the marketplace. Joint ventures and acquisitions have become a much more common way of doing business; and purchased technology, rather than technology developed within an organization, is playing a more important role. On top of all of these changes, reengineering and restructuring have resulted in fewer employees in large companies. External collaborations must be structured to use people's time as effectively as possible.

External partnerships are now more important than ever. Understanding how to form alliances and generate value from these alliances is a critical factor in meeting the challenges of the next decade. The definition of ownership of intellectual property resulting from an external collaboration is more important than ever. In the past, the intellectual property resulting from collaboration was directed primarily toward the sponsoring company. Today it is quite common for this property to be directed toward a joint venture or later licensed or sold to another company. Often, three or more companies are involved in the use of the intellectual property. The agreements associated with ownership of this property must allow increasing flexibility in how it will be commercialized.

Overview of Dow

The Dow Chemical Company is a global science- and technology-based company that develops and manufactures a portfolio of chemicals, plastics, and agricultural products and services for customers in 168 countries around the world. With annual sales of more than $18 billion, Dow conducts its operations through 14 global businesses employing 39,000 people. The company has 123 manufacturing sites in 32 countries and supplies more than 3,500 products. In 1998, Dow divided its 14 businesses into 7 segments.

Table 7.1 shows the diverse nature of the businesses. Each of these operating segments has very different needs for different types of external collaborations. In addition to business diversity, geographic diversity also plays a role. In 1998, 40 percent of Dow's sales were from the United States, 35 percent from Europe, and 25 percent from the rest of the world.

R&D at Dow has been significantly redirected over the past few years. More effort is being placed on growth. Dow's R&D investment in maintaining current businesses is decreasing in favor of R&D focused on value growth. The R&D budget at Dow has gone from $785 million in 1997 to $807 million in 1998 to a projected $870 million in 1999. Much of this additional investment is directed toward value growth, with a significant commitment to biotechnology. We are also increasing our attention on opportunities in biomaterials, coatings and adhesives, electronic materials, and special polymer processing.

The changes in business structure at Dow have impacted the nature of our external collaborations. Prior to 1994, Dow's organization was a matrix of functions, businesses, and geographies. In 1994, a major reorganization took place. Each of the 14 businesses formed contained its own commercial, manufacturing, and R&D organization. Shared or leveraged organizations such as environmental, health, and safety; controllers; supply chain; and corporate R&D continued to exist, but their focus was directed toward the success of the 14 business units. In 1998, corporate R&D reorganized into eight capabilities. These capabilities are very aware of the business needs and are responsible for leveraging across businesses as well as developing their capability for the future.

All of the technology collaborations sponsored by Dow are supported either by a business or by a corporate R&D capability. Eighty percent of the external projects are supported by one of the 14 businesses and 20 percent of the external collaborations are supported by corporate R&D capabilities. When we establish an external technology partnership, the sponsoring business or capability will set the scope and timing of the projects. When working with Dow, external collaborators need to work with and be aware of the needs of 22 internal organizational units—the 14 businesses and the 8 corporate R&D capabilities. We have an external technology organization that addresses this interface (see Box 7.1).

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