The Governance and Performance of Xerox's Technology Spin-Off Companies

41 Pages Posted: 28 Mar 2002

See all articles by Henry Chesbrough

Henry Chesbrough

Harvard University - Entrepreneurial Management Unit; University of California, Berkeley - Haas School of Business

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Abstract

Companies that conduct internal research cannot fully specify the output from that research in advance. Inevitably, spillovers may result. A company might choose to create a technology spin-off company to realize value from such research spillovers. But how is such a spin-off to be governed? Effective spin-off governance structures in a highly uncertain environment must promote experimentation and adaptation, in order to unlock the latent value in a technology. These can conflict with structures intended to manage coordination with the parent firm's complementary assets.

This paper analyses 35 spin-off organizations that arose from the Xerox Corporation. Xerox's own initial equity position is negatively correlated with the subsequent performance of its spin-offs, but this is due not to their equity per se, but to Xerox's practices in managing its spin-offs. Spin-offs with a higher percentage of venture capital investors on their Boards were associated with higher financial performance, while spin-offs with a Xerox insider as CEO were associated with lower financial performance. Qualitative interview data suggest that Xerox's practices caused its spin-offs to search locally near Xerox's own business, while spin-offs governed by outside investors' practices searched a broader space for commercializing their technologies.

Keywords: Technology spin-offs, governance, complementary assets

JEL Classification: 030, 032

Suggested Citation

Chesbrough, Henry, The Governance and Performance of Xerox's Technology Spin-Off Companies. Available at SSRN: https://ssrn.com/abstract=304722 or http://dx.doi.org/10.2139/ssrn.304722

Henry Chesbrough (Contact Author)

Harvard University - Entrepreneurial Management Unit ( email )

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University of California, Berkeley - Haas School of Business ( email )

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