Leverage
Partnering with an external organisation such as a university can help a company to learn faster and at lower risk than doing everything in-house. Careful consideration of the full asset base of a university, both tangible and intangible, can provide opportunities for a company to access skills and innovation assets that it does not own and cannot afford to build for itself. This Open Innovation approach does not mean that companies should be “open” at any cost, but it is a means to create more value, more quickly, than doing it all on your own.
When working with a university, a company can effectively leverage external R&D funding to help it to:
Increase the speed, efficiency and agility of its innovation activities.
Support longer investment horizon projects than they are normally able to support.
Access science capabilities through partnering that act as a multiplier to company resources by attracting Government and third-party cash.
Access capabilities that would be impossible with their own R&D external budgets alone.
An important part of our approach to leverage is a simple, tried and tested, way to evaluate the value of an external project.
We evaluate how useful access to an external asset base may be on two distinct axes. The first is financial, where we are trying to quantify the amount of incremental, external R&D spend that is aligned with a company’s needs. The second is strategic, where we qualitatively describe the degree of alignment the external assets have with a company’s R&D strategic imperatives.
Our aim is to estimate the net benefit (in financial terms) that the company obtains from an externally funded R&D asset or activity. We call this Incremental R&D Benefit (IRDB). There are three important quantities required to estimate IRDB. The first is the total investment which will be made in the specific project (T). The second is the company’s commitment to the project (C), either as cash, or as an in-kind contribution. Both T and C sit on the financial axis for a company. The third and final quantity we need is an estimate of the fraction of the work packages in the project that are directly aligned to company priorities. This quantity, F, sits on the strategic axis. Often, F will be a ‘deemed’ percentage rather than a fully precise measure.
IRDB captures overall the financial and strategic impact of a project. Often there are two distinct sources of the benefit that a company obtains in this type of project. In-project benefit comes from the company-relevant work packages in the project, and pre-project benefit is the value of a pre-existing innovation capability that becomes available to the company through being in the project.
Chapters 18 & 19 of the playbook.