Best Practices for Technology Development and Sourcing Transactions

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There are, however, some significant disadvantages to undertaking a technology innovation project as an in-house matter:

  • in-house development and deployment of new technologies can be costly and slow;
  • if the new technology is found to be useful in a product or service outside the company’s established offerings (or outside the needs of a company’s existing customer base), the innovating company must then develop new products and customer bases to monetize the innovation;
  • it is often difficult for a non-technology company to compete for the best technology resources at competitive rates;
  • the ability of a company to customize innovation efforts can actually become a disadvantage if the company indulges excessive customization requests (resulting in delays, more complex and high-risk deliverables, and project cost overruns);
  • a company going it alone must bear all the risk of a delayed or failed technology development effort; and
  • intensive involvement in technology development is often an unwelcome distraction from core business activity.

Against this backdrop, we turn to a variety of transaction types that foster technology innovation while mitigating the downside risks and costs associated with technology development projects.

In recent years, the pace of technology and business change has rapidly increased, requiring new commercial models and changes to the existing models. Companies – all companies, not just technology companies – must now regularly update technology across their entire organizations and customer-facing services and products.

Successful technology projects boost revenues, distinguish a company and its offerings from the competition, and transform and improve a company’s relationships with its customers. Failure, on the other hand, can have a profound impact on product development, customer service and market reputation for years to come. Consequently, planning for technology innovation and deployment projects requires careful mapping of strategic objectives, deliverables, and realistic work-around options. 

Laurence Jacobs and Nicholas Smith, partners at Milbank, Tweed, Hadley & McCloy, have identified a variety of transaction structures that companies can use to develop new technologies and to leverage existing infrastructure, technologies, and customer bases. They have also focused on the relative strengths and weaknesses of these models in fostering technology innovation and best practices when designing and managing a project to develop and deploy technology or technology services.


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