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Posted on August 31st, 2012, by

The development of a technology for the introduction of the new product raises a number of problems which have to be solved effectively in order to insure the successful development of business. In this respect, the problem of the choice of the development of the technology becomes crucial in terms of the development of business. In actuality, among the variety of options, it is possible to focus on This approach is the most effective, taking into consideration potential difficulties the business may face in the course of the development of the target technology, when the financial resources are limited, while the licensing of the technology from another company and applying it to the product may need substantial financial resources as well as outsourcing the development of the new technology, hiring an outside engineering firm to develop the target technology. In such a situation, the development of the new technology has a number of advantages, including saving costs on the development of the technology and its maintenance, and, what is more, the development of the technology internally will allow the company to license the technology to other companies. The latter will help to raise funds for the development of the mass production of the new product that can lead to the overall success of the business because the company will not need attract additional financial resources from the outside.

The technology decision

The decision concerning the choice of the development or licensing the technology was very difficult to make because, at first glance, both the development of the technology internally and licensing or outsourcing the technology would need substantial financial resources. At the same time, the choice of the technology was determined not only by financial concerns but also and mainly by prospects of the technology development and its potential impact on the further organizational performance. What is meant here is the fact that it was important to take a decision which could allow the company not only use the technology for the production of the new product, but this decision should also provide the company with larger opportunities to enter the market and raise funds for the further development of business. In this respect, any form of outsourcing, including licensing the existing technology from another firm and apply it to the product or hide an outside engineering firm to develop the technology needed, proved to be disadvantageous. Obviously, the involvement of the firm that has already developed the technology needed will increase the costs of production because of the payment for the license, which may be out of date within several years and it will be necessary to look for a new company and a new license, wasting time and funds and putting under a threat the stability of the production process (Schneiderman, 2002). As for the development of the technology needed by an outside firm, this will lead to the investment of substantial financial resources in the development of the outside firm making the company dependent on this firm. In addition, outsourcing of the technology may need the search for alternative supplies or companies that can develop or license the technology in case of certain contradictions with the target firm supplying the technology.

 

The pros and contras of the decision

The decision to develop the technology internally was logical and based on the current potential of the company and potential benefits of the development of the technology internally. In actuality, the lack of financial resources naturally stimulates the internal development of the technology, which may need investments on the development and testing, but, taking into consideration the existing intellectual potential, the technology can be developed successfully without using services of outside companies. As a result, all the investments directed on the development of the technology will be direct investments in the development of the company and facilities and materials used in the course of the development and testing of the technology can be used for the development of new technologies in the future or as manufacturing facilities after the introduction of the technology.

Furthermore, the development of the technology internally saves costs because the company will not need to pay constantly for the license, while the hiring of an outside firm to develop the technology seems to be less beneficial because the same investments could have been spent on the development of the technology internally. Moreover, the development of the technology internally can save costs and bring profits to the company because the technology can be licensed to other companies (Baucus, 1993). The latter will compensate costs on the development of the technology, while any form of outsourcing will never bring such benefits to the company.

On the other hand, it is worth reminding certain risks and drawbacks of the development of the technology internally. Firstly, there is a risk of the failure of the development of the successful and effective technology. Secondly, the development of the technology may take too much time, while licensing the technology from another firm allows starting the production almost at once. Finally, the development of the technology can raise the problem of its effective use in case of the growing competition, if rivals have more effective, better technologies.

Alternative

In such a context, it is important to dwell upon some alternatives to the decision taken. In this respect, licensing of the existing technology from another firm seems to be the most plausible alternative, especially compared to hiring an outside design engineering firm to develop the technology needed. In fact, licensing the technology has certain benefits even compared to the development of the technology internally. The primary and major advantage of licensing is saving time which may be crucial in case of the development of business in the highly competitive environment (Schneiderman, 2002). In addition, licensing the existing technology means that the technology has already proved its effectiveness and it can be applied successfully for manufacturing of the new product. In such a way, the company can save time and use reliable technology in case of licensing of the existing technology.

On the other hand, this decision would be definitely worse compared to the development of the technology internally because it would increase expenditures of the company, deprive the company of an opportunity to license the technology to other companies and, thus, increase its revenues. Moreover, licensing will make the company dependent on the owner of the license, while the existing technology may be less successful and prospective compared to the technology developed internally within the company to start manufacturing of the new product en mass. Nevertheless, licensing the existing technology is a plausible alternative to the development of the technology internally.

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