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The Xerox Corporation has devised several strategies for managing the numerous spin-off firms that independently commercialized many of its technologies. From 1979 to 1998, thirtyfive technology-based organizations emerged from Xerox's research centers. Contradicting the common perception that Xerox "fumbled the future" by letting its technology walk out the door, in fact the company set in motion a series of deliberate initiatives to manage its spin-off organizations. After initially adopting a laissez-faire approach, the company soon turned to ad hoc methods, which evolved into a formal internal venture capital structure and culminated in a triage process, with the result that only companies perceived by Xerox as fitting into its overall corporate strategy were retained. By using spin-offs to withdraw gracefully from areas it considered to be marginal, Xerox forfeited the potential to realize value from their research. Some, but not all, of the spin-offs obtained venture capital financing from outside sources and thus prospered independently. Their success demonstrated the opportunity that Xerox missed in managing its spin-offs.
The fruits of industrial research fueled the rise of many major U.S. corporations during the twentieth century. A virtuous circle developed, whereby the benefits of research conferred competitive advantage to the firms that funded it. The firms, in turn, were able to garner sufficient profits from their businesses to reinvest in new research and thus to gain further advantages as they increased both the scale of their current business and the scope of their new ventures. The growth trajectories of companies as diverse as General Electric, DuPont, U.S. Steel, IBM, and Merck can all be attributed in part to their management of internal research.1
At the end of the twentieth century, industrial research, particularly that conducted under the aegis of a central laboratory, had come under increasing pressure to justify its continued funding.2 While central research labs discovered numerous important technologies, their owners found it increasingly difficult to create new businesses from these discoveries. Other companies, with seemingly less investment in basic research activities, frequently appropriated much of the gain from new innovations that originated in these central labs. Often, even startup companies were able to commercialize new discoveries ahead of the companies that invested in the early stages of the research that led to those inventions. Some...