SMBs: The Key to Closing the
Innovation Gap
Intellectual Property Management
and the Internationalization
Strategies of SMBs/SMEs
G S Jaiya, Director, SMEs Division
World Intellectual Property Organization
SIMULTANEOUS REVOLUTIONS
NEW
COMPETITORS
NEW RULES
OF
COMPETITION
INDUSTRY
STRUCTURE
CHANGES
NEW POLITICAL
AGENDAS
THE
BUSINESS
NEW REGULATORY
ENVIRONMENT
NEW
TECHNOLOGIES
NEW EMPLOYEES
AND NEW VALUES
EVER INCREASING
CUSTOMER EXPECTATIONS
Defining Competitiveness
The degree to which a nation can, under
free and fair market conditions,
produce goods and services that will
meet the test of international markets
while simultaneously maintaining or
expanding the real income of its
citizens.
Competitiveness: A Link to National Goals
Human
Resources
Capital
Technology
Trade Policy
Improved
Domestic
Performance
New
Competition
Decreased
Budget
Deficit
Stronger
National
Security
Improved
Competitiveness
in World Market
More and
Better Jobs
Reduced
Trade Deficit
Increased
Standard of
Living
Who Makes This Happen?
• Governments cannot legislate success.
• Governments provide the infrastructure and/or the
environment for companies to compete.
• Fiscal and monetary policy
• Education system
• Protection of intellectual property rights
• Other factors that are prerequisites to compete within a
specific industry.
• Governments do not compete, companies
do.
How is Competitive Advantage Gained?
Providing value to the customer.
• What is a good strategy for this?
• Produce quality products and services
through effective leadership of skilled
employees using advanced methods
through the innovative use of
technology.
• Boils down to: Work smarter not harder.
The Diamond of National Advantage
Chance
Firm Strategy,
Structure and
Rivalry
Factor
Conditions
Demand
Conditions
Related and
Supporting
Industries
Government
The Diamond of National Advantage
Factor Conditions: The prerequisites
to compete in a specific industry
•
•
•
•
Transportation
Communications
Logistics
Personnel training as a product of
education system
• Etc.
The Diamond of National Advantage
Demand Conditions: The
sophistication of the customer’s
demand.
More sophisticated demands means
more difficult competition which forces
the company to compete more
effectively.
The Diamond of National Advantage
Related and Supporting Industries:
Home-based suppliers who are also
successful competitors on the
international level.
The Diamond of National Advantage
Firm Strategy, Structure and Rivalry:
How companies are created, structured
and managed and how they compete in the
domestic market.
Varies from country to country, based on a
number of different factors.
The Diamond of National Advantage
Role of the Government: Serve as an enabler,
challenger and catalyst to companies so that
they can compete successfully.
Role of Companies: Create pressure within
the company for innovation and welcome the
challenge to compete against the best in the
industry.
Easy to read, practical,
business friendly guides
http://www.wipo.int/sme/en/multimedia/
Distribution of IP PANORAMA CD
• To member states
of WIPO
• To the partners
of SMEs division
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
Value Extraction
• Ability to extract value will depend on
– Industry
– Product
• component, product, service, software, etc.
– Firm’s location in Value Chain
• Is the firm selling the new product? component of new product?
– Value proposition
• Is the product relevant to the firm’s value proposition
– IP rights acquired
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
Profitability & Growth
Caught in the Box
Does mainstream R&D within the
core business as any other actor in
that business
Profitability
Files patent applications focused on
details/components of existing
products
Core
Business
Mainstream
R&D
Growth
Creates (i) profitability within the core
business at the expense of growth or
(ii) growth at the expense of
profitability, but creates usually only
little profitable growth (if any)
Profitability & Growth
Breaking down the Walls
Innovations
Creates innovations related to core
business
Profitability
Core
Business
Files patent applications focused on
concepts of next generation
products, systems, technologies &
new materials
Expands the core business and
creates profitable growth in the
expansion area
Mainstream
R&D
Growth
Extended
Business
Core
Profitable Growth
Break-Through
Innovations
New
Business
Thinking outside the Box
Creates break-through innovations
focusing on customer needs (total
customer solutions) and connecting core
business with other businesses
Profitability
Files patent applications focused on
strategic new product and service
concepts and emerging technologies
Core
Business
Creates considerable profitable growth in
new businesses
Mainstream
R&D
Growth
Extended
Core Business
Make, Buy or Collaborate Strategy
High
Uniqueness of
Technology
Collaboration
with 3rd party
(e.g. technology
provider)
Low
Buy as standard
component
(”off-the-shelf”)
Low
Company’s own
internal core
competence
Collaboration
with 3rd party
(e.g. supplier)
Uniqueness of
Product Feature
High
Types of IP Rights
•
•
•
•
•
•
•
•
Trademarks (Brands)
Geographical Indications
Industrial Designs
Patents and Utility Models
Copyright and Related Rights
Trade Secrets
New Varieties of Plants
Unfair Competition
WHAT IS A TRADEMARK?
• Any sign, or any combination of signs, capable of
distinguishing the goods or services of one
undertaking from those of other undertakings,
shall be capable of constituting a trademark.
• Words including personal names, letters,
numerals, figurative elements (logos),
combination of colors, sounds, smells, etc
• Visually perceptible; 2D or 3D (shape)
What can be a Trade Mark
• A trade mark is not limited to a sign or words
• Can be:
–
–
–
–
–
–
–
–
Words
Letters
Numerals
Drawings
Shapes
Colours
Logo
Audible sounds
Industrial Designs
Business (Idea) point of view:
– Make your product appealing to consumers
– Customize products in order to target different
customers (e.g. Swatch)
– Develop the brand (e.g. Apple ’s « Think
Different » strategy; i Pod)
Patents
Example: Ring-pull Cans
The inventor licensed the system to Coca-Cola at 1/10 of a penny
per can. During the period of validity of the patent the inventor
obtained 148,000 UK pounds a day on royalties.
Copyright Works
Films
Literary
Dramatic
Sound Recording
Artistic
Music
What are Related Rights?
There are three kinds of “related rights”:
Rights
of performers
•
Actors
•
Musicians
•
Singers
•
Dancers
… or generally
people who
perform in their
performances;
Rights of
producers of sound
recordings (also
called phonograms)
in their recordings
(cassette recordings,
compact discs, etc.);
Rights of
broadcasting
organizations in
their radio and
television programs
and in Internet
broadcasts such as
‘podcasts’.
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
What’s the Difference?
• A product
• A commodity
• A brand
Would you Buy?
• A Libyan watch?
• Japanese coffee?
• A Kenyan car?
Your answer in all these cases is
very probably “NO”
Reason?
NO REPUTATION
Reputation is
the Soul of a Brand
How Important is Branding?
• The NUMMI plant in California produces
two nearly identical models called the Toyota
Corolla and the Chevrolet Prizm.
• Toyota sold 230,000 Corollas compared to
sales of 52,000 Prizms.
• And Toyota’s net price is $650 higher!
A Brand is More Than a Product
Brand
Organizational
associations
Country of
origin
Product
Symbols
Scope
Attributes
Uses
Quality/value
User
Imagery
Functional
benefits
Emotional
benefits
Brand
Personality
Brand/customer
relationships
Selfexpressive
benefits
The physical goods/service
continuum
Continuum of Evaluation for
Different Types of Products
Most
Goods
Most
Services
Easy to evaluate
Difficult to evaluate
High in search
High in experience
High in credence
Modern Value is in Brands
• 74% of the value of the New York Stock
Exchange and 72% of that of the
London Stock Exchange is in brands,
management know-how and patents
True value is no longer in bricks and
mortar
Brand Equity as a Percent of
Firm Tangible Assets
Industry
Brand Equity
Apparel
61
Tobacco
46
Food Products
37
Chemicals
34
Electric machinery
22
Transportation
20
Primary metals
01
The Value of Brands
Global Brand Scoreboard
1. Coca-cola 67.52$ billion
2. Microsoft 59.95$ billion
3. IBM
53.37$ billion
4. GE
46.99$ billion
5. Intel
35.58$ billion
(German survey January 17, 2006)
What is a Brand?
A brand is a “name, term, sign, symbol, or design, or a
combination of them intended to identify the goods and
services of one seller or group of sellers and to
differentiate them from those of competition.”
Source: American Marketing Association
A product is something that is made in a factory; a brand
is something that is bought by a customer. A product can
be copied by a competitor, a brand is unique. A product
can be quickly outdated; a successful brand is timeless.
Source: Stephen King, WPP Group, London
A brand is something that resides in the minds of
consumer.
What is a Brand?
Name
Identifies
product/service
of seller and
differentiates it from
competitors
Design
Keller, Kevin Lane. Strategic Brand Management: Building,
Measuring, and Managing Brand Equity. 1998.
KEY CHARACTERISTICS OF A
BRAND
• To be effective, a brand needs the
following:
– consistency
– to reduce buyers’ level of perceived risk
– to offer a range of functional and emotional
attributes which are of value to buyers
Names are Important in Branding
 Donald Trump’s family name is Drumpf. But he
can’t call it Drumpf Towers.
 Alan Alda’s name was Alphonso D’Abruzzo.
 Chinese gooseberry was renamed kiwifruit.
 Paradise Island in the Bahamas used to be Hog
Island.
A Brand Must be More
Than a Name
• A brand must trigger words or associations (features and benefits).
• A brand should depict a process (McDonald’s, Amazon).
• A great brand triggers emotions (Harley-Davidson).
• A great brand represents a promise of value (Sony).
• The ultimate brand builders are your employees and operations,
i.e., your performance, not your marketing communications.
Brand/Trademark
•Trademark: Legal concept
•Brand: Marketing concept
•Registration of a brand adds value as it
protects its other inherent assets
•Brand profile and positioning may vary over
time, but trademark protection remains the
same
Trust is to Business
What Trademark is to Brand
•Brand Equity built on the foundation of a
protected Trademark
•Brand/Trademark can:
(a) be disposed off separately from other
company assets (Free-standing Institutions);
and
(b) give rights that can be legally protected
Centrality of Knowledge
KNOWLEDGE
underpins
PERFORMANCE
But...
Wolfgang Stofer, Director of BMW’s
Treasury Department:
“Whenever the technology becomes
commoditized, we buy it from third
parties”.
Role of Brands: For the Company
In a highly competitive world
where manufacturers are losing
their pricing power, branding is
seen as a way of clawing back
some of the lost influence.
Role of Brands: For the Company
•Real and marketable asset
•Higher profit margin (Price Premium)
•Incremental cash flow
•Reduces cash flow sustainability risk
Role of Brands: For the Company
•Accelerates speed of cash flow
•Increases bonding and customer loyalty
•Increased market share
•Entry barrier
•Limits growth of competitors
Role of Brands: For the Company
•Requires lower investment levels
•Better negotiating position with
trade and other suppliers
•Facilitates higher product availability
(better distribution coverage)
•Dealers order what customers
explicitly request
Role of Brands: For the Company
•Extends products’ life cycle
•Allows lower cost brand extensions
•Can be the basis for international expansion
•Provides legal protection;
•Licensing; Franchising; Merchandising
•Buffer to survive market or product problems
Role of Brands: For the Company
•Value of Brands is a key determinant of
enterprise value and stock market
capitalization
•Financial markets reward consistently
focussed brand strategies
•Brand management a vital ingredient for
success in
corporate strategy
1961 Coca Cola original vintage
advertisement.
Features a Valentine's Day
Innovative branding
- with a sense of humour
• Mouse characters started to have themes
• Bio 2002 in Toronto
Innovative branding
- with a sense of humour
• Bio 2003 Washington DC
Innovative branding
- with a sense of humour
• Bio 2004 San Francisco
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
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
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
“Technology-Push Linear Model of Innovation”
Basic Research
Applied Research
Invention
Development
Production
Marketing
The Innovation Process
• An innovation starts as an idea/concept that is evaluated,
refined and developed before it is applied or acted upon.
• Innovations may be inspired by reality (known problem). The
innovation (new or improved product development) process,
which leads to useful technology, requires:
–
–
–
–
–
–
Research
Development (up-scaling, testing)
Production
Marketing
Sale
Use/Consume
• Experience with a product results in feedback and leads to
incrementally or radically improved innovations.
New/Improved Product
Development
Stages in a New/Improved Product Development process:
• Ideas Generation
• Ideas Screening
• Concept Development and Testing
• Business Analysis
• Beta Testing and Market Testing
• Technical Implementation
• Commercialization
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 Defined
•“Open Innovation is a paradigm that assumes that
firms can and should use external and internal ideas,
and internal and external paths to market.
• ... Open Innovation combines internal and external
ideas into architectures and systems whose
requirements are defined by a business model. The
business model utilizes both external and internal
ideas to create value, while defining internal
mechanisms to claim some portion of that value.”
– Chesbrough, Henry (2003a) Open Innovation, Boston: Harvard
Business School Press.
Open Innovation
• Types of Collaborations
–
–
–
–
–
–
–
–
–
–
–
Party licensing a patent
Parties forming a joint venture
Parties jointly developing a product
Party accepting an idea submission
Free exchange of information in a network
Open Source
Acquisitions
Alliances
Government / Industry Collaboration
University Research/licensing
Users developing add on to products
Closed Innovation
Advantages
– Simpler
– Sole Control of
Process
– Capture entire benefit
of successes
– IP ownership clear
– Fewer competing
interests
Disadvantages
– Bear entire risk of failure
– Must invest to develop
skills in new
technologies
– Does not leverage other
perspectives
– Tendency to stay with
loser projects longer
Open Innovation
Advantages
– Access to more ideas
– Hedges your innovation
risks
– Access to different skills
– Ability to concentrate on
core business
– Potentially lower costs
– Potentially faster time to
market
– Potentially more successes
Disadvantages
– More complex
– Time for structuring deal
– Requires sophisticated
management of IP
– Requires careful allocation
of innovation risks
– More lawyer involvement
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
Supply Chain for Innovation in SMEs
• Awareness
Preconditions
• Public support
• Intermediaries
• Profitability
Innovation
Awareness
& Audits
Market
pressure
Tools
Outsourced
RTD
In-house
innovation
Risk shared
innovation
Seed capital
Proof of
concept
IPR
protection
• Financial schemes
• Technology & technical centres
• IPR supports
• Clusters
Investment in
human capital
Market
Productive
investment
• SME – Universities interface
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)
Internationalization Strategies of
SMEs
• Exporting
• International niche marketing (marketing a differentiated
product or service overseas using the full
• Range of market entry and marketing mix options available)
• Domestically delivered or developed niche services (to
potential visitors)
• Direct marketing (incl. e-commerce)
• Participating in an international supply chain of an MNE
(piggybacking)
Factors affecting SME
internationalization
(a) Competition and customer factors
Small size means:
• lack of management resources to spend on
researching new markets
• lack of contacts necessary to quickly develop
effective distribution
Factors affecting SME
internationalization Contd…
(a) Competition and customer factors
(Contd…)
• lack of sufficient financial resources to
enable competing with the promotional
spend of their competitors necessary to
achieve significant market share and to
withstand a ’price war’
Factors affecting SME
internationalization Contd…
(a) Competition and customer factors
(contd…)
• can offer customers more personal
service (from owner or managers)
• faster decision making
Factors affecting SME
internationalization Contd…
(b) Company factors
Small size means:
• adaptability and flexibility
• high speed of response
• very focused management
Factors affecting SME
internationalization Contd…
Disadvantages of being an SME:
• lack of adequate planning skills
• inability to devote sufficient time and
finances to the R&D of new business
opportunities
• maybe insufficient knowledge of culture,
market structure and business practices of
other markets; therefore higher risk
Influence of Networks in SME
Internationalization
Research shows that one
of the most important
influences in SME
internationalization is
participation in networks
Influence of Networks in SME
Internationalization
The internationalization of SMEs is influenced
by formal and informal network relationships
type of influence: driven, facilitated, and
inhibited influence on what:
1. the pace and pattern of international market
growth
2. market selection
3. choice of entry mode
Influence of Networks in SME
Internationalization
Participation and position in a networks and relationships
within current markets more important than market and
cultural characteristics
• major partners often guide foreign market selection and
provide the mechanism for market entry. Thus, network
relationships also influence the pattern of investment
• networks present SMEs with new market opportunities
and established organizations as potential partners, thus
accelerating and shaping their internationalization efforts
Influence of Networks in SME
Internationalization
Pattern of internationalization:
(1) intent to internationalize
(2) an initial relationship with a larger firm
(3) development of a network of formal and informal
contacts, providing market knowledge and potential
access/mode of entry
(4) increased visibility for the small firm in
international markets
Influence of Networks in SME
Internationalization
Pattern of internationalization:
(5) desiring increased autonomy and control over their market
development activities.
either:
- diversify from its core product areas
- proactively pursue new markets and/or
- establish its own sales and marketing offices overseas
or:
- control by major network partner limits its product and market
diversification opportunities; growth restricted to initial set of
relationships
Reasons for Failure of SMEs to
Successfully Internationalize
•
•
•
•
Failure to effectively scan the international environment
Overdependence on one product
Imitability of the product ( IP protection)
Failure to respond to worldwide changes in customer
needs
• Failure to plan financial resources
• Failure to manage and resource both market and
operations expansion
• Challenges in enforcing IP rights in foreign jurisdictions
Exploiting IP Assets
Commercialisation of IP
License
Strategic Alliance
Co-Development
Passive
Partnership
Co-Marketing
Commercialisation of IP
License
Strategic Alliance
Co-Development
Sk
IP
$
$
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
KNOWLEDGE AGE
Universities and high schools
become the raw material of
economic development as coal
mines were the raw material
of the industrial age !
3 M’s of ENTREPRENEURSHIP
MANAGEMENT
MONEY
MARKETING
Entrepreneurship 1
Entrepreneurship drives innovation,
competitiveness, job creation and economic
growth.
It allows new/innovative ideas to turn into
successful ventures in high-tech sectors and/or
can unlock the personal potential of
disadvantaged people to create jobs for
themselves and find a better place in society.
Entrepreneurship 2
Entrepreneurship, in small business or
large, focuses on "what may be" or
"what can be".
One is practicing entrepreneurship by
looking for what is needed, what is
missing, what is changing, and what
consumers will buy during the coming
years.
Entrepreneurship 3
Entrepreneurs have:
– A passion for what they do
– The creativity and ability to innovate
– A sense of independence and self- reliance
– (Usually) a high level of self confidence
– A willingness and capability (though not
necessarily capacity or preference) for taking
risks
Entrepreneurship 4
Entrepreneurs do not (usually) have:
– A tolerance for organizational bureaucracies
– A penchant for following rules
– A structured approach to developing and
implementing ideas
– The foresight to plan a course of action once
the idea is implemented and established
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 Advantage
An advantage over
competitors gained by
offering consumers
greater value than
competitors offer.
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
Competitive Strategies
• Basic Competitive Strategies: Value Disciplines
– Operational excellence
• Superior value via price and convenience
– Customer intimacy
• Superior value by means of building strong
relationships with buyers and satisfying needs
– Product leadership
• Superior value via product innovation
CORE COMPETENCES
Definition
Hammel and Prahalad defined
core competence as a central
value - creating capability of an
organization/enterprise.
CORE COMPETENCES
• Core competences are activities or processes
that critically underpin an organisation
competitive advantage.
• They create and sustain the ability to meet the
critical success factors of particular customer
groups better than providers in ways that are
difficult to imitate
CORE COMPETENCES
• Core competences are distinctive
capabilities that lead a company to a
competitive advantage.
• Features of an enterprise that cannot
be readily reproduced by a competitor.
CORE COMPETENCES
Core competences can vary through
the time depending on the strategy
adapted by the companies and the
identification of the core competencies
is the first step for a company to
decide which business opportunities
to pursue.
The Five Generic Competitive Strategies
Low-Cost Provider Strategies
Keys to Success
• Make achievement of meaningful lower costs
than rivals the theme of firm’s strategy
• Include features and services in product
offering that buyers consider essential
• Find approaches to achieve a cost advantage
in ways difficult for rivals to copy or match
Low-cost leadership means low overall costs, not just
low manufacturing or production costs!
Differentiation Strategies
Objective
• Incorporate differentiating features that cause buyers to
prefer firm’s product over brands of rivals
Keys to Success
• Find ways to differentiate that create value for buyers
and are not easily matched or cheaply copied by rivals
• Not spending more to achieve differentiation
than the price premium that can be charged
Where to Find Differentiation
Opportunities in the Value Chain
• Purchasing and procurement activities
• Product R&D and product design activities
• Production process / technology-related activities
• Manufacturing / production activities
• Distribution-related activities
• Marketing, sales, and customer service activities
Activities,
Costs, &
Margins of
Suppliers
Internally
Performed
Activities,
Costs, &
Margins
Activities, Costs,
& Margins of
Forward Channel
Allies &
Strategic Partners
Buyer/User
Value
Chains
How to Achieve a
Differentiation-Based Advantage
Approach 1
Incorporate product features/attributes that
lower buyer’s overall costs of using product
Approach 2
Incorporate features/attributes that raise the
performance a buyer gets out of the product
Approach 3
Incorporate features/attributes that enhance buyer
satisfaction in non-economic or intangible ways
Approach 4
Compete on the basis of superior capabilities
Types of Differentiation Themes
• Unique taste – Dr. Pepper
• Multiple features – Microsoft Windows and Office
• Wide selection and one-stop shopping – Home Depot,
Amazon.com
• Superior service -- FedEx, Ritz-Carlton
• Spare parts availability – Caterpillar
• Engineering design and performance – Mercedes, BMW
• Prestige – Rolex
• Product reliability – Johnson & Johnson
• Quality manufacture – Michelin, Toyota
• Technological leadership – 3M Corporation
• Top-of-line image – Ralph Lauren, Starbucks, Chanel
Sustaining Differentiation:
Keys to Competitive Advantage
• Most appealing approaches to differentiation
– Those hardest for rivals to match or imitate
– Those buyers will find most appealing
• Best choices to gain a longer-lasting, more profitable
competitive edge
– New product innovation
– Technical superiority
– Product quality and reliability
– Comprehensive customer service
– Unique competitive capabilities
Best-Cost Provider Strategies
• Combine a strategic emphasis on low-cost with a strategic
emphasis on differentiation
– Make an upscale product at a lower cost
– Give customers more value for the money
Objectives
• Deliver superior value by meeting or exceeding buyer
expectations on product attributes and beating their price
expectations
• Be the low-cost provider of a product with good-to-excellent
product attributes, then use cost advantage to under price
comparable brands
Focus / Niche Strategies
• Involve concentrated attention on a narrow piece of the total
market
Objective
–
Serve niche buyers better than rivals
Keys to Success
• Choose a market niche where buyers have distinctive
preferences, special requirements, or unique needs
• Develop unique capabilities to serve needs of target buyer
segment
Examples of Focus Strategies
• Animal Planet and History Channel
– Cable TV
• Google
– Internet search engines
• Porsche
– Sports cars
• Cannondale
– Top-of-the line mountain bikes
• Enterprise Rent-a-Car
– Provides rental cars to repair garage customers
• Bandag
– Specialist in truck tire recapping
Focus / Niche Strategies
and Competitive Advantage
Approach 1
• Achieve lower costs than rivals in
serving a well-defined buyer segment –
Focused low-cost strategy
Approach 2
Which hat is
unique?
• Offer a product appealing to unique
preferences of a well-defined buyer segment –
Focused differentiation strategy
The Evolution of Marketing
Transactional Marketing Relationship Marketing
Collaborative Marketing
Time frame
1950s
1980s
Beyond 2000
View of value
The company offering in
an exchange
The customer
relationship in the long
run
Co-created experiences
View of market
Place where value is
exchanged
Market is where various
offerings appear
Market is a forum where
value is co-created
through dialogue
Role of customer
Passive buyers to be
targeted with offerings
Portfolio of relationships Prosumers-active
to be cultivated
participants in value cocreation
Role of firm
Define and create value
for consumers
Attract, develop and
retain profitable
customers
Engage customers in
defining and co-creating
unique value
Nature of customer
interaction
Survey customers to
elicit needs and solicit
feedback
Observe customers and
learn adaptively
Active dialogue with
customers and
communities
Adapted from Prahalad and Ramaswamy 2004
Example 1
• Patent for the fountain pen that
could store ink
• Utility Model for the grip and
pipette for injection of ink
• Industrial Design: smart design
with the grip in the shape of an
arrow
• Trademark: provided on the
product and the packaging to
distinguish it from other pens
Source: Japanese Patent Office
Example 2
• Decades ago, Coca-Cola decided to keep
its soft drink formula a secret
• The formula is only know to a few people
within the company
• Kept in the vault of a bank in Atlanta
• Those who know the secret formula have
signed non-disclosure agreements
• It is rumored that they are not allowed to
travel together
• If it had patented its formula, the whole
world would be making Coca-Cola
Example 3
• Patent for stud and tube coupling
system (the way bricks hold
together)
• But: Today the patents have long
expired and the company tries
hard to keep out competitors by
using designs, trademarks and
copyright
The Interaction of Intangible and Tangible
Assets to Create Earnings
Intellectual
Assets
Intellectual
Property
Structural Capital (generic)
Sales Force
Human
Capital
Value Extraction
Distribution Capabilities
Value Creation
Complementary Business
Assets (differentiated)
Manufacturing Facilities
Intellectual Capital (unique)
$
Intellectual Property Tuned To A Company’s Business
Complementary Business Assets
Intellectual Capital
(Unique Assets)
Know-How
Trade Secrets
Copyrights
Intellectual Property
Patents
Human
Capital
(Lead Time)
Intellectual Assets
Distribution Capabilities
Value Extraction
Trademarks
Value Creation
(Differentiated Assets)
?%
$
Structural Capital
(Generic Assets)
1.
2.
IP Value Is Created When Leveraged Through Complementary Assets
When Companies Have Different Complementary Asset Strengths They Will Need
Different Intellectual Property (Materials, Process, Use)
Intellectual Property Tuned To A Company’s Business
Beverage Companies
Complementary Business Assets
Intellectual Capital
(Unique Assets)
Know-How
Trade Secrets
Copyrights
Intellectual Property
Patents
Human
Capital
(Lead Time)
Intellectual Assets
Distribution Capabilities
Value Extraction
Trademarks
Value Creation
(Differentiated Assets)
$
Structural Capital
(Generic Assets)
•Line Shows the Percentage of Company Value (Market Capitalization) That is Protected
By This Asset
•Most value is in Trademark, Trade Secret, Distribution and Sales
Intellectual Property Tuned To A Company’s Business
Paper Companies
Complementary Business Assets
Intellectual Capital
(Unique Assets)
Know-How
Trade Secrets
Copyrights
Intellectual Property
Patents
Human
Capital
(Lead Time)
Intellectual Assets
Distribution Capabilities
Value Extraction
Trademarks
Value Creation
(Differentiated Assets)
Structural Capital
(Generic Assets)
•Most value is in Trademark, Know-How, Manufacturing and Sales
•Some value in Patents
$
Intellectual Property Tuned To A Company’s Business
Software Companies
Complementary Business Assets
Intellectual Capital
(Unique Assets)
Know-How
Trade Secrets
Copyrights
Intellectual Property
Patents
Human
Capital
(Lead Time)
Intellectual Assets
Distribution Capabilities
Value Extraction
Trademarks
Value Creation
(Differentiated Assets)
Structural Capital
(Generic Assets)
•Most value is in Human Creativity, Trademark, Copyright, and Distribution
$
Intellectual Property Tuned To A Company’s Business
Pharmaceutical Companies
Complementary Business Assets
Intellectual Capital
(Unique Assets)
Know-How
Trade Secrets
Copyrights
Intellectual Property
Patents
Human
Capital
(Lead Time)
Intellectual Assets
Structural Capital
(Generic Assets)
•Most value is in Human Creativity, Patents, and Trademarks
•Some value in Know-How, and Sales
Distribution Capabilities
Value Extraction
Trademarks
Value Creation
(Differentiated Assets)
$
Introduction to IP Management
•
•
•
•
•
•
Legal
Technical
Business
Export
Financial
Relationships
•
•
•
•
•
•
Accounting
Tax
Insurance
Security
Automation
Personnel
Understanding the Process of
Innovation
The Process/Steps of Innovation
Pre-IPO
$
Expansion
• Legal Entity
• Viable
• Market acceptance
• Heading to IPO or M&A
• High Growth
• Founders = Mgt Team
• Bright Idea
• Head Count
• Minimal Revenue
• Experimental
Start-Up
• Multiple Cycles
• Slow Growth
• Research
• Support Functions
• Business Plan
• Administration
Seed
• Proof of Concept
• Marketing
• Revenue Growth
Idea / Concept
Time
The Needs of Each Stage
$
•Business Plan
•Prototype/ POC
•Project Management
•Business Premises
•Project Management
•Management Training
Idea / Concept
•Corporate and
Secretarial
•Financial
•Training
•PR and Marketing
•Networking
•Business
Development
•Recruitment
•Business
Development
•A & P
•Market Access
Expansion
Start-Up
Seed
•International support and Mkt.
Access
•Diversification strategies and
support
•Recruitment
•Training and Incentives
Time
IP Management Needed in all stages
Basic Message 1
IP adds value at every stage of the value chain from
creative/innovative idea to putting a new, better, and
cheaper, product/service on the market:
Trademarks/ GIs
Ind. Designs/Patents/Copyright
Patents /
Utility Models/Trade secrets
Patents /
Utility models
Invention
Commercialization
Marketing
Financing
Literary / artistic
creation
Copyright/Related Rights
All IP Rights
Industrial Designs/
Trademarks/GIs
Product Design
Licensing
All IP Rights
Exporting
Basic Message 2
• IP Strategy should be an integral part of the
overall business strategy of an Enterprise
• The IP strategy of an Enterprise is influenced by
its creative/innovative capacity, financial
resources, field of technology, competitive
environment, etc.
• BUT: Ignoring the IP system altogether is in itself
an IP strategy, which may eventually prove very
costly or even fatal
Basic Message 3 (More for Less)
• Own Use
• Licensing
• Franchising
• Merchandising (Mickey
Mouse, Hello Kitty)