Improving co-development through process alignment

There has been a recent surge of enthusiasm icithin tlie automotive industry to build closer supplier relationships idthin the area of product development. One concept deemed central to these relationships is the alignment of development processes between the collaborating organizations, an area that is expanded upon idthin this paper. We suggest that synchronization can be achieved through the four key steps of process standardization, knowledge sliaring, alignment of existing practices, and continuous elimination oftcaste idthin the joint development cycles. A methodology for implementing these stages is presented along idth the underlying prindples on which it is based - the importance of joint teamworking and multi-company involvement idthin the alignment process is higlilighted. © MCB University Press.

Opt-out options in new product co-development partnerships

We study three contractual arrangements—co-development, licensing, and co-development with opt-out options—for the joint development of new products between a small and financially constrained innovator firm and a large technology company, as in the case of a biotech innovator and a major pharma company. We formulate our arguments in the context of a two-stage model, characterized by technical risk and stochastically changing cost and revenue projections. The model captures the main disadvantages of traditional co-development and licensing arrangements: in co-development the small firm runs a risk of running out of capital as future costs rise, while licensing for milestone and royalty (M&R) payments, which eliminates the latter risk, introduces inefficiency, as profitable projects might be abandoned. Counter to intuition we show that the biotech's payoff in a licensing contract is not monotonically increasing in the M&R terms. We also show that an option clause in a co-development contract that gives the small firm the right but not the obligation to opt out of co-development and into a pre-agreed licensing arrangement avoids the problems associated with fully committed co-development or licensing: the probability that the small firm will run out of capital is greatly reduced or completely eliminated and profitable projects are never abandoned.