Spin-outs can rescue innovation Sunday, August 30, 2009 By Pearse Coyle As the recession continues, there is an ongoing debate -in this newspaper and elsewhere -as to how best to foster innovation and fuel the elusive ‘knowledge economy'.
Within universities and at various other discussion forums, there have been arguments about the relative merits of so-called ‘blue skies' research and research that is guided by well-established market needs. The ultimate objective of all of these discussions is to establish the best way of creating successful Irish enterprises with high-quality jobs.
It is well-recognised that these successful enterprises are elusive. There is no direct link between spending on primary research and the creation of successful companies. Nor, as Richard Tol pointed out in this paper earlier this month, is there a link between initiatives to promote new start-up companies and their successful development.
But in all of this debate, there is an elephant in the room that is largely overlooked -the innovation that has already been developed within large companies in Ireland. This body of innovation is larger and much closer to market needs than all of the commercially-driven research at third-level institutions in Ireland.
That is because companies innovate in order to meet a commercial demand that is not being met by an existing product or service. This innovation takes many forms. It may be the creation of a bespoke product or the attainment of excellence in providing services.
At one Irish insurance company, an in-house development team created software to help with the efficient running of the business. This firm has since been taken over by a multinational, which is rolling out some of this software across the group internationally.
In another example from the mid-1990s, a group at AIB's credit card operations commissioned the development of a piece of artificial intelligence software to automate the administration of disputes between cardholders and merchants. Because these disputes were governed by the rules set down by Visa and MasterCard, this dispute resolution process was almost identical at banks worldwide and it was largely conducted in English.
The software that was developed for AIB became the main business of a standalone company, Exceptis. It went on to sell the product to 12 banks in eight countries, employing 70 people before being taken over in a deal worth €26 million.
Managers in Irish-based companies -both indigenous companies and multinationals -should make every effort to identify similar opportunities. Ireland may well lose out on the next round of foreign direct investment, so we must capitalise on what we have and try to spin out parts of the existing large employers into strong indigenous companies.
Many managers within manufacturing, banking or insurance firms in Ireland will tell you that their processes are world-beating. These individuals will have built up a strong team, they may have developed software and they may have studied and improved industry best practice. In other words, they have developed some marketable business innovation.
However, if their employer decides to close its doors -as has happened with many multinational firms -then that innovation may be lost forever. Even for Irish organisations, such as banks, their in-house innovation may be destroyed if they are taken over and operations and systems are standardised to some other model within the group.
It will be too late then to try to salvage the innovation and spin it into some type of new company. Now is the time for Irish management teams to capitalise on the intellectual property that they have developed and seek to spin it out into a new venture.
Put it this way: today you may be a manager of a team with a great product or process. Tomorrow you could be the leader of a new company with a great commercial starting point. Or you could be meeting your former team at a reunion of ex-employees, regretting that you had not stuck together and built wealth out of what you had created.
Pearse Coyle is a technology and business consultant who is leading an initiative to create corporate spin-outs
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