CENSIS white paper: Intellectual Property in Business

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Intellectual Property in Business: IP basics, IP management, IP strategy IP Strategy for Expanding Companies and Corporates (continued) Mission and Goals “WHAT” Value Network “WHO” Alignment Strategy “HOW” Vision and Incentives “WHY” Figure 1: Four strategic elements for a business from Richard Rumelt speaks about three elements constituting the core of strategy creation: diagnosis, guiding policy and coherent action: i) A diagnosis that defines or explains the nature of the challenge. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as critical. ii) A guiding policy for dealing with the challenge. This is an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis. iii) A set of coherent actions that are designed to carry out the guiding policy. These are steps that are coordinated with one another to work together in accomplishing the guiding policy. 61 He elaborates these three elements in the business context: In business, the challenge is usually dealing with change and competition. The first step toward effective strategy is diagnosing the specific structure of the challenge rather than simply naming performance goals. The second step is choosing an overall guiding policy for dealing with the situation that builds on or creates some type of leverage or advantage. The third step is the design of a configuration of actions and resource allocations that implement the chosen guiding policy. 62 Among the exemplary problems companies try to solve are: • How to be more innovative? • How to lower prices? • How to expand into new markets? Apart from problem-solving, strategy focuses on exploring and utilising advantages. As Rumelt explains, ‘advantage is rooted in differences – in the asymmetries among rivals’. It is the leadership’s task to define which asymmetries are critical for the business and to employ them appropriately. 63 When we talk about advantages in the business context, the first term that almost automatically comes to mind is competitive advantage, which many experts link with profitability (i.e., financial gains). At its core, competitive advantage is about shaping new ways to ‘outperform a company’s rivals’. 64 Entering the market with a solution to customers’ burning problems is an almost unbeatable competitive advantage. Competitiveness is also achieved through cost reduction (cost advantage), but also through differentiation (that might lead to a premium price), and as Porter and Millar explain, both are a function of a company’s value chain. 65 61 Rumelt (n 59) 77. 62 Ibid 78. 63 Ibid 160. 38
Intellectual Property in Business: IP basics, IP management, IP strategy IP Strategy for Expanding Companies and Corporates (continued) Porter defines the value chain with nine categories of value-creating activities, as presented in Figure 2 66 : Support activities Firm infrastructure Human resources management Technology development Procurement Operations Outbound logistics Marketing and sales Service Inbound logistics Primary Activities Margin Figure 2: The value chain Primary activities are involved in the physical product creation, its marketing and delivery to buyers, and the provision of servicing after the sale. Support activities provide infrastructure and inputs that support the primary activities. Within each category, as Porter and Miller explain, a company performs a number of ‘discrete activities’ depending on its business profile. 67 Two categories can be easily associated with IPgeneration activities: • Technology development that covers research and development, product design, process automation, etc. • Marketing and sales that are associated with promotion and advertising, which contribute to brand creation and trade mark recognition. Legal activity, such as applications and registrations, would fall into ‘firm infrastructure’ activities. Importantly, many IP-relevant activities can be generated in activities under other categories, such as inbound/ outbound logistics or operations. The fundamental idea behind the value chain model is to identify, in all nine categories, opportunities for optimisation and improvements that will result in competitive advantage. These improvements can be translated and ‘wrapped up’ into IP rights, like patents or trade secrets. Notably, these activities are interdependent and connected with each other via ‘linkages’: these exist when one activity affects the effectiveness and cost of other activities, also in the form of a trade-off. Porter and Millar provide the example of a more costly design or more expensive materials that save costs in after-sale services. 68 Likewise, applying for patent protection (costly at times) can boost the company’s image (marketing and sales) and also strengthen its negotiating position in discussions with suppliers and/ or distributors (inbound, outbound logistics). Rumelt speaks about four different ways of enhancing a company’s competitive advantage: • Deepening advantages (surplus, cost reduction, value increase). • Broadening the extent of advantages (approaching new markets and competition). • Creating higher demand for advantaged products or services. • Strengthening the isolating mechanisms that block easy replication and imitation by competitors. 69 The last one in particular is relevant in terms of IP strategy, with Isolating mechanisms understood here as legal protection of proprietary knowledge: patents, trade marks, or copyrights. The value of the business increases as the peril of imitation of its solutions decreases or is almost completely blocked. From this perspective, IP rights can insulate the technology and keep away competition. 70 64 Michael E. Porter and Victor E. Millar, ‘How Information Gives You Competitive Advantage’ (Harvard Business Review, From the Magazine (July 1985) accessed 2 December 2022. 65 Ibid. 66 Based on ibid. 67 Ibid. 68 Ibid. 69 Rumelt (n 59) 169. 70 ibid 175. 39
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