Get IT together

The IT industry has suffered greatly in the past couple of years. The downturn has hit the Scottish technology market hard too, which is particularly visible from the reduced investment in IT companies. While the IT industry is looking more positively to the future, with predictions that 2004 will see an increase in spending on IT and acceleration in sector recovery, there are still doubts about the overall economy. Ultimately, customers will still be looking to cut costs and, as a result, it is anticipated that any IT growth will be predicated on tangible return on investment through innovative solutions.

Scotland sees itself at the heart of innovation and technical talent and 2003 saw some new initiatives to encourage collaboration. It is hoped that the establishment of Scottish Technology and Collaboration (STAC) and Intermediary Technology Institutes (ITI) in 2003 will ensure that the country remains at the forefront of innovation in the technology sector.

STAC aims to enable companies to reach new markets, access innovative technology and share intellectual property (IP) through collaboration between companies of all sizes and capabilities. ITI involves the creation of three Intermediary Technology Institutes – in life sciences, energy and ‘techmedia’ – to identify future emerging markets and stimulate increased company research and development through collaboration between universities, research institutions and companies. What the two organisations have in common is a realisation that Scotland boasts a number of companies with leading-edge technologies, but in order for these to compete in the global market and for market opportunities to be exploited, the companies need to share their skills, knowledge and resources. The approach is market driven and led by customer demand, but collaboration will also allow parties to be more dynamic and look at emerging opportunities in their own market, as well as in other market sectors.

While other industries, such as oil, gas and construction, are familiar with the concept of collaboration or partnering, it seems that the IT industry is only just beginning to appreciate the merits of the approach. This has not been through ignorance of the value that collaboration might bring, but through a wariness of working closely with competitors and sharing key business assets with other companies. Smaller businesses were concerned about dealing with larger firms that might exploit their IP, employees and know-how, but they are now realising the benefits that association with larger organisations can offer, particularly in respect of research and development, capital, and established marketing and distribution channels. Larger businesses were unwilling to enter into relationships with smaller parties whose financial status and longevity they felt were questionable. They will, however, readily acknowledge that small companies typically have flexibility, knowledge of a niche market and cutting-edge technology to their credit. Bringing the parties together allows them to benefit from the strengths of the other party.

The collaboration itself can take different forms. Some parties might prefer to establish a separate corporate entity as the collaboration vehicle, while others might prefer to have the relationship governed by an agreement or to operate as a partnership. It is for the individual parties to carry out their own analysis of the potential risks involved in the collaboration, and to consider ways in which those risks can be mitigated. For example, not all collaborating companies will be competitors, but for those that are, the issue is not to unrealistically try to prevent all competitive situations from arising, but to recognise the situations when the parties will and will not compete, and deal with what is to happen in those circumstances at the outset.

The obvious role of the lawyer in all of this is to put in place the legal framework for the relationship between the parties, and input will be needed from the corporate, IP and IT, and potentially employment, sides. The framework should be sufficiently structured to protect the parties – particularly in relation to protection of assets, sharing in the revenue and to the consequences of terminating the relationship – but not so prescriptive as to make it difficult for the parties to work together.

There is another, perhaps less obvious, role for the lawyer to play, which is to steer the parties into considering the practical and commercial aspects of the proposed collaboration, before putting pen to paper. There is little point in reaching the stage of drafting a full collaboration agreement if the parties have not considered what they actually want from the relationship. While the lawyers can provide for most eventualities in an agreement, it is the ‘softer’ issues that might ultimately determine whether the collaboration will succeed.

Prescriptive wording around the parties cooperating in good faith can be written into the agreement, but if there is an absence of trust, mutual respect and a genuine will to work together to achieve a common goal, the relationship is not going to work. Entering into a memorandum of understanding or heads of agreement will be a useful exercise to force the parties to focus on what they hope to gain from the relationship. There is likely to be some element of culture shock when companies, particularly large and small companies, work together, but if the parties share a similar vision and common objectives, this will put the parties on a strong footing.

The other aspect of STAC is that it not only involves collaboration with another supplier or developer, but also with the customer. Businesses will work together to develop a solution for the customer, but will also be working with the customer, who will define the problem and help the parties to test the solution. The aim is that all parties will ultimately be able to share in the exploitation of the solution to some extent, and this will require advisers to each of the collaborating parties, as well as to the customer.

As well as the benefits that will arise from collaborating on a one-off project, such as those envisaged by STAC, the knowledge transfer and sharing of ideas is likely to have benefit beyond that project, and might also lead to long-term collaboration between parties. While the focus is on collaboration projects in Scotland, there will be opportunities to expand collaboration outside Scotland to other UK companies or to further afield.

Collaboration is not about an ‘if you can’t beat them, join them’ mentality, but a recognition that the growth of Scottish companies on a global level to meet customer needs cannot be done alone. There is a feeling that by working together, Scotland can achieve its objective of playing host to truly world-class companies having headquarters in Scotland, but selling leading products all over the world.

John Salmon is a partner at Masons