Figure 4-1 Percentage of companies with high reliance on external sources for technology.

Source: Edward B. Roberts, "Benchmarking the Strategic Management of Technology," Research-Technology Management, January-February 1995, p. 55.

original equipment manufacturer (OEM), and consequently the level of OEM control decreases. Another way of looking at it is that as the level of technology controlled by suppliers increases, OEMs must enter into more equal relationships with them. Therefore partnering between OEMs and suppliers is becoming more frequent.

External sourcing of technology and innovation generally occurs within two types of institutional relationships. One is the relationship between OEMs and suppliers.4 Outsourcing is the term usually applied to this type of relationship. The other is the formation of strategic technology partnerships between corporations, usually for a limited time and purpose. The terms alliance and consortium are commonly used to describe this form of relationship. External sourcing as used in this report includes both types of relationships. It also encompasses a broad range of activities from a growing reliance on suppliers for increasingly independent and sophisticated engineering and design work to encouraging suppliers and universities to conduct research and development which can be integrated into the corporate innovation process.

Vertical and Diagonal Relationships in Outsourcing

The relationships of trust between suppliers and OEMs and the benefits to technological innovation that such relationships can bring are characteristic of many of the Japanese vertical alliant business groups (vertical keiretsu). U.S. firms have been adopting aspects of the Japanese vertical keiretsu model by reducing the number of suppliers, giving those suppliers more scope to innovate (sometimes by providing functional specifications), and increasing the level of

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