Understanding commercialization

By Dr Jeffrey Crelinsten

Commercialization is one of those opaque words that have as many meanings as the number of people using it. Ask a university researcher and you'll hear it's about licensing his or her technology to a company. Someone working in the technology transfer office of the same university might add that it's about starting a new company around a team of university researchers. Ask the CEO of a multinational firm and you'll learn it's about finding a solution to a customer's problem, while the CEO of a small startup firm might suggest it's developing a product or service for a new market.

It's important to clarify the meaning of this word because a great deal of taxpayers' money is supporting organizations that claim to be in the business of commercialization. There are technology transfer organizations at universities and other research institutions, incubators, accelerators, research parks, community economic development organizations, regional innovation organizations, government agencies and other so-called innovation intermediaries — all claiming to play a critically important role in the commercialization of research.

In the present environment of fiscal restraint, governments are asking hard questions about the return on their investments of taxpayers' money on all sorts of initiatives, including commercialization. The combined budgets of these commercialization organizations would rival the GDP of a small country. So it's all the more reason to clarify exactly what commercialization really is all about.

The root of the word commercialization is the word commerce. Commerce is a human interaction based on an exchange of value. Typically this exchange takes place between two individuals or organizations — the supplier and the customer. A barter exchange of one product for another, or a service in exchange for a product, would qualify as two examples of commerce. However, commerce long ago evolved to include currency as a medium of exchange. So, today, a typical exchange involves the supplier providing a product or service to a customer in return for a specified amount of money.

The value exchange is defined by the perceived value of the product or service by the customer. Can the customer find the product or service elsewhere? Is the product or service useful and easy to use/understand? Is the supplier trustworthy, responsive, respectful and helpful? For the supplier, it's also important whether or not the customer is trustworthy, responsive, respectful and helpful. Mutual trust is the foundation of a successful value exchange, or commerce.

A commercializer, then, would be a person or an organization that engages in commerce — a value exchange. Commercialization is a process for facilitating commercial value exchanges between suppliers and customers. With this crystallized understanding in mind, let's examine the claims of some organizations that purport to be in the business of commercialization.

The CEO of the large company who sees commercialization as finding a solution to a customer's problem is clearly talking about a value exchange. The company identifies a need, develops a way of meeting that need in collaboration with potential or initial customers, and if the company can provide a better solution than anyone else, in a manner that is helpful, respectful, responsive and trustworthy, then they succeed in getting sales — initiating a value exchange — and commerce results. Commercialization has occurred.

engaging in value exchange

What about the CEO of the startup firm who is developing a product or service for a new market? The management team has done lots of market research, has developed a business plan, has attracted government grant money and some venture capital to fund their R&D. Unless they are actually engaged in a value exchange with a customer, even a potential customer or a beta customer, commerce is not present. Commercialization has not occurred. Interviews conducted with over 100 CEOs of firms indicate that many entrepreneurs — including people from large firms who leave to start up a new venture, lone inventors, but especially university researchers who start new firms — fail to identify and engage potential customers early on. They do not enter a value exchange nor generate any sales revenue before they have to close up shop or sell to someone else in order to keep going. This is not commercialization.

The university that creates a startup firm has not commercialized unless the firm successfully initiates and sustains a value exchange with customers and generates sales. The same goes for a university that licenses technology to an existing company. Unless the company uses that technology to initiate a value exchange with customers and generate sales, the university license has not facilitated commercialization (and no royalties will flow back to the university).

Understanding that commercialization involves a value exchange that generates revenue helps to evaluate investments in so-called commercialization organizations and activities. It also helps organizations that want to play the commercialization game to focus on the important outcome — creating value for a customer and initiating a value exchange.

What does this analysis mean for universities, research institutions and intermediary organizations that perceive their role as commercializing research outcomes? This role makes sense only if the research outcomes create value that can be the basis for commerce — a value exchange between a supplier and a customer that generates revenue. To be effective, then, these organizations must engage with individuals and firms that can and want to play the commercializer role. They need to understand the central place of value exchange and the need to identify and engage customers. They must also be willing and able to maintain their relationships with their commercializer partners and track their commercial success or failure.

It is not sufficient, or ethical, to offer input measures such as patents, licenses and startup firms as evidence for successful commercialization. Organizations must wait until they can demonstrate that real commerce has taken place before they proclaim success at commercialization. Only then will they earn the trust and cooperation of their funders and the real commercializers. Only then will they be able to truly facilitate commerce and claim to be a part of the commercialization process.

Jeffrey Crelinsten is a principal with The Impact Group and co-publisher of RE$EARCH MONEY.