Virtual business models entrepreneurial risks and rewards

The company’s relationship with the external part-ners may change during the product development timeline, but the central issue is that development of value is always controlled and own

Virtual Business

Models

Entrepreneurial Risks

and Rewards

Amsterdam • Boston • Cambridge • Heidelberg

London • New York • Oxford • Paris • San Diego

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Woodhead Publishing is an imprint of Elsevier

KARIN BRYDER

ANKI MALMBORG

ESKIL SÖDERLIND

Avena Partners

Woodhead Publishing is an imprint of Elsevier

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Karin Bryder has extensive experience as project manager within the fields

of pharmaceuticals and med tech and has acted as IP manager and CEO of companies using a Virtual Company format Karin holds a PhD in medical science with a focus on immunology Her academic work also includes studies of DNA vaccines and virus genetics

Anki Malmborg-Hager has extensive experience in business development

within life science She has worked for several small biotech companies, both

as CEO and board member and as an investment director Anki has an MSc

in chemical engineering and PhD in immunotechnology from Lund versity, and a Pharma-MBA from Falconbury

Uni-Eskil Söderlind has extensive experience in the business arena with a focus

on life science He has past and present experience as an investment director, CEO, and a board member Eskil’s formal education includes a PhD in molecular biology from Uppsala and an associate professorship at Lund University; he also has an executive MBA diploma

FOREWORD

If you are reading this Foreword, then you have already taken an important step toward mitigating entrepreneurial risks and maximizing entrepre-neurial rewards Specifically, you are intrigued by and interested in the experiences and insights that Karin Bryder, Anki Malmborg, and Eskil Soderlind have to share regarding Virtual Business Models Perhaps you are contemplating pursuing a new career opportunity, one that would take you away from the traditional company setting Perhaps you are struggling with a new way of working having made the switch or having been made

to switch from the traditional to the virtual business model Or, perhaps you are doing well in the virtual business model and have a sense that you could be doing better For individuals in all of these circumstances, I encourage you to set aside time to read and to fully assimilate the many teachings in this book

Edward O Wilson, the noted Harvard Professor Emeritus of Biology, ignited a firestorm of a controversy in the 1970s when he introduced the concept of sociobiology Wilson defined sociobiology as “the systematic study

of the biological basis of all forms of social behavior.” His theories and supporting evidence grew out of his many years as a myrmecologist, studying the organized behaviors of ants and other social insects He posited that animal behavior, including human behavior, is the product of heredity, environmental stimuli, and past experiences My point in referencing sociobiology is neither

to agree with nor disagree with Wilson’s theories, but to borrow them, to repurpose them to the consideration of organized human behavior In this immediate instance, human behavior is organized in the form of a business Businesses, being composed of human beings doing what human beings do

in the ways that human beings do them, manifest many of the same traits of their living constituents With this being the case, businesses’ behaviors are likely to be the product of heredity (business culture), environmental stimuli (competitive forces), and past experiences (lessons learned distilled into conventional wisdom) The authors of this book have observed that these elements have combined in an adaptive manner to produce new business behaviors to manage entrepreneurial risks and rewards of the present day as manifested in the Virtual Business Models they discuss

Organized human behavior as reflected in business models has been evolving for millennia In the Middle Ages, scribes conducted their business

affairs by keeping records on scrolls in chanceries In the 17th and 18th centuries, the thriving business model of mercantilism and the rise of the

“military-industrial complex” of the day, the Royal Navy, led to the creation

of the first offices where the work of administrative personnel could be coordinated by managers and overseen by supervisors Later in the 18th and 19th centuries, the Industrial Revolution saw the emergence of large, highly complex businesses in the financial, transportation, energy, and manufacturing sectors These complex businesses were made possible by the introduction

of vastly improved productivity tools, such as the mechanized factory, the telegraph, the typewriter, and the first digital electronic communications medium, the ticker tape In the 20th century, even greater strides in automa-tion and telecommunication were made to enable ever larger and ever more complex businesses In those decades, the concentration of work into purpose-built, bricks and mortar facilities was the prevailing practice There were many advantages to having a centralized workplace, whether it be a factory or an office First, coordination, management, and supervision were made easier as all members of the workforce were in the same place at the same time Furthermore, a single individual was able to monitor the activities

of many others more efficiently Second, resources and infrastructure could

be shared among many employees, thereby lowering fixed costs Third, businesses could more easily control the quality and uniformity of the goods and/or services they provided to their customers It was felt that physical presence and in-person interactions were absolutely required to ensure that work was purposeful and productive It was feared that if these structures and the structured environment they provided were missing, then gross inefficiencies and delinquencies would arise After all, it is not possible

to run an assembly line (or Adam Smith’s pin factory) effectively if the laborers are not all in their assigned places at the appropriate time performing their highly repetitive and very limited tasks

Complex businesses distribute work through extremely hierarchical organizations having multiple levels of management and working groups residing within various silos or departments To their credit, these complex businesses have incredible resources that can be deployed in research, in discovering and developing new products, and in selling and marketing their products and services In the life sciences, large international pharma-ceutical companies (big pharma) serve as prime examples of hierarchical organizations Big pharma spends billions of US dollars each year in R&D and billions more in marketing campaigns, employing tens of thousands of scientists and sales representatives Managing a big pharma with all of its

Foreword xix

myriad sites, activities, and employees is a daunting task and one that may still best be accomplished using a conventional business model Although this may be so, it is important to consider that this organization comes at a cost Hierarchical organizations, in general, and big pharmas, in particular, have a truly abysmal record of innovation The culture and conventional wisdom in these companies tends to combine to create a condition of insti-tutional sclerosis that is antithetical to innovation How then are we to reinvent existing businesses so as to foster innovation? How are we to man-age businesses that are emerging or evolving rapidly? How are we going to harness the talents of a geographically dispersed workforce to build new businesses that eclipse the old? The authors of this book make the compel-ling case that the answers to these questions can be found, at least in part, in Virtual Business Models

Entrepreneurship is neither a new concept nor a new phenomenon It can be argued that throughout human history there have been intrepid individuals willing to take risks to innovate, to pursue a bold new vision in the face of unmeasured uncertainty and brutal skepticism Why then is it that in the last several decades we have seen the rise of entrepreneurship and lauded the innovation that has accompanied it? Why is it that the entrepre-neur has entered into the contemporary mythos as a modern day hero? What factors exist now that foster entrepreneurship? Entrepreneurship is flourishing today largely because of our unprecedented ability to build human networks It is somewhat counterintuitive to appreciate that such a highly individual-dependent activity as entrepreneurship occurs best in a context of extensive interconnections and cooperation And yet, it is the relationships that an entrepreneur establishes and maintains that lead him/her to success Networking is of paramount importance When applied to entrepreneurship, the African proverb that “It takes a village to raise a child” might more aptly be stated as “It takes an ecosystem to nurture an entrepreneur.”

In this book, the elements of the entrepreneurial ecosystem are described in detail on a chapter-by-chapter basis First, the features of a Virtual Business Model that distinguish it from a more traditional, hierar-chical business model are defined Also discussed are the advantages that such a model can provide to an entrepreneurial enterprise Subsequently, the roles of founders, core team members, External Resource Providers, and investors are explained in a clear, easy to follow style that is concise, specific, and thorough The importance of handling communication, business development, competitive intelligence, and intellectual property

issues properly is stressed and many illustrative examples are provided that show exactly how these issues can be addressed I particularly appreciated the authors’ authenticity as they are speaking to the reader with the voice

of experience, hard earned, and highly prized

I will be ever grateful to Scott Rocklage, Managing Partner of 5AM Ventures, for having approached me to work with him to set up a Virtual Business spanning the east and west coasts of the United States This was

in 1990, the year that saw the first release of Microsoft Office for PCs and

8 years before Google was founded There were no Blackberrys, and phones were not at all smart At that time, the thought of having a distrib-uted workforce composed of External Resource Providers and managed

by a small core team was viewed as unorthodox, at best, and irresponsible,

at worst Undaunted, Scott and I felt that given the connectivity afforded

by “faxes and FedEx,” it would be possible to build and manage such an entity As it turned out, that opportunity did not materialize and I contin-ued to pursue a career in big pharma It was not until 10 years later that I decided to take my career in a new, more entrepreneurial direction By that time, Virtual Business Models were much more mainstream Many life sciences start-ups had successfully managed to evolve into fully integrated biotech companies developing and marketing important, life-enhancing products Others had been acquired by larger entities, and in many instances investors were handsomely rewarded for the risks that they had taken Still others languished or failed The experiences gained in aggregate from these businesses constituted an informal body of knowledge that was shared only among the cognoscenti of the entrepreneurial community As

a novice and as an outsider, I found it incredibly difficult to break into the inner circle of this particular entrepreneurial community and avail myself

of the knowledge that I knew was there and that I needed With much perseverance and perspiration I was eventually able to do so How I wish that I had a copy of Karin Bryder, Anki Malmborg, and Eskil Soderlind’s book at that time Even though it is true when it comes to life sciences start-ups that “if you’ve seen one, you’ve seen one”, meaning that each start-up is its own species, the fundamental truths disclosed and discussed

in Virtual Business Models are widely applicable.

For Virtual Business Models to prosper, there must be a ready source of talented individuals capable of serving as External Resource Providers Fortunately, the pool of talent available today is both broad and deep In part, this is due to the availability of amazingly useful productivity tools Now, more than ever, it is easy to collaborate productively across great

Foreword xxi

distances, spanning multiple time zones, and encompassing different tures Just as important as the productivity tools is the desire for talented people to engage in meaningful, challenging, and fulfilling endeavors in an environment that affords for self-definition and self-determination For many, working in a more formal, more restrictive hierarchical organization

cul-is too limiting, too stultifying, too confining Talented individuals are finding that their desires to be recognized, respected, and rewarded (compensated) appropriately are better satisfied working in a Virtual Business Model They realize that they will be spending at least half of their waking hours as adults working, and they require that this be time well spent Given that the success

of the emerging, knowledge-based economy will depend largely on the contributions of these individuals, business people of all stripes would be well advised to understand this trend Already, it is estimated that upwards

of 53 million individuals in the United States, one third of the labor force, are employed as independent workers, that is, consultants, independent con-tractors, and other self-employed individuals

Once you have read and assimilated the content of Virtual Business Models, you may wish to extend your reading on the topic I recommend

either of Craig Shimasaki’s books Biotechnology Entrepreneurship: Starting, Managing, and Leading Biotech Companies or The Business of Bioscience, Michael Salgaller’s Biotechnology Entrepreneurship from Science to Solutions, and Yali Friedman’s Building Biotechnology.

Innovation and creativity abound in the life sciences The field is ever evolving The wisdom and doctrine that we embrace fervently today, we will replace with the new insights and revelations that tomorrow brings As such, I see the need for Virtual Business Models to be a living document, one that can help entrepreneurs to grasp these new concepts yet to come

I eagerly await subsequent editions of this gem of a book

M Carvlin

August 2015

• our experienced colleagues for their generous and valuable discussions and input: Jan Alenfall, Sven Andréasson, Mats Clarsund, Johan Evenäs, Cristina Glad, Nina Herne, Daniel Ozanne, and Lars Persson.

• Mark Carvlin and Janice Mitrovich for valuable discussions on the US perspective of the Virtual Company concept, and a special thanks to Mark for the foreword

• Sten K Johnson Foundation, which provided a generous grant that contributed to the writing of this book

• Grand Hotel in Lund for harboring our thoughts and discussions, and feeding our stomachs What better place would there be for writing a book than the Piratensalen?

• Annika Wilhelmsson and the crew at the Club House restaurant at Öresund Golf course and conference facility in Häljarp for all of their service during the last intensive writing sessions While the summer heat was on, the conference room was kept at a perfect temperature and the lunches were delicious

up and also successful business development.

THE VIRTUAL COMPANY—A MODEL ADAPTED TO A

CHANGING WORLD

During the last decades, there has been a climate shift on the savannah of the knowledge-based industry The big elephants are still roaming the grass-lands, but have adapted to the new circumstances and are substantially slim-mer and more agile than before Besides them, leaner and smaller business constellations have developed, provided they can move fast enough and be adaptable

We call it the Virtual Company format—small, flexible, and dexterous, remarkably strong and aggressive, and at the same time innovative

The Virtual Company business model is an attractive way to organize innovative processes in a company This format ensures flexibility, makes good use of the financial resources, and stimulates productive innovative processes The flexibility is based on the management possibility to organize

the company to adapt effectively to changes In this book, we will discuss how to organize and manage such a Virtual Company Our overall objective

is to present an overview of the Virtual Company’s key activities and to discuss advantages, limitations, and challenges that exist; ideas and concepts will be presented with a focus on practical considerations, rather than just theoretical issues The book’s aim is to broaden the understanding of the Virtual Company format, as well as to provide a hands-on guide for the reader; thus, the book may serve as a handbook and a source of inspiration

in the day-to-day operations We will also discuss challenges and possible solutions In addition, the concept of a Virtual Company is illustrated by case studies, derived from both our own professional background and from interviews with external parties that have experience of working with or in companies with a structure of this kind

Comments and information are based on our own experience (unless otherwise stated) working in or with Virtual Companies—mostly small research-based companies within the pharmaceutical/biotechnological sector

We intend to draw conclusions and make recommendations applicable to other areas outside the life science area, where innovation and patenting of new inventions are central in the entrepreneurial effort Therefore, the prin-ciples established and discussed are equally applicable in other fields outside the life science sector

NETWORKING—A BASIC HUMAN ACTIVITY

Working together is truly a fundamental human activity We form networks;

we communicate and cooperate in different areas in mutual endeavors to reach common goals The creation of these networks is a fundamental and natural process; we connect with people, we define mutual ideas, we plan, and we execute common projects All the projects big or small undertaken by human-kind wouldn’t be possible to execute without forming some sort of network,

be it a personal meeting or the building of a pyramid, a football game, or a manned journey to the moon Network cooperation is one example of what makes us human as it makes progress possible Still, it is an everyday activity.The organization of large companies is often built from network struc-tures within the company Networks can also be formed between companies, large and small, in an effort to reach a mutual goal Thus, different forms of industrial networks have been developed, each form serving its specific trade purpose, including the business network organization format that we from now on will call “Virtual Company” (written with capital letters)

Introduction 3

THE VIRTUAL COMPANY—A NETWORKING CONCEPT

What do we mean with the concept Virtual Company? The term is often used to describe companies that use modern telecommunications for com-munication and discussions, for example, in a global project team Although the use of the Internet for communication is an important aspect in the Virtual Company’s practical activities, this is just a part of the concept we are aiming to describe

Instead, we define a Virtual Company as a single organizational unit (often a company) that works through defined agreements with external organizations and companies In cooperation, value is created and a future product is developed The Virtual Company initiates, executes, and controls these overall activities The company’s relationship with the external part-ners may change during the product development timeline, but the central issue is that development of value is always controlled and owned by the Virtual Company

In summary, a Virtual Company is a company that has

1 a limited number of employees – ranging from one to a small group;

2 a management team with competence for product development as

well as project leadership;

3 financial resources to perform product development or has the

ambition to retrieve such financial resources and has a defined plan for their use;

4 nearly all of its operations performed at organizations outside the

Virtual Company (such organizations are called External Resources

Providers [ERPs]); and

5 the ownership of the Created Value developed by External Resources

Providers, which is transferred to and becomes the property of the Virtual Company

We want to underline that our definition of a Virtual Company excludes companies (a) that use subcontractors for the production of defined prod-ucts and where limited value is developed and no new inventions are made (e.g., safety belts production in the car industry) and (b) companies that already have reached a substantial size in terms of employee strength (e.g., larger pharmaceutical companies) that cooperate with smaller biotech busi-nesses for the development/in-licensing of products

• The reason to exclude companies from category (a) is that here there is

no extra value created and no new inventions being made Of course, it can be argued that safety-belt production, for example, adds value to the

car industry, because no car can be sold to the public without a safety belt However, in our definition of a Virtual Company, the creation of value is performed typically in collaboration with the ERP (or a group

of such providers) and there is a substantial value created In the case of the safety belt production, there is a limited value created and the car manufacturer can turn to alternative producers if the first producer does not meet standards

• The reason to exclude companies from category (b) above is that we want

to focus on the advantages of the small company with few employees, being innovative, flexible, and cost effective and at the same time focus on the challenges such a small company faces, for example, issues of control, ownership of created values, and quality of work Larger companies have control, have processes for ownership of created values, and have quality standards, but on the other hand might have limitations regarding innova-tive power, flexibility, and cost-efficiency Thus, the larger company is often in control and dominates the innovative process It can be argued that such domination can function as a hindrance to development of new ideas, especially in a fast and cost-effective manner

CREATED VALUE BELONGS TO THE VIRTUAL COMPANY

According to our definition above, the created value is the property of the Virtual Company, although it is developed by an External Resources Pro-vider The ownership of the value is tightly regulated to belong to the Virtual Company by appropriate agreements (Figure 1.1) This is a central and important part of our definition of the Virtual Company In contrast, in a traditional nonvirtual organization, the value is created within the organization and thereby belongs, by default, to that organization

The Virtual Company format is attractive in a start-up phase, both if the company is to continue to be virtual or later on is to be developed into a integrated traditional company (Figure 1.2)

VALUE CREATION

A Virtual Company structure is often the preferred format when new inventions and innovations are to be developed, especially when limited developmental structures and financial resources are available When properly executed, a Virtual Company can, by its organization and skills, encourage innovative thinking and promotion of new ideas

Introduction 5

Patents—a corner-stone in business development

Discoveries resulting from advanced research at universities or within companies are often protected by patents and can be the foundation for

a new start-up company The patenting of new inventions and the ability

to use such intellectually property rights for further company ment is one of the aspects in this book Patented inventions often form the so-called core asset of a company with limited staff and financial

Value ownership transfer

Joint development activities

(A)

(B)

Figure 1.1 (A) The Virtual Company executes a joint development activity with another

company (External Resource Provider), and value is developed within the external pany This value is transferred to the Virtual Company that has the ownership rights to the value (B) In a larger, (nonvirtual) company, the value is developed within the organ- isation and the ownership to the value is automatically owned by the larger company.

com-resources, namely, a Virtual Company In other words, patents are the corner-stone on which further project development and company growth can be built.

Well-written agreements creates smooth and productive

cooperation

Well-written agreements are essential in order to define clearly the sibilities of each party and to identify the timelines and costs for the projects Agreements are also important to establish the legal ownership of patents, other intellectual property rights, and trade secrets

respon-VIRTUAL COMPANY WITH CORE STAFF

Virtual Company development

(A)

(B)

ERP ERP ERP

VIRTUAL COMPANY WITH CORE STAFF

Virtual Company development

ERP

Traditional Company development

TRADITIONAL COMPANY WITH FULL TIME EMPLOYEES

Figure 1.2 The Virtual Company format is preferred in the start-up of new technology

development companies After the foundation of the Virtual Company and the ment of the business using External Resources Providers (ERPs), there are two alterna- tives: (A) the company can continue to use the Virtual Company format for continued product development or (B) after some time, the company can transform the business

develop-to a traditional integrated company.

Introduction 7

Effective communication leads to effective operations

Communication is necessary when implementing the agreement in everyday operations and also to monitor continued project development The Virtual Company format puts special demands on the form of the agreements and the communication

Competitive intelligence points out the direction

Identifying competitors is as important as the execution of clear agreements and having excellent communication Defining and understanding the competitive landscape are central activities when developing the company This landscape is built up by information about competitors, new products, new trends, and other aspects that have impact on your business

Split loyalties are managed by jumping alliances

One major challenge of the Virtual Company is “split loyalties” when vations are created outside the core company Split loyalties can be a chal-lenge if there is an academic organization that will perform innovative work; such academic groups are often not accustomed to function as a contracted ERP to the core company Managing these loyalties by, for example, “jumping alliances,” in order to achieve the company goal is cen-tral to the leading role in a Virtual Company The term “jumping alliances” reflects the need to collaborate with several different individuals and groups

inno-in order for the company to achieve its goals

Value growth and project valuation need to be defined

Another important challenge in the context of Virtual Company is the definition of how the company should achieve value growth and project/company valuation

We will discuss the topics above in more detail and from a practical spective in the following chapters

per-BOOSTING THE INNOVATION POTENTIAL

Virtual communication alone does not define a Virtual

Company

The new way of virtual communication does not on its own define a Virtual Company – although it is an important part in the company’s oper-ations and can encourage innovative processes As mentioned, in our

definition of the Virtual Company, a central aspect is where values and new inventions are developed and owned by the Company In our definition, such values are typically developed outside the Virtual Company’s internal organization through collaboration agreements with external companies, but the ownership (regardless of where it is created) resides within the Vir-tual Company For example, new chemical structures suitable for develop-ment into new medicines can be invented and synthesized by skillful chemical companies with the appropriate competence, but the Virtual Company owns the patent rights to these new chemical structures In return for their efforts, the chemical company is paid for its work.

Creating an intellectual hotbed for innovation

An organization that develops advanced and innovative products faces many challenges One is to keep up with competition from other companies and to

be truly innovative The competition never stops to evolve, and new ideas and innovations are continuously being defined and developed New inventions are patented and novel companies founded based on these It is, thus, necessary for the Virtual Company to organize its activities to match this competition and to produce new innovations

The process of innovation itself, where new products are developed based on totally new conceptual ideas, is hard to define Even more, it is extremely difficult to regulate in a standard operation procedure New inventions typically arise from a desire to solve an existing problem where the new ideas sprout from “free” discussions In practice, this kind of discus-sions are impossible to formalize No organization can plan that innovative discussions will “take place every Wednesday between 10 and 12 am” and expect that new innovations will come out from such rigid meetings Instead, the organization can make the best effort for innovative discussions

to take place Such efforts include allowing people to meet and to have

“free” time for “innovative discussions” focused on a certain problem and encouraging the sharing of new ideas However, innovations originate from

a desire to solve an existing problem and, thus, this problem should be in focus in the innovative discussion

In the area of pharmaceutical drug development, lack of new inventions has hampered the productivity of new drugs.1 The question why large pharmaceutical companies are not more innovative and productive is diffi-cult to understand and is likely to have many answers Suggestions on a

more “ holistic approach” have been made,2 which include many parts of the pharmaceutical product development process In such a holistic approach

Introduction 9

and process to promote new innovations, there is still a need for an tive start” where an idea is first defined Such a start is possible if people meet, discuss, and try to come up with ideas without any strict formal limi-tations Any such innovative discussions are only possible if there is enough

“innova-“critical mass.” The continued development of the innovative idea must then be “filtered” by the objective to solve a defined problem

Examples in the effort to promote new innovations and to exploit existing ideas include:

• AstraZeneca, one of the world’s largest pharmaceutical companies with worldwide operations, has taken initiatives to promote the development of new ideas and innovations In 2012, the company announced the closure of the neuroscience research site in Södertälje, Sweden, with some 1200 employees Nevertheless, AstraZeneca will continue to work in the neuroscience field, but now in a more “virtual way.” The overall objective is to boost development of inventions and innovations

• Pfizer is another global pharmaceutical company that has moved from internal research activities to rely on the research made by external independent companies or independent research groups In addition, Pfizer has developed the MXIS (Market Exchange for Innovative Services), a “virtual outsourcing platform for Pfizer scientists MXIS, an Assay Depot Enterprise Solution, brings together research services from thousands of global vendors (aka CROs) into one secure website, enabling Pfizer scientists to communicate with any research vendor.”3

• Karolinska Development AB was created as an investment company with the aim to transfer research form the academia to an industrial set-ting A large number of results from advanced research have been evalu-ated, primarily from the Karolinska Institute, a Swedish university focusing on medical research The evaluations have resulted in a number

of small Virtual Companies founded, with the objective to develop and commercialize the academic research results

The development of new innovative products is, thus, promoted by open discussions between different players in the Virtual Company product devel-opment process Such players are the core team in the Virtual Company and its external collaboration organizations There is a challenge in this context – these players are not located in one geographical site but at different places This fact put special demand in the way that communication is performed

in this group

OPTIMIZING THE USE OF RESOURCES

The limitation of time and financial resources are considered to be the key motivators for establishing a Virtual Company By choosing a Virtual Company format, there is potential direct access to external specialized competences in relevant areas For example, for a biotechnology company with a need to design and synthesize new chemical compounds, it will be both costly and time consuming to establish the necessary infrastructure This includes the purchase and instalment of all technical equipment, finding and recruiting key competent personnel to perform the chemical development work and to handle and operate sophisticated advanced technical instrumentation

Using the Virtual Company format, there is a possibility to have direct access to both technical equipment and competent personnel – this is achieved by contracting relevant ERPs (e.g., a contract research organization (CRO)) However, it is important to remember that the process of contracting such an ERP will take time and effort, since the ERP needs to be

• identified as a preferred partner and

• negotiated with on an agreement

Finally, the working process needs tight surveillance and guidance by the Virtual Company in order to avoid misunderstandings and lose control Thus, although the use of the Virtual Company format and the contracting

of an ERP might be more efficient (direct access to external competences and infrastructures) than developing a similar operation in house, contacting

an ERP will take time while establishing the contract and also when aging the continued work with the ERP

man-The type of resources and competences needed in most organizations change and evolve over time as the activities in the company change or move into new phases An example is in drug development projects that, early in the process, require intense scientific skills, innovative thinking, and laboratory skills, for example, chemistry, cell biology, molecular biology, and access to disease models As the project proceeds, the required competences change into large-scale production of the drug, toxicity testing, and regula-tory competences, and later on the required competences further emerge into activities like clinical trials and finally marketing and sales The compe-tences required in order to reach defined goals (a marketed product or a project to be licensed to another party) are, of course, those with the most appropriate quality

Introduction 11

Finding the innovative sweet spot

Within our Virtual Company, we want to organize an innovative thinking process On the other hand, we need a formal internal structured way of working It is necessary to have both these aspects in order to fully exploit the potential of an efficient inventive progress A new innovative idea needs

to be evaluated in an industrial context, for example, in addressing questions such as the following:

• Can the innovation be protected by filing a patent application?

• Does the invention lead to improved business opportunities?

• What formal regulatory demands are there on the product (if any)?

To address and highlight the challenge of innovative freedom versus formal structures, we can compare three types of organizations One is very formal and stratified—the hierarchical organization One promotes new ideas and interpretations—the nonhierarchical organization With the third organizational form—a kind of hybrid between the two—we have tried to find a sweet spot between innovative thinking and formal structure Although hard to achieve, it is the preferred format for a Virtual Company

The hierarchical organization stresses effective execution

In a hierarchical organization, the formal chain of command functions

as a structure where commands are given and projects are executed

In such a hierarchy, an order can be passed down the organization and it will be executed at the appropriate level A typical example here is the military system where officers with superior ranks are commanding the common soldiers By their rank, officers can give orders that are not to

be questioned This type of formal hierarchical structure functions well when an organization is to execute defined operations with little, or no, possibility or opportunity for interpretations, discussion, or alternative executions However, such a formal hierarchical structure does not promote innovations and new thinking

The nonhierarchical organization promotes creativity

Work can be organized in nonhierarchical organizations or groups, and here the open innovation strategy is an example Open innovation deals with an open nonstructured way to provide innovative work for the development of

a product In the case of an open innovation, anyone will provide ideas and intermediate technical platforms/solutions to the public and invite

competent and interested individuals to use the intermediate technical form for further development Once the platform is developed and improved, the next generation will again be presented to the public, where

plat-an additional individual cplat-an continue the development In this way, the technical platform is developed in incremental steps

• In the open innovation process, there is no formal hierarchy, and any individual that participates in the process does it because of interest and dedication

• In the open innovation situation, there will be no possibilities to file patent applications based on the results from the open innovative process – because the idea and invention is (by necessity) instantly disclosed and thereby publicly known By patent law, any such public disclosure will be detrimental and inhibit the possibility to file a patent application

In the situation above, there is no formal hierarchy or system that dictates that anyone has to contribute to the system Any contribution is made voluntarily and is a result from an individual motivation The motives to participate might differ between individuals but the result is the same; that is, the product is continually developed Such individual motivation is here called a “dedicated driver” – an activity that is based

on an individual decision to adapt into a system and make a tion Again, such a dedicated driver is, by definition, not the result from

contribu-a hiercontribu-archiccontribu-al structure or order

Merging the hierarchical and the nonhierarchical organization

A third form of organization includes both a formal hierarchical system and some sort of dedicated drivers As indicated above, the Virtual Com-pany structure needs to implement both The formal hierarchical system

is implemented in the forms of formal agreements with defined eters that are agreed upon between the Virtual Company and the ERPs Such agreements formally describe what the ERP should do, what the compensation is, what the timelines are, and ultimately who owns the results The ambition of the agreements is to create value at the ERP that will be owned by the Virtual Company The value created is often new inventions and could potentially be transferred onto patent applica-tions This is now in contradiction with what has been stated above, that new ideas, by definition, cannot be regulated in a formal hierarchical system! The best way to promote new and innovative thinking is to pro-mote the existence of dedicated drivers in the collaboration The formal

param-Introduction 13

agreements between the ERP and the Virtual Company do not state or regulate that there should be innovations created It is of great impor-tance that the External Resource Provider is an innovative source that could solve a problem or a task in the most efficient way This book will discuss this in much more depth

REFERENCES

1 lack-innovation/2013-06-18

2 http://www.accenture.com/us-en/Pages/insight-pharmaceutical-innovation-rd- productivity-gap.aspx

3 http://blog.assaydepot.com/2013/08/virtual-platform-for-pfizer-scientists/

THE DIFFERENT ORIGINS OF NEW AND PATENTABLE IDEAS

The first and foremost requirement for starting a new knowledge-based company is a business idea, based on a scientific or technical concept New and patentable ideas that may form such a basis for a new company may originate from different sources The most common ones are academia or research and development departments within scientific and development-driven companies There are also a number of private individuals that are inventors who have made significant contributions to products that we come in contact with in our daily lives Examples of such inventions are the color graphics processors, tools for marine tracking system, and air traffic control

Where and how the new invention is made opens up different scenarios for how a new company is established

• The academic innovator will, in most cases, rely on a technology transfer organization (TTO) active at their institute or university Such TTOs can help and advise on how to patent and found a company based on an innovation made at the institute or university

• An innovation made within a company, as part of the research and development activities, are usually not spun out as a separate company but form the basis for a new product or service within the company There are, of course, exceptions to this situation, for example, when an employee invents something that is out of the scope of the company In such a situation, the employee can obtain the invention from the com-pany and can start a new company

• For the private inventor, there is a challenge on how to commercialize the invention In many cases, the private inventor is a dedicated entre-preneur or has access to good knowledge supporting the commercial-ization of the invention However, there are too many private inventors who have not rightfully got the recognition and financial compensation they deserve – often due to lack of knowledge of the requirements for the commercialization of their inventions leading to a too early loss of control

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16

THE REQUIREMENTS FOR STARTING A COMPANY

There is a set of requirements when evaluating if an idea or invention fies to be the basis for a new company Essentially, these are the requirements that any investor will demand to see fulfilled before investing in a company Such requirements are the following:

quali-A defined product

The product must be defined by establishing a detailed product cation including information on the product itself, its function, and its characteristics As obvious this may seem, the following situation is not uncommon Scientists have made ground-breaking discoveries, for example, on mechanisms that cause a certain disease However, the prod-uct to treat this disease has an extended development time and might exist in the very far future In such a case, it is too early to start the company and continued research activities should first be performed before starting a company

specifi-A need for the product

The product must solve a specific problem and meet a need for which there

is a market Thus, an estimation of the market size has to be evaluated and considered, that is, the sale of the product When there are competing prod-ucts, the advantages and USP (unique selling point) of the company’s prod-uct must be clearly defined

The product must be based on high-quality

experimental data

Any experimental data and results for the proposed product must be reproducible; that is, it must be possible for other laboratories to indepen-dently repeat the experiments and obtain the same results This demand of reproducibility must be verified prior to starting the company In addition, the research documentation for the product must be comprehensive and trackable Here, it should be possible to relate individual experimental results to individual and defined experiments In these instances, it is advisable to use an independent professional to review the data in order

to discover any missing experimental links or lack of proper tion that might have an impact on the interpretation of the invention Complementary experiments might need to be conducted, in order to ensure that the documentation is valid and true, prior to starting the

documenta-company The question then arises on how to finance these experiments This must be solved on a case-by-case basis and might be reflected in the ownership of the company, where someone who financed such successful verification experiments may obtain an additional shareholding in the company when formed.

A patentable idea

The core asset in an early phase technology company lies to a great extent in its intellectual property, that is, in its patents and patent applications Certain legal requirements must be met for an invention to be deemed patentable, and this patentability issue should be carefully assessed before starting the com-pany The basic requirements for patentability are that the idea must be novel, encompass a so-called inventive step, and have an industrial application See Chapter 7 for further details on patentability If the idea is not patentable, then the commercial value of the idea and project may be very limited

A freedom to operate for the product and its development

The term freedom to operate essentially means the possibility to develop and sell

the product without infringing on any other party’s patents (or other lectual property (IP) - rights) In the case of infringement, product develop-ment or sale may be inhibited or a license may be required from another patent holder to be able to continue the work The cost for any such license must be considered upfront, when calculating if the company’s business will be profitable or not It is advisable to evaluate the freedom to operate issues from

intel-an international perspective if the market for the compintel-any’s market is intended

to be global, because freedom to operate situations may vary in different tries Please see chapter 7 for further details on freedom to operate

coun-Established and documented rights to the product

The ownership of an invention and thereby commercial rights to the future product and revenues must be regulated in legal agreements It is absolutely necessary to make sure that such legal agreements are in place before the start of the company If such agreements are not in place, the owners of the company might discover halfway through the product development that the essential commercial rights to the product actually reside elsewhere and does not belong to the company This can be very complicated to sort out and the expertise from lawyers may be needed, which can incur additional costs

Virtual Business Models

18

A market for the product

It must be evaluated that enough consumers and customers of the product exists and that they are willing to pay the requested price The process of such evaluation includes interviews with market leaders, specialists, or other initiated individuals In addition, market and sales reports are commercially available and may be useful in achieving relevant information on the market evaluation Thus, if there is a need for the product, the market must be defined An estimation of the market size has to be evaluated and consid-ered, that is, the sale of the product

A development plan

A development plan should be established that outlines the activities and costs for product development and sale Dependent on the type of product, the execution of the development plan may take shorter or longer time and

be more or less costly The plan should clearly point out how and when the product will be sold and how and when the investors will be able to make

an exit and obtain a return on investment The commercial rights of the products may, for example, be sold or out-licensed to a company responsible for marketing and sale, direct sales, or sales via distributors The exit for the investors and owners may be in the form of a sale of the entire company to another company or making the shares in the company tradable, that is, list-ing the company on a stock exchange

develop-INVENTIONS MADE AT AN ACADEMIC INSTITUTION

An important source of innovative thinking is researchers and highly skilled professionals at universities and higher educational institutions It is a part of their profession and they are trained to “think outside the box”; therefore,

they have a possibility to drive the knowledge and the development tions forward However, it is important to remember that good science and commercial potential are separate things and should be evaluated by differ-ent tools On the other hand, a research result with commercial potential is often also good science.

innova-In most instances, ownership of research results and innovations resides

at the universities where the researches are employed This ownership is regulated by law or by agreements signed at the start of the employment There are international differences in how this ownership is regulated, but eventually, the goal is for the universities to be able to develop and com-mercialize new innovative products In most of the world, there are uni-versity TTOs responsible for protecting innovations made by publicly funded research Thus, the institute or university has an interest in protect-ing the patent/intellectual property (IP) developed, which represents a possible financial asset that then can be out-licensed to a company or serve as a starting point for a new company In the case of out-licensing of the university’s patent right, there are in most instances agreements between the inventor of the patent and the university on reasonable finan-cial compensation to the inventor

A common misunderstanding and sometimes source for dispute are on the requirements for a scientific publication compared with those for a publication in the form of a patent application The scientific publication has much higher demands on the technical and scientific data presented

to support findings and conclusions In the patent situation, fewer mental data may be sufficient, provided that the concept of the innovation

experi-is fully explained and enough data are provided to make the claimed

invention credible Nevertheless, both types of publications serve as prior art

for the other This means that a published patent application may hinder the publication of a scientific paper on the same subject and a scientific publication will prevent a patent application from being granted (see chapter 7 on patents)

The function of the TTO

There are different models for setting up a TTO and the overall mission for such a TTO is the transfer of knowledge from a scientifically driven envi-ronment to a product development–driven environment A TTO is funded

by the institution or university and acts as a service provider facilitating entrepreneurial activities based on results from the university The TTO has the responsibility of introducing entrepreneurial concepts to the inventor(s)

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20

such as patent protection, CEO, business angel, elevator pitch, business plan, go-to-market strategy, etc The TTO facilitates negotiations for license agreements, knowledge transfers, and communication for the best results possible for the university and inventors

There are different objectives for an institution or university for the commercial development of scientific results Besides the obvious potential financial values, in addition to interdisciplinary collaborations, society development, and job creation are important aspects

Independently of the presence of an active TTO, it is a good thing for the scientist and potential inventor to introduce good policies and routines for documentation, publication of results etc in the laboratory, and in the institute or university A well-working TTO will help and actually transfer the technology to a new legal entity/company, and this process is greatly facilitated by good order in the documentation of the technical and scien-tific results The inventors might very well, in the end, be passive owners in the company, but their role, in the transfer process of the invention from the university to a company, is fundamentally important Their contribution in supporting an effective technology transfer is essential and should be compensated

There are different ways that inventions from institutions/universities can be transferred:

1 a license agreement/collaboration with an already established business

2 a transfer of all rights to an established business, or

3 an academic spin-off (starting a Virtual Company)

Virtual Company based on inventions made in academia

The starting form of a new company based on an invention from academia is often a Virtual Company This is typically the situation if the invention is based on one idea, which may be in the form of either a one-product development or a technology platform development company

The academic spin-off is often supported by the researcher and it is a common occurrence that some academic member will continue their work in the new company Initiating the spin-out company will focus primarily on the technology and knowledge transfer, and the new busi-ness is, thus, built on that knowledge In the long run, a continued devel-oped company will not have any direct links to the original academic milieu that it originated from It is a fine line where the “original”

scientist should step down from the company’s activities and business management should take over the majority of the company’s activities Ideally, this transition is smooth and regarded as a natural evolution of the company’s activities.

The commercial potential of results from higher educational institutions’ research programs can either be identified by the inventor himself or herself

or may be identified by active organizations at the institute as a TTO These organizations have dedicated teams for the evaluation and identification of ideas with commercial potential These teams have trained individuals for such searches of new business opportunities and are effective ways for the identification of new prospects because they can look at projects and results from an “outsider’s” perspective

The TTOs often provide help in forming, structuring, and overseeing the initial management of the Virtual Company Scientists are excellent researchers, but it is important to realize that a scientist/inventor is not always a good business or product developer and manager of a company

It is important to have the “right person at the right place,” and help from these organizations is a valuable asset that should be utilized and appreciated

In this context, it is worth mentioning the legal situation in Sweden related to inventions made at universities Here a law regulates the so called

“teachers’ exemption” or “the Professors’ privilege.” This means that researchers at Swedish universities privately own their invention, regardless

of the source of project financing, as long as it is performed during the time the person acts as a “teacher” within a Swedish university In this way, the role of the “Technology Transfer Offices” in Sweden is entirely different from those in other countries The TTOs at Swedish universities often pro-vide help and guidance to the researchers for commercialization of their inventions, but the university has no rights to the ownership of the inven-tion or in the company that may be formed based on the invention The Swedish researchers consequently have the same privileges and take the same risks as any private inventor

INVENTION MADE BY A PRIVATE INVENTOR

A private inventor is in a unique position He or she fully owns the invention him- or herself, but at the same time has the entire responsibility to conduct the business activities related to the invention In such a situation,

Virtual Business Models

INVENTION MADE WITHIN A COMPANY

Being an inventor and making inventions when employed in a company

is considered part of the daily work, and the invention is thus the property

of the company There may be clauses in the employment agreement that regulates compensation to the inventing employee, but this form of compensation is goodwill from the company and not legally required

Virtual Company based on inventions made within

a company

When an invention is made within a company, it is more common that

it forms the starting point of a new product or service within the company, rather than being spun off as a new company The invention might be spun out if the invention is not coinciding with the company’s product strategies In such a situation, the invention may end up in a new company that is fully or partly owned by the company where the invention was developed, or in a totally independent company with new owners and stakeholders Because inventions made within a company might be regulated based on a wholly different set of rules, this falls by definition outside the scope of this book

There are examples from the 1980s of large companies that formed Virtual Companies in order to accelerate the pace of invention and have the possibility to engage world-leading researchers and consultants, in order to form new products and new companies See Chapter 11 and the interview with Mr Swanson, where this is elaborated on in more detail and exemplified

by a real case

Communication and Control

A STORY FROM REAL LIFE: THE MEETING THAT

NEVER TOOK PLACE

Maria and Peter, two business professionals, agreed to have their first meeting They communicated via email and by phone and they decided to meet on Thursday, March 23, at 9 am After some discussions they agreed that the Grand Hotel would

be a good place for a discussion and they both knew where it was located: on the corner of High Street and Market Street They decided to meet outside the hotel since they had never met before, and then walk in together.

They never met What happened?

At 10 minutes past 9 o’clock, one person started to wonder where the other person was, he went inside to see if there had been a misunderstanding and the other per- son had been waiting by the reception There was no-one there, apart from the staff working in the hotel, who had neither seen anyone waiting for someone, nor asking for someone The first person went outside again and started thinking: Is there another entrance? Another reception, perhaps? He decided to call the other person, who replied and wondered where he was She was also outside the entrance, on High Street, but did not see him.

These two people specifically agreed on the details of their meeting: when and where to meet Everything had been confirmed by email and telephone well in advance Yet they failed to meet.

What was the reason for this? Their communication and meeting arrangement was based on a mutual understanding and they both took for granted that they had the same agreement; it did not even occur to them that this was not the case.

The reason why they did not meet was simple; the first person was outside the Grand Hotel in Alicetown but the second person was outside the Grand Hotel in Georgetown It so happens that both these hotels were located on the corner of High Street and Market Street.

This is a true story demonstrating the need for communication and mutual standing The story shows how things can go very wrong despite every effort to have a mutual understanding, and it points to the necessity to make sure that you really put an effort in a clear and detailed communication.

Clear communications—both internally and externally—is extremely important in all human activities, so also in a Virtual Company In order to avoid mistakes and to ensure things move forward in the most efficient way, all the stakeholders of the Virtual Company need to understand each other’s knowledge basis, business perspective, and priorities This chapter deals with defining the stakeholders in a company and the demand of communication and control in relation to these stakeholders

THE STAKEHOLDERS REPRESENT A MULTITUDE

OF GOALS AND AGENDAS

The main stakeholders in a Virtual Company are the founders, investors, consultants, the board, and External Resource Providers (ERP) These may

or may not have the same goal and agenda for the company, and it is tive to identify these different views and to manage them in order to achieve the best results for the company Examples of different views can be that a founder will focus on the technical development and new patentable inven-tions whereas an investor’s key motivation (understandably) is a high return

impera-on investment A cimpera-onsultant will perform an assigned task, and this task should harmonize with the overall objectives of the company Usually, all stakeholders have the same goal with the company, that is, product develop-ment, sale of the product, and company growth However, stakeholders can have different views on the means to achieve this goal For example, there can be various opinions regarding the specifications of the product, for example, what problems should the product solve and how must the product

be designed in order to do this Another example can be on the level of external communication or on the resources needed for technical and busi-ness development

The role of the project leader/CEO is to coordinate the joint operations (to keep things together) and to ensure a continuity in the company in order to make the best possible progress based on the resources provided

and build up the value in the company The core team in a Virtual Company

consists preferably of three people; a CEO, a person responsible for the technology, and a person responsible for the market and business develop-ment These three people must work together as a team and should be tightly tied to the company and have a full-time commitment in working for the company However, in the start-up phase, the financial resources provided might not be sufficient for the employment of these entire three

Communication and Control 27

individuals, in such a case, the CEO is the key person to engage in the company Furthermore, a Virtual Company is vulnerable because many key responsibilities lie with these key individuals; if any of them were to leave the company, it would be a severe drawback for the organization Docu-mentation of the company’s operations together with a clear understanding

of where responsibility lies are central parameters for the survival and future success of the company

It is important that good communication is achieved by individuals with different competencies and roles in the company, in order for different stakeholders to a have a mutual understanding of the situation in the company

The founders know the original invention

The founders of a virtual start-up company are key individuals for the mation and continued development of the company They are important since they have detailed knowledge of the original invention (the core asset

for-of the company) Their contribution is based on their scientific and logical competence However there are special requirements for the devel-opment of the overall company that might be outside the comfort zone of the scientist Typically the inventors/scientists are full-time employees in a university or other academic institution In the case of university scientists, their work is promoted by the number of publications made By transfer-ring their scientific results as an invention to a company, they become own-ers and need to adjust their way of working to an industrial and commercial setting This does not always harmonize with the driving forces of being a scientist, that is, the need to publish For example, the company typically seeks to patent certain technology, and in order to do so, it is essential that

techno-no information be made public prior to filing the patent application ever, the scientist may wish to publish the results in a scientific journal as quickly as possible in order to be the first to publish and later on be able to apply for grants Furthermore, the scientist is often reluctant to get addi-tional capital and investments into the company because it will dilute his or her ownership in the company If the scientist agrees to further finance the company, he or she often has unrealistic expectations from the financial valuation of the company This may lead to discussions and disputes, and it

How-is a pedagogic challenge for the CEO to communicate different views to different stakeholders The founder often has a seat in the board of directors and may also serve as a consultant and/or ERP to the company by perform-ing technical development services to the company This can be a

complicated and challenging situation, since the scientist might play different roles at the same time, roles that may be in conflict with the other stakeholders.

Communication and control – founders

It is important to identify and communicate the founders’ possible different objectives and agendas in relation to the company Usually, it is the CEO that needs to investigate, identify, and handle the potential different roles and agendas that founders of a company might have

The investors have a clear business perspective

The investors are persons or organizations involved in the company based on investments made in the company Investors may have limited knowledge in the technical/scientific field where the company operates and on the finan-cial requirements needed to develop the product Their (sometimes uniniti-ated) view is often that things take too long and cost too much Of course, professional investors contribute to the operations in the company by specific and very valuable competencies and knowledge; without their investments and business competence, the company would be unable to operate or grow However, there might be a conflict if an investor does not understand the technical developmental issues of the company or when technical personnel

do not understand the investment and business rationale

Communication and control – investor

It is important to create a climate of mutual respect between the investors and the company management Both operational individuals and investors

in the company contribute to the overall development of the business, and all are dependent on each other It is, thus, important to promote a view of interdependency There is a need to create an atmosphere of mutual under-standing and respect between all stakeholders in the company However, it might be necessary to pay extra attention to this in relation to external investors since they are not present in the daily operations

The consultants need to be included – as if employed

The Virtual Company is relying on consultants as a main part of the tional resources The consultants are not employed by the company and it is therefore necessary to communicate and control their activity differently compared with if they were employed (See Resources section, where this

opera-is elaborated in detail.)

Communication and Control 29

Communication and control – consultant

A consultant is not directly associated with the company and initially might not be aware of the company’s strategy and objectives It is, thus, important

to inform the consultant of the overall company goals and to give a detailed description with reasons on the rationale for the task at hand and in what context the results will be used Once the consultant starts to work, it is necessary to have scheduled meetings and reports within a structured and organized project team This might sound obvious but such meetings and reporting will take time from the consultant’s work, and the consultant would not always understand the necessity of this It is in the interest of the company to have such regular reports and meetings Absence of such pre-scheduled reporting points might lead to the loss of control, and the work can be postponed or diverted in the wrong direction The consequences might be project delays and accelerated costs In addition, it is imperative to establish relevant agreements between the company and the consultant prior to initiating the work It may also be advisable to provide incentives

to the consultants in order to create a long-term relationship, if needed For example, warranties or bonuses will encourage the consultants and can create a long-term relationship

The board should be kept close

The board of directors and its members has the ultimate responsibility for the company The levels of knowledge, competence, and commitment can vary among different board members Often the board members are com-mitted and competent, but occasionally the situation is different Some-times, board members do not read the material before a board meeting, and sometimes they want to have absolute control of all activities and thereby engage themselves in a form of micromanagement that is utterly unhealthy for the organization It also occurs that board members have limited knowl-edge in the area of technical development and thereby can put unreasonable demands where it is not needed and neglect parts where input and control

is needed

Communication and control – board

Because of the steering role of the board, the management cannot set up rules to control the board A situation when the board appears unclear in its decisions and instructions poses a challenge for the management In such a situation, it is advisable for the management to listen carefully to the board, and make sure it understands the board’s intentions This can be achieved by

asking control questions in order to avoid misunderstandings and to confirm that the purpose of the board is understood It is also a good idea

to elaborate and spell out the consequences of the board’s decisions so that all parties fully understand the meaning of the activities

The ERPs want a clear input

A Virtual Company has a limited number of employees and limited in house technical resources and therefore needs to depend on external ERPs These are typically external development companies performing developmental activities for the company on a fee-for-service basis A clear and regular communication with these organizations is important because much of the value of the Virtual Company is performed at these ERPs

Communication and control – ERP

There is a need of relevant and precise communication between the Virtual Company and the ERP leading up to control of the technical developmen-tal activities One part in this communication and control is the establish-ment of relevant agreements (both written and oral) As in the case of consultants, regular prescheduled meetings and reports are necessary

COMMON GOALS MUST BE DEFINED ACTIVELY

Common goals and the mutual understanding of these goals are important

in any kind of business or organization The same is, of course, true in a Virtual Company and especially since the individuals involved the company are more loosely attached to the company Common goals are imperative to define and to communicate clearly, in order for everybody to understand what they mean and to relate to them This might seem obvious, but in real-ity this is a common point for misunderstandings and conflicts, especially in the start-up high technology developmental companies People use differ-ent terminology based on different experiences and education To improve communication, it is advisable to spend some time to explore what the people involved in different discussions and decisions mean by different words For example, the term “excellent performance” of a product to be developed might have different meanings to different people It is thus important to define the term in a detailed product specification Another example is the term “market communication,” or what it means from a practical point of view

Communication and Control 31

Another issue to watch out for is an individual’s potential hidden agenda, personal goals and driving forces This might sound disloyal and calculating, but it simply reflects human behavior For example, a consultant is often very engaged and knowledgeable in his or her field of expertise and might give too much attention to a particular field of activity, closely related to the consultants’ expertise, rather than focusing on the overall goal for the whole company Another example may be an investor that may have interests in selling the investment earlier than would be ultimate for the company’s value development Such an investor might focus on the question of sale/out-licensing earlier and more intensely than would be motivated by the overall company situation This is a situation that is hard to handle and requires special leadership skills from the project leader or CEO A tech-

nique that is often used here we name Jumping alliances This means that the

manager liaises with individual stakeholders Here it is the objective to make each stakeholder understand the company’s goal Such liaison requires excellent communication skills and creation of trust

RESOURCES

Need of control

A Virtual Company has a limited number of employees – ranging from one

to a few The rest of the human resources needed are acquired from outside the company from various external sources, or the so-called external resource providers (ERPs) This situation creates unique challenges when it comes to communication and control

Figure 3.1 illustrates the situation in a traditional company with ments letting resources to a project in an accepted and organizational way There is a project group located in the same location and there is thus a daily and natural communication between the resources (see A-C in Figure 3.1)

depart-Figure 3.2 illustrates the corresponding situation in a Virtual Company where the resources needed to run the project are picked externally There

is a contractual situation to pick the right resource A because there may be many providers (1-3 as exemplified in Figure 3.2), and the situation is the same for resources B and C In this situation, the working resources (A2, B1, and C3, as exemplified in Figure 3.2) are not located in the same place, and there is no or little natural communication between resources A, B, and C This put a special stress on the project manager to bring the resources to work in the same direction

Figure 3.1 In a traditional company, resources for a project are requested from different

parts of the company and, in this example, each resource A-C has its individual role in the project defined, and the project leader has an overall organizational mandate to direct the resources in their daily work.

PROJECT

Figure 3.2 In a Virtual Company, resources to drive a project are chosen from outside

organizations, and there may be a set of potential providers for each part in the mental chain The project manager has an organizational mandate to guide the resources

develop-in their daily work, but he or she needs also to rely on other skills and techniques for communication and control to move the project forward This is because there is no formal organizational link between the resources in the different development steps.

Other ways of illustrating this organizational setup are shown in

Figures 3.3 and 3.4 A non–Virtual Company typically has all or most of its resources in-house To make it easy to follow, let us call the different types

of resources for A, B, C, and D, and let us assume they are organized into four different departments in-house, as outlined in Figure 3.3 A Virtual Company has all these resources outside of the company, as illustrated clearly in Figure 3.4

Communication and Control 33