explicit. One way to bring in the technology is to hire individuals with the knowledge and build the necessary absorptive capacity around them. This is sometimes referred to as internal development. A firm in this quadrant can acquire an equity stake in another firm that has the techno logy, so that it can be gradually exposed to the knowledge and learn from it as time goes on. Very often the new technology resides in a new venture. In that case, one can offer venture capital to gain access to the new technology. In Quadrant II, the firm has the absorptive capacity and because the knowledge is simple and explicit, the firm can buy it from the market. This is sometimes referred to as an arm’s length market transaction. For example, buying a product from a firm and legally reverse engineering it represents transferring a technology by arm’s length market transaction.
In Quadrant III, the knowledge to be transferred is tacit and complex. Because the firm has the absorptive capacity, it can evaluate and assimilate the relevant knowledge. Therefore, it is in a good position to evaluate, acquire, and assimilate a firm that has the relevant technology. It can also form a joint venture or strategic alliance with a firm that has the technology. In a joint venture, two or more firms integrate their resources to form a separate legal entity in which they each own equity. A firm has an opportunity to learn in such an arrangement. In Quadrant IV, the firm has very little absorptive capacity, but needs to transfer complex and tacit knowledge. A firm could hire people with the relevant know ledge and build absorptive capacity around them. Joint ventures with patient partners can also help one build the absorptive capacity and assimilate the relevant knowledge.
Intra-Organizational Transfer
While we have explored technology transfer be tween organizations, some of the most important technology transfer takes place within organizations (Allen, 1984). For example, the transfer of a design from R&D to manufacturing represents technology transfer. Many of the ideas we have discussed for inter organizational technology transfer apply to intra organizational transfer. For example, incentives can be used to encourage an R&D group to have the designer of the product move on with the new design to manufacturing and help with the establishment of the manufacturing process for the new product, instead of ‘‘throwing the design over the wall’’ to manufacturing.
Absorptive Capacity
Figure 1
Conclusion
Most firms, sooner or later, have to deal with technology transfer. Because technology is the body of knowledge or practice that goes into making and selling products or services, technology transfer deals with knowledge transfer – moving knowledge from person to person, unit to unit, organization to organization, country to country, person to organization, and so on. This transfer depends on the nature of the techno logy, the characteristics of both receiver and transmitter, and the environment in which the transfer is taking place. Technology involving largely tacit and complex knowledge is much more difficult to transfer than one composed of largely explicit and simple knowledge. A firm with the relevant absorptive capacity, culture, systems, and strategic incentives is more likely to be effective at technology transfer than one that does not have these characteristics. The most effective medium to transfer a technology
– people, electronic, organization, and products
– depends on the type of technology. The mechanism used also depends on the type of technology. A firm that has no absorptive capacity for a complex and tacit technology must seek outside help via a joint venture, venture capital, or equity stakes, otherwise it faces a difficult time alone.
Bibliography
This article draws largely from Allan Afuah (2003), In novation Management: Strategies, Implementation and
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