PRODUCT LICENSING

Licensing involves obtaining permission from a company (licensor) to manufacture and sell one or more of its products within a defined market area. The company that obtains these rights (the licensee) usually agrees to pay a royalty fee to the original owner.

Why would a company look for products it can produce under license?

In today's world of rapid technological change, new technologies are the key to economic growth. Today, many products have very short life cycles and are readily replaced in the marketplace by new technology. If a company wants to survive, it needs to continually add new products to replace declining products.

Also, a company may want to grow and diversify by expanding its product line to take up excess manufacturing or marketing capacity, level out seasonal highs and lows, or simply add to profitability with a proven product. Companies may not have the internal skills, time, or money to develop their own new products, so obtaining a proven product quickly through licensing may be very attractive.

What are the advantages of licensing?

• You get access to the experience and know-how of the company that developed the product. This company may be much larger than yours, with development capabilities that you cannot afford.
• You get to break into a new market with this new product, but with the benefit of the experience gained in another market.
• it costs less than buying an entire company;
• you don't pay for expensive and time consuming research and development;
• you don't pay development costs up front; you pay royalties when you start making sales; and
• you won't have large losses if the product doesn't become successful in your market area.

It makes competition easier if you're a small company with limited resources. You minimize your costs and risks: 

What are the disadvantages of licensing?

• The license agreement is normally for a considerable period of time and there may be an annual minimum royalty required.
• New technology may become available making the licensed opportunity obsolete.
• The agreement may force the licensee to accept restrictions on its marketing.
• The licensee may lose the capacity to develop its own technology internally.

What does a typical licensing agreement cover?

• Subject Matter of the Agreement—may be (1) patent, (2) copyright, (3) trademark, (4) industrial design, (5) trade secret (know-how, technology, experience, etc.)
• Granting of Rights—defines what licensor is transferring to licensee
• Licensor's Obligation—sets out how transfer is to take place in terms of assistance, support, training and co-operation
• Licensee's Obligation—sets out financial requirements, guarantees of licensee, secrecy, costs, etc.
• License Fee—fee paid to licensor on signing agreement
• Royalty—ongoing share of proceeds paid to licensor for the rights. May be a lump sum, or percentage of proceeds or amount per unit sold, etc., usually a minimum royalty is required.
• Term—how long the agreement is to last
• Designated Area and Exclusivity—define manufacturing and marketing area of license
• Termination—describes rights of both licensor and licensee to terminate agreement
• Guarantees—licensor will normally not guarantee the results of using the rights granted. The licensee may be required to provide warranties, public liabilities, etc.

THE ADVANTAGES AND DISADVANTAGES OF OUTSOURCING

The Advantages and Disadvantages of Outsourcing

What is Global Outsourcing?

Outsourcing is an allocation of specific business processes to a specialist external service provider. Most of the times an organization cannot handle all aspects of a business process internally. Additionally some processes are temporary and the organization does not intend to hire in-house professionals to perform the tasks.

Once the task is outsourced to the service provider, he will take the responsibility of carrying out the tasks and maintaining the organization’s assets.

However prior to outsourcing any component of your business to a third-party vendor, it is essential to understand the advantages and disadvantages of outsourcing. Although outsourcing presents a variety of benefits to your organization, it could also pose difficulties if not outsourced to the right service provider.

The most commonly outsourced streams of business include:

• IT outsourcing
• Legal outsourcing
• Content Development
• Web Design and Maintenance
• Recruitment
• Logistics
• Manufacturing
• Technical/Customer Support

Why do organizations outsource their business process?

The key factors which have led to a growing trend of outsourcing are

• Lack of expert-labor in some portions of the business process
• Availability of cheaper labor, whilst not comprising on the quality of output
• Ability and feasibility to concentrate on the other crucial business process

These factors have specifically contributed to most of the outsourced partners across different locations in the world. Expertise in communication capabilities, technical expertise and favorable financial packages are the most important advantages of outsourcing to India. 

Advantages and Disadvantages of Outsourcing

Outsourcing most commonly known as offshoring has pros and cons to it. Most of the time, the advantages of outsourcing overshadow the disadvantages of outsourcing.

The Advantages of Outsourcing 

• Swiftness and Expertise: Most of the times tasks are outsourced to vendors who specialize in their field. The outsourced vendors also have specific equipment and technical expertise, most of the times better than the ones at the outsourcing organization. Effectively the tasks can be completed faster and with better quality output
• Concentrating on core process rather than the supporting ones: Outsourcing the supporting processes gives the organization more time to strengthen their core business process
• Risk-sharing: one of the most crucial factors determining the outcome of a campaign is risk-analysis. Outsourcing certain components of your business process helps the organization to shift certain responsibilities to the outsourced vendor. Since the outsourced vendor is a specialist, they plan your risk-mitigating factors better
• Reduced Operational and Recruitment costs: Outsourcing eludes the need to hire individuals in-house; hence recruitment and operational costs can be minimized to a great extent. This is one of the prime advantages of offshore outsourcing

The Disadvantages of Outsourcing

• Risk of exposing confidential data: When an organization outsources HR, Payroll and Recruitment services, it involves a risk if exposing confidential company information to a third-party
• Synchronizing the deliverables: In case you do not choose a right partner for outsourcing, some of the common problem areas include stretched delivery time frames, sub-standard quality output and inappropriate categorization of responsibilities. At times it is easier to regulate these factors inside an organization rather than with an outsourced partner
• Hidden costs: Although outsourcing most of the times is cost-effective at times the hidden costs involved in signing a contract while signing a contract across international boundaries may pose a serious threat
• Lack of customer focus: An outsourced vendor may be catering to the expertise-needs of multiple organizations at a time. In such situations vendors may lack complete focus on your organization’s tasks

With all these pros and cons of outsourcing to be considered before actually approaching a service provider, it is always advisable to specifically determine the importance of the tasks which are to be outsourced. It is always beneficial for an organization to consider the advantages and disadvantages of offshoring before actually outsourcing it.

FEEDBACK LOOP: DEFINITION & EXAMPLES

The concept of a feedback loop is an important element of systems management theory. In this lesson, you will learn what a feedback loop is and how it fits into systems management theory.

Definition

A feedback loop in the context of systems theory is the feedback the organization's environment provides it. A feedback loop can be positive or negative.

Application to Systems Theory

Systems theory usually treats an organization as an open system. A system is a set of distinct parts that act together to form a more complex thing. An organization is a set of resources, people, and information that come together to form a complex system. An open system is a system that interacts with its environment.
An organization that is an open system takes resources from the environment, known as inputs, transforms them through a process known as throughputs and sends the transformed resources back into the environment as outputs.
Feedback loops provide information to the organization about the successes or failures of the organization's system. A positive feedback loop means that the organization is functioning well. A negative feedback loop means that there are problems in the system that need to be corrected. Part of a manager's job is to monitor for feedback loops and take appropriate actions to reinforce a positive feedback loop or correct problems that create a negative feedback loop.

Examples

Negative Feedback Loop

Let's say you are a manager at a research and development facility for a gaming software company in charge of developing a new action game for the company's game console. Your team finishes the game and begins beta testing with outside gamers. After a week of play, the beta testers complete a survey and undergo a debriefing.
The feedback was not positive. Some consistent complaints include a slow game pace, poor graphics, and complicated gaming control. You take this negative feedback and alter some of the inputs by hiring some new employees specializing in high resolution gaming graphics. You alter the throughputs by having employees simplify the gaming controls and increasing the pacing of the game. You have successfully monitored a negative feedback loop and took appropriate actions to correct the problem identified by the feedback.

Feedback Loops – What are They and Why are They Important for Marketing?

By: Becky Lang

I just finished reading Wired’s article Feedback Loops are Changing What People Do, which was one of the many brilliant Wired pieces that make you think “holy crap civilization is about to change and soon our sunglasses will let us see through walls.” I suggest you read it yourself, but I’ll give a short recap before I relate it to marketing.

Imagine if there were a way to receive information about the level of plaque and decay on your teeth on a daily basis. You can bet you’d start brushing more. The problem is, monitoring that type of information is either impossible or takes too much effort. With a feedback loop, that could change. Feedback loops are the simple process of receiving real time information about an ongoing activity that lets you know whether you need to ease up or add more intensity. It started in technology like thermostats and then was adopted by psychologists like Albert Bandura as a way to help people improve their behavior. They’re highly effective, but they’ve been widely unavailable or impossible, until now. As we get better at collecting and organizing information, the technology to stick sensors everywhere is getting dramatically cheaper – thus shoes with built-in accelerometers.

This presents a huge opportunity for brands that want to do more than just shill product. Brands have a lot of information. Regular brands have market research, but any brand related to technology has real-time information that can be easily pumped into feedback loops. On a small level, a brand like AT&T is using them to improve customer experience. My phone texts me gentle reminders regularly when I’ve reached certain levels of my data plan. But what if we could program it to provide personal loops, like a text that tells me I’ve called my mom 80% less frequently than last month? Quirky, but interesting.

A brand that encapsulates this idea is Mint.com. Instead of just collecting data about your finances, it analyzes your information and reflects it back to you in useful ways. Who knew I was spending that much on gas? Better cut down. Of course there are still problems with Mint – it’s not happening in real time, for one. If I had an app that let me know my bank account balance at any given time, you can bet I’d spend less money. But Mint is constantly at least a day behind. The other problem is its tone – instead of being gentle and harmless, it plays on fear as motivator – “ACTION REQUIRED,” “Unusual Spending,” “Fee” – phrases that cry wolf when your unusual spending on housing was nothing more than paying rent.

Whether or not we could articulate what feedback loops are and why they work, this trend of reflecting useful data back to customers was going to grow no matter what.  I’m excited to see what it brings.