The Innovation Matrix: Aligning business and IP strategies
Innovation is arguably the most important means of staying competitive in the marketplace. One way to keep that competitive advantage is to protect the intellectual property (IP) behind these innovations so as to prevent competitors from using them.
In fact, studies reveal that intangible assets, including patents and trade marks, now account for over 80% of a company’s value, a vast change from 20% in the 1970s. And for start up companies, which amass IP during early stages of development, that figure is likely to be in the order of 90%. In a world where so much of a company’s value is tied to its IP, the management of IP must therefore become a core competence for any aspiring business.
Increasingly, executives and entrepreneurs are expected to know both their business strategy and the appropriate IP strategy to go with its business models. But given the breadth and variation of IP tools, they often don’t and IP is perceived as complex and opaque, even to seasoned executives. Less a lack of trying, this is more likely due to the lack of a systematic process for formulating a sound IP strategy.
To that end, I have formulated a simple IP strategy framework to illustrate how IP can be used effectively to support business goals. Devising strategic styles based on a given competitive environment is not new, but by formulating a matching IP strategy in view of the same environment, we add a crucial component that simplifies the process.
Companies that match their strategy formulating process to the competitive environment in which they operate tend to perform significantly better than those that do not. The competitive environment can be categorised using two key factors: predictability and malleability.
Predictability defines how accurately and how far into the future a company can forecast factors such as market demand, expectations and competition. Malleability is defined as the extent to which a company and its competitors have the power to influence those factors.
These variables are used to broadly define four strategic styles in which an appropriate IP strategy can then be applied to suit a distinct environment. The strategic styles are labelled: classical, adaptive, shaping and visionary (see Table below).
Above is a summary of the framework which illustrates that there are a myriad of creative IP strategies to explore, and each of these can assist businesses achieve measureable, strategic business goals.
When a company operates in a business environment that is highly predictable and cannot be changed easily, then a classical management style based on causal logic is likely to succeed. This is the style most familiar to managers, and revolves around building and fortifying favourable competitive positions through methodical planning and quantitative predictions. Once plans are set, they tend to stay in place for several years.
In this environment, IP management emphasis should be placed on identifying and protecting incremental innovation that provides an edge over the competition. A company operating in the classical environment is likely to have well established product lines and sales channels, with each contributing to the creation of IP, so an effective IP strategy would encompass actively identifying and managing a range of IP assets; products would likely have patent and design protection, brands would be covered by trade marks and goodwill, client lists and business models protected by confidential information and know-how.
Companies operating in the slow-moving classical environment may prefer to wait until new technologies have been proven in the marketplace before following the trend, rather than being pioneers themselves. However such companies should be aware of competitors’ IP and exercise caution before committing significant resources to follow the trend. One way to mitigate potential infringement risks is to undertake patent landscape and freedom-to-operate analyses of the emerging technology, and ensuring infringement risks and possible licensing options are given due consideration.
One famous example of this is the case of Kodak and Polaroid. Kodak ignored the patents Polaroid owned when it launched its own line of instant cameras and films in 1975 and was sued for stealing technology. The total cost of Kodak’s miscalculated strategy amounted to over $900 million in damages, the closure of its $1.5 billion manufacturing plant, laying off 700 workers, spending nearly $500 million to buy back the products it had sold, and years of R&D effort gone to waste.
Carefully crafted strategies for a classical environment may become obsolete within months if the competitive environment is unpredictable due to factors such as global competition, disruptive innovation and economic uncertainty.
In such cases, an adaptive approach, whereby short planning cycles in view of fast moving competitive intelligence, allow a company to react quickly to change. For example, in the fashion industry, tastes change quickly and no amount of planning will allow designers to predict the future, therefore it is often best to constantly adapt in accordance with changing trends.
The emphasis for an adaptive company is flexibility – in other words, keeping options open when market demand and competition are unpredictable. With that in mind, an appropriate IP strategy could provide the adaptive company with an edge over its competitor in the following ways.
Firstly, adapting to the market requires being able to constantly curate quality feedback on the market and its participants to capture any signs of change. In this regard, actively monitoring the patent landscape and trade mark filings of the industry and competitors can provide a company with superior competitive intelligence when crafting its own strategic direction in the market.
Secondly, due to the unpredictability of the market, keeping your options numerous and open while limiting the competitor’s options is a sure fire way to improve your odds of success. A patent strategy called ‘bracketing’ can be used with provisional patent applications to tremendous effect in this regard. A ‘bracketing’ patent filing strategy is simply to be the first to place your bets on products or key features that are likely to be valued by the market, while raising a legal barrier for your competitors.
Provisional patent applications are flexible tools because they are cost-effective to file and can be abandoned after 12 months without publication – effectively allowing the company a year from filing to gauge feedback from the market and make informed decisions about crafting a strong IP position. Patent applications to weaker ideas in the bracketing portfolio can be pruned while continuing the process for those breakthrough ideas, thereby locking competitors out of the market no matter which way the market sways.
Additional strategic considerations to keep patent applications flexible include delaying the grant of the patent, and/or always having a pending application in progress, because it is much easier to mould and change the protection scope of patent applications to match that of the market or competition before the applications are granted.
Malleable business environments can be seen in new high-growth industries where barriers to entry are low and demand is unpredictable, so that a company could radically shift the course of industry through innovation.
The software industry is a good example as it experiences rapid changes and the actions of standard-setting companies can affect the direction of the industry. Battles are often waged in trying to mould the environment to a company’s advantage before that of their competitors.
The shaping strategy involves greater emphasis on building innovation that defines attractive new products, markets, platforms and standards. However, one cannot change an industry if others are not willing to follow the lead; hence a company executing the shaping strategy should focus on building collaborations with its industry partners.
IP is well suited to assist in a company’s quest to shape its environment by way of collaboration and control because, as demonstrated by the likes of IBM, Qualcomm and Texas Instruments, owning IP allows the company to develop favourable partnerships and licensing relationships. Industry partners such as suppliers, OEM manufacturers and distributors are also more likely to rally behind technology players if there is protectable IP to increase the barrier to entry for new players.
Indeed, if a company is interested in creating universal adoption of its particular set of technology standards or platforms, then it is critical that patent protection is sought for each and every aspect of the new standard. For example, many universally adopted computing standards are backed by a portfolio of patents, which are then adopted and licensed by industry players.
In some cases, the battle for control over valuable emerging standards, for example in the field of the Internet of Things (IoT) or wireless power transfer, may also involve multiple industry players pooling their IP resources together and collaborating as consortiums in their joint efforts to shape the industry.
Some innovations can be so disruptive that they can predictably mould a new market or industry on their own, much like what Edison did for electricity. Bringing such innovations to market may require a visionary approach, one that involves thorough planning and taking deliberate steps to execute a clearly defined goal. This often involves a so called ‘build it and they will come’ approach.
Innovations that require a visionary approach are often early stage concepts incubated inside a start up company. Contrary to the classical approach, visionary innovations tend to be trend setters rather than trend adopters, and inherently disruptive, which entail higher risks and require substantial resources and commitment to overcome incumbent resistances and to take the innovation to market.
For start up companies, much value of the business resides in its IP, which will most likely be tapped to attract investment funding to meet the resources required for commercialisation. The IP strategy should consider whether there is in fact commercial demand for the technology, the likely strength and scope of IP protection and the subsequent available path to market in light of the patent position.
The IP strategy should go hand in glove with early stage market validation exercises, where entrepreneurs vet the market demand before committing serious resources. The original concept may undergo numerous iterations before reaching the market. However at each stage of iteration, IP must be considered with any patent applications updated to reflect changes in the product to ensure relevance and coverage of protection.
A great example of the fusion of IP and business strategies in action is the Gillette Sensor shaver case. Engineers at Gillette initially developed seven different new shaver designs that would appeal to its consumers. When deciding which innovative shaver design to bring to market, Gillette chose to work with patent attorneys to map out the strengths and weaknesses of the patent positions for each design and select the design which was most difficult for competitors to get around. Gillette further determined which product features best represented the brand and performance advantages, and it subsequently patented them too.
Smart use of IP could also reduce some of the risks involved in bringing visionary innovations to the market. For example, a common pitfall by entrepreneurs includes mis-timing of any public disclosure, which could render patent protection invalid and allow competitors to use the disclosed information without recourse. Not having a clear line of ownership and entitlement to the IP is also a common issue which could prevent the product from ever reaching the market due to ownership disputes. IP tools such as patent mapping and landscape analysis could also be used to identify and reduce deal-breaking infringement risks.
Visionary entrepreneurs should consider the above IP strategy along with their business strategy from the get go, as some mistakes are not only substantially more expensive to resolve than the preventative approach, but can also be show stoppers.
From strategy to implementation
This framework presents a simple way of considering how IP can be managed and used effectively to complement a business strategy, and is by no means comprehensive! A business should constantly review the competitive environment in which it operates, and from that, the best advice is to speak with your patent or trade mark attorney from the outset.
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