The Role of Intellectual Property in a Knowledge-based Society and the Importance of SMEs

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The Role of Intellectual Property in a
Knowledge-based Society and the Importance of SMEs

• G S Jaiya, Director, SMEs Division
• World Intellectual Property Organization

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(No Transcript)
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Easy to read, practical, business friendly guides
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Spotlight is on knowledge in todays economy

• Knowledge, Weightless, Information, Digital or
  Service Economy
• Factors of production Land, Labor, Capital,
  Intangibles (Knowledge)
• Knowledge as useful Information (or Service)
• Information as a Public Good
• Information as Property

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Market-oriented Economy

• Playing Field Unfair competition free riding
• National Legal Systems Diversity
  (bilateral/regional/ international treaties or
  agreements)
• Adding Value Meeting or exceeding market needs
  or expectations
• Market research Consumers needs, competing
  products or substitutes, gaps
• Technological innovation as an element of
  marketing

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The challenge of adding value in todays economy

• Raw materials/Inputs Processing (Value addition)
  Value added output/component product sale
  Profit
• Value addition Cheaper, Faster, Better
  Functional/technological or aesthetic/non-technolo
  gical Rational/Emotional (More for Less)
• Price access/availability consistency
• Individual, Enterprise (legal person), Chains,
  Networks consortia Open Innovation
  (Industry-Government-Academia)
• Ownership vs. access to knowledge
• Value Addition, Value Delivery and Value
  Extraction

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Competition and Cooperation in the Knowledge
Economy

• Property Right to Exclude/use/enjoy
• Share/leverage
• Physical vs. Intellectual Property
• One to one vs. one to many
• Physical manifestation/link to carrier/medium or
  fixation
• Nature of competing/substitute products
  Functional, equivalent, class, set, related goods

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Levels of Product
Augmented Product
Installation
Packaging
Features
Brand Name
Delivery Credit
After- Sale Service
Core Benefit or Service
Quality Level
Design
Warranty
Core Product
Actual Product
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• Selling Products
• Customers who care about products on their own
  terms is this the right product for me?
• Build the best product
• Best designed
• Lowest cost
• Most reliable

• Selling Interconnected Systems
• Customers who care about the total system
  experience will this connect with the rest of my
  world?
• Control the architecture
• Or
• Influence the architecture and build the best
  products within it

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SME Competitiveness (I)

• In a knowledge-based economy, competitiveness of
  enterprises, including SMEs, is increasingly
  based on ability to provide high-value-added
  products at a competitive price
• Globalization and trade liberalization has made
  it crucial for most enterprises, including SMEs,
  to become internationally competitive even when
  operating wholly in the domestic market

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SMEs Competitiveness (II)

• To become and remain competitive, SMEs need a
  coherent business strategy to constantly improve
  their efficiency, reduce production costs and
  enhance the reputation of their products by
• Investing in research and development
• Acquiring new technology
• Improving management practices
• Developing creative and appealing designs
• Effectively marketing their products

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SMEs Competitiveness (III)

• For this, SMEs must make significant investments
  of time and resources
• Without intellectual property protection there is
  a strong risk that investments in RD, product
  differentiation and marketing may be
  stolen/copied
• Intellectual property rights enable SMEs to have
  exclusivity over the exploitation of their
  innovative new or original products, their
  creative designs and their brands. The
  exclusivity creates an appropriate incentive for
  investing in improving their competitiveness

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Everything Depends on 5 Key Choices

• Choosing the right business to be in
• Creating the right strategy
• Building the right systems
• Designing the right organization
• Getting the right people

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A business is a combination of ...

• Technology in the product or service,
• Technology used to make the product or provide
  the service,
• Features of the product or service, and
• Customer needs met by the product or service,

that creates a potential or real economic
relationship between a buyer and a seller.
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Business Strategy is ...

• the group of dynamic, integrated decisions that
  position the business in its competitive
  environment

• RD Strategy
• Basic and applied research
• Product/process innovation
• Lead or follow

• Marketing Strategy
• Product/market definition
• Pricing
• Distribution
• Promotion
• Customer support

• Objectives
• Growth
• Profitability
• Diversification
• Innovation
• Market share
• Working environment
• Corporate citizenship

• Production Strategy
• Facilities
• Integration
• Capacity
• Quality
• Production technology
• Operations control
• People management

• Financial Strategy
• Capital structure
• Cash flow

• Legal Strategy
• Intellectual property protection
• Corporate

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Strategy Sets a Dynamic Loop in Motion
RD Strategy

• Execution
• People
• Systems
• Organizational structures

Marketing Strategy
Production Strategy
Results
Legal Strategy
Financial Strategy
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Ideas, Creativity and Innovation

• CreativityThe ability to make or otherwise bring
  into existence something new, whether a new
  solution to a problem, a new method or device, or
  a new artistic object or form.
• Innovation1 The introduction of something
  new2 A new idea, method, or device
• Creativity Idea Action
• Innovation Creativity Productivity
• Innovation Idea Action Productivity

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Corporate Strategy

• What is it?
• A defining statement containing the intent and
  direction of the corporation, delineating the
  strategic plans to achieve its objective.
• A living guideline, that focuses and directs
  efforts of the corporation.
• Constantly tested and modified as required.
• Not to be circumvented without deliberate
  modification.
• Balances and integrates the following elements
• Vision of strategic direction for long-term
  strength
• Market direction and needs
• Competitive effects
• Technology strategy
• Product strategy
• Core competency
• Resource alignment

Articulates the ways in which the opportunities
created by the firms capabilities can be
exploited.
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Basic Strategic Considerations

• Key Inputs to Strategy
• Customer inputs what is working and not
  working.
• Market place analysis growing needs, emerging
  applications and significant trends.
• Competitive influences and barriers to entry.
• Internal competency assessment regarding skills
  and ability.
• Corporate business process benchmarking.
• Business strategic inflection point analysis.
• Resources available for commitment.
• Key Outputs of Strategic Dialog
• Business strategy goals and objectives of the
  organization.
• Technology strategy technologies to acquire or
  develop.
• Marketing strategy Why, where and how to focus
  on customers?
• Product strategy features and functions to be
  developed.
• Intellectual property strategy How will IPR
  contribute to strategy?

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Effective Business Strategies address three key
challenges
Markets
How will we create value?
Technologies
How will we capture value in the face of
Competition?
How will we build the organizational
capabilities necessary to deliver it?
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Effective Strategies answer three key questions
How will we Create value?
How will we Capture value?
How will we Deliver value?
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From Three to Seven Critical Questions

• How will we create value?
• How will the technology evolve?
• How will the market change?
• How will we capture value?
• How should we design the business model?
• Where should we compete in the value chain?
• How should we compete if standards are important?
  
• How will we deliver value?
• How do we manage the core business and growth
  simultaneously?
• How do we use our strategy to drive real resource
  allocation?

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Three key ideas

• Uniqueness
• Controlling the knowledge generated by an
  innovation
• Complementary assets
• Controlling the assets that maximize the profits
  from innovating
• Understanding the dynamics of the value chain
• Should we buy our suppliers? Distributors?
• Should we outsource our manufacturing
  distribution sales capability?

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What are Complementary Assets?

• Those assets that allow a firm to make money,
  even if the innovation is not unique
• The answer to the question
• If our innovations were instantly available to
  our competitors, would we still make money? Why?

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Types of Complementary Assets
Competitive manufacturing
Sales and service expertise
Other
Core technological know-how in innovation
Complementary technologies
Distribution channels
Other
Customer relationships
Brand name
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Types of Complementary Assets

• Things you can do
• Manufacturing capabilities
• Sales and service expertise
• Things you own
• Brand
• Distribution channels
• Customer relationships

COMPETENCIES
RESOURCES
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Uniqueness Complementary Assets over the Life
Cycle
Complementary Assets
Uniqueness
Maturity
Takeoff
Ferment
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The Commercialisation Pipeline
Do it yourself
Assign IP
Commercialization Decision
Idea
Invention
IP
Out-license IP
Partner
Etc
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How are commercialisation strategies actually
chosen?

• Ability to exclude incumbants1
• Complementary asset environment1
• Others
• Go where the easy money is
• Past Experience
• Internal constraints politics
• Business network of the entrepreneur
• Risk adversity
• Market forces
• etc

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Build, Buy, Partner Benefits and Tradeoffs
Pros
Cons
Build
Longest time to market Risk in market shifts High
development costs Highest switching costs
Most product control Own the IP Most profit
opportunity
Cost Risk
Buy
Shorten time to market Own the IP
Acquisition costs Integration costs
Shortest Time to Market Conserves Resources Try
before you Buy Lowest Switching Costs Credibility
and access
Partner
Least Control Integration Costs Shared gross
margins - Least Profit Opportunity
Time to Market Control Profit
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Which horse to pick?
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The Key is Collaboration

• Few if any companies today can hold all the
  pieces of their own product technologythey
  simply must collaborate with others if they want
  to survive and prosperIP has become much more of
  a bridge to collaboration
• Marshall Phelps, Microsoft

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Eleven Modes of Collaboration Agreements
Illustration of Their Anchor Points
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New Business Models Emerge
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New Regional Model Emerge
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New developments in innovation raise new issues
and problems

• Greater emphasis on commercializing scientific
  discoveries, particularly in IT and the
  bio-sciences
• Speed and potential value of scientific progress
  leads to emphasis on solid and well-designed
  portfolios of research projects
• Universites as active drivers of innovation
  Academic entrepreneurship and the entrepreneurial
  university
• University-industry partnerships
• Increased search for radical innovation and
  top-line growth.

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Closed Innovation Single Track
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2
3
Ideas
Current Market Place
Investigations
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Research
Development
Commercialization
Based upon Open Innovation Researching a New
Paradigm (2006) Henry Chesbrough, Wim
Vanhaverbeke Joel West
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Open Innovation Three Lane Highway
External Ideas
Investigations
External Technologies
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Insourcing gate
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3
Ideas
Current Market Place
Investigations
Outsourcing gate
New Market Place
Technology spin-offs
Other firms Market Place
licensing
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5
Development
Research
Commercialization
Based upon Open Innovation Researching a New
Paradigm (2006) Henry Chesbrough, Wim
Vanhaverbeke Joel West
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Open Innovation Interfaces and Boundaries

• Cultural differences
• Successful partnerships have researchers in
  companies working with researchers in the public
  research organizations (PROs) and research
  universities
• Communication channels, working relationships
• Creating a company culture where external
  contributions are accepted
• Functional organizations with specific
  responsibility to manage the external technology
  and research function
• Example of Hewlett-Packard University Relations
• Work pace, expectations
• Since private R D labs work more quickly, a
  company may establish a small-firm channel to
  take advantage of the speed difference
• MIT Industrial Liaison Program manages university
  research to meet the expectations of corporate
  sponsors

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Impact of Open Innovation

• Historically, internal RD was a strategic asset
• Nowadays, companies commercialize both their own
  ideas/inventions as well as those from others
  for example, of other companies, public research
  organizations (PROs) and research universities
• Industries embracing open innovation view public
  research organizations (PROs) and research
  universities as a source of graduates and applied
  research
• Researchers in companies have shifted to advanced
  technologies and product development

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A Network View of Innovation

• Depending on a firms strengths, different firms
  play different roles in open innovation value
  chain
• Some firms generate innovations
• Some integrate the innovations of others
• Some have a fully integrated model
• An open innovation system is a networked system

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From a network IN an organization . To the
network IS the organization
Hierarchy
Matrix
Network
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TYPES OF NETWORKS

• Task Networks involve the exchange of specific
  job-related resources including information,
  expertise, professional advice, political access,
  and material resources.
• Social Networks involve relationships
  characterized by higher levels of closeness and
  trust than those that are exclusively
  task-related. They usually consist of people who
  share a common background or interest. Since
  people have more leeway in choosing their friends
  than their co-workers, these networks tend to be
  less closely determined by formal organizational
  arrangements and work assignments. Social
  networks, however, often play a critical role in
  mobilizing resources, transmitting information,
  and providing peer coaching.
• Innovation Networks must combine both!

Thanks to H. Ibarra
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Building an IP Strategy

• Build Your Portfolio
• Strategic Patenting/Branding
• Purchase Patents/Brands
• Deploy Your Portfolio
• Design Freedom
• Manage Competition
• Enter new Markets
• Deliver Revenue

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A Hierarchy of IP/IC Management
Visionary
(Drive Growth)
Integrated
(Manage for Growth)
Profit Center
(Manage for Profitability)
Cost Control
(Control Costs, Improve Productivity)
Defensive
(Build Portfolio, Protect Markets and Technology)
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Exploiting IP Assets
Commercialisation of IP
License
Strategic Alliance
Co-Development
Co-Marketing


Passive
Partnership
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Passive features of a license

• Licensor grants exploitation rights to a licensee
• Licensee pays royalties and other remuneration to
  the Licensor
• Licensor is passive
• Has no further exploitation rights
• Licensor has no need to actively do anything
• Licensor passively sits by and collects royalties

Licensor
IP

Licensee
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Strategic Alliance
Strategic Partner
Strategic Partner

• In a strategic alliance both parties contribute
  to their joint venture their respective resources
  and capability
• Aim is to add greater value to their respective
  positions
• By doing so, to
• Increase their financial return
• To access the capability of their partner which
  they themselves lack
• To acquire skills that they themselves may lack

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Co-Development AgreementsCo-Marketing Agreements

• Co-Development Agreement
• Partners collaborate scientifically to further
  develop the IP
• Take the IP further along the development path
• Licensor increase the value of the IP as a result
  of the collaboration
• Co-Marketing Agreement
• Partners co-market the products of their alliance
• One may manufacture only, and the other may sell
  products only
• They may sell products competitively in the same
  territory
• Or, they may sell in different territories
• Licensor retains some marketing rights, achieving
  greater financial upside

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Entrepreneurial Success

1. People (Entrepreneur /Entrepreneurial
Team) 2. Opportunity (Marriage of Market
and Product/Service) 3. Access to Resources
(Land. Labor, Capital, Knowledge And the fit
amongst these three elements (Business Model)
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Competitive strategy is about being different.
It means deliberately choosing to perform
activities differently or to perform different
activities than rivals to deliver a unique mix of
value.

• Michael E. Porter

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Competitive Strategies

• How does an organization improve their
  competitive performance?
• Must establish a competitive advantage in 3
  areas
• Uniqueness of resources processes (Bill Gates
  knowledge of IBM)
• Value where products/services warrant a
  higher-than-average price or exceptionally low
• Difficult to imitate when products/services are
  hard to mimic or duplicate

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Competitive Strategies

• Basic Competitive Strategies Porter
• Overall cost leadership
• Lowest production and distribution costs
• Differentiation
• Creating a highly differentiated product line
  and marketing program
• Focus
• Effort is focused on serving a few market
  segments