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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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 Easy to read, practical, business friendly guides Spotlight is on knowledge in today’s 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 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 The challenge of adding value in today’s economy • Raw materials/Inputs: Processing (Value addition) = Value added output/component; product; sale; Profit • Value addition: Cheaper, Faster, Better: Functional/technological or aesthetic/non-technological; Rational/Emotional (More for Less) • Price; access/availability; consistency • Individual, Enterprise (legal person), Chains, Networks; consortia; Open Innovation (Industry-GovernmentAcademia) • Ownership vs. access to knowledge • Value Addition, Value Delivery and Value Extraction 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 Levels of Product Augmented Product Installation Packaging Brand Name Delivery & Credit Quality Level Core Benefit or Service Features AfterSale Service Design Warranty Actual Product Core Product 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 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 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 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 R&D, 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 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 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. Business Strategy is ... • the group of dynamic, integrated decisions that position the business in its competitive environment R&D Strategy Marketing Strategy • Basic and applied research • Product/market definition • Product/process innovation • Pricing • Lead or follow • Distribution • Promotion Production Strategy • Customer support • Facilities Financial Strategy • Integration • Capital structure • Capacity Legal Strategy • Cash flow • Quality • Intellectual property protection • Production technology • Corporate • Operations control • People management Objectives • Growth • Profitability • Diversification • Innovation • Market share • Working environment • Corporate citizenship Strategy Sets a Dynamic Loop in Motion Marketing Strategy R&D Strategy Production Strategy Legal Strategy Financial Strategy Execution • People • Systems • Organizational structures Results Ideas, Creativity and Innovation • Creativity The 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. • Innovation 1 : The introduction of something new 2 : A new idea, method, or device • Creativity = Idea + Action • Innovation = Creativity + Productivity • Innovation = Idea + Action + Productivity 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 Articulates the ways in which the • Core competency opportunities created by the firm’s capabilities can be exploited. • Resource alignment 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? Effective Business Strategies address three key challenges: Markets How will we create value? Technologies How will we build the organizational capabilities necessary to deliver it? How will we capture value in the face of Competition? Effective Strategies answer three key questions: How will we Create value? How will we How will we Deliver value? Capture value? • From Three to Seven Critical How will we create value? Questions – 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? 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? 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? Types of Complementary Assets Things you can do Competitive manufacturing COMPETENCIES Other Distribution channels Core technological know-how in innovation Other Customer relationships Things you own RESOURCES Complementary technologies Brand name Types of Complementary Assets • Things you can do – – Manufacturing capabilities Sales and service expertise • Things you own – Brand – – Distribution channels Customer relationships COMPETENCIES RESOURCES Uniqueness & Complementary Assets over the Life Cycle: Uniqueness Maturity Takeoff Ferment Complementary Assets The ‘Commercialisation Pipeline’ Do it yourself Assign IP Idea Invention IP Commercialization Decision Out-license IP Partner Etc 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 Cost & Risk Build, Buy, Partner: Benefits and Tradeoffs Build Buy Partner Pros Cons Most product control Own the IP Most profit opportunity Longest time to market Risk in market shifts High development costs Highest switching costs 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 Least Control Integration Costs Shared gross margins Least Profit Opportunity Time to Market & Control & Profit Which horse to pick? Build Leadership Buy Core Business Partner Time to Market Reduce Risk The Key is Collaboration “Few if any companies today can hold all the pieces of their own product technology…they simply must collaborate with others if they want to survive and prosper…IP has become much more of a bridge to collaboration” Marshall Phelps, Microsoft Eleven Modes of Collaboration Agreements: Illustration of Their Anchor Points Common Research Research contract Ways of... Engineering contract Patent licence Common purchase Subcontracting supplying designing producing Trademark licence Common production Consortium (common marketing) marketing Know-how transfer contract Distribution agreements delivering New Business Models Emerge Then… Now… CRO’s Product Development Product Development Cycle Tool Companies One Integrated Company CRM’s Testing Services Many Distributed Companies New Regional Model Emerge Then… Now… Region D Region A Region B Manufacturing Region C Research Trials/Testing Services Development Self-contained regional clusters Region G Region E Region F Specialized, networked regions 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. ‘Closed Innovation: Single Track’ 1 2 “Ideas & 3 “Current Market Place” Investigations” 4 5 Research Development Commercialization Based upon ‘Open Innovation: Researching a New Paradigm’ (2006) Henry Chesbrough, Wim Vanhaverbeke & Joel West ‘Open Innovation: Three Lane Highway’ “External Ideas & Investigations” “External Technologies 1 Insourcing gate 2 “Ideas & 3 Investigations” “Current Market Place” Technology spin-offs 4 “New Market Place” “Other firm’s Market Place” licensing 5 Research Development Commercialization Based upon ‘Open Innovation: Researching a New Paradigm’ (2006) Henry Chesbrough, Wim Vanhaverbeke & Joel West 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 Impact of Open Innovation • Historically, internal R&D 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 A Network View of Innovation Depending on a firm’s 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 From a network IN an organization …. To the network IS the organization Hierarchy Matrix Network 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 coworkers, 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 Building an IP Strategy Build Your Portfolio Biz Strategy – Strategic Patenting/Branding – Purchase Patents/Brands Deliver Revenue Markets Development Design Freedom Manage Competition Protecting Inventions/Recognition Deploy Your Portfolio – – – – Design Freedom Manage Competition Enter new Markets Deliver Revenue 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) Exploiting IP Assets Commercialisation of IP License Strategic Alliance Co-Development Passive Partnership Co-Marketing 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 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 Co-Development Agreements Co-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 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) “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 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-thanaverage price or exceptionally low – Difficult to imitate: when products/services are hard to mimic or duplicate 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