The Importance of Intellectual Property for Business Development

The Importance of Intellectual Property for Business Development and Growth Dr. Guriqbal Singh Jaiya Director Small and Medium-Sized Enterprises Division World Intellectual Property Organization www. wipo. int/sme

SMEs Website

IP for Business Series • Making a Mark (Trademarks) • Looking Good (Designs) • Inventing the Future (Patents) • Creative Expression (Copyright and Related Rights)

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: 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-Government-Academia) • Ownership vs. access to knowledge • Value Addition, Value Delivery and Value Extraction

Levels of Product Augmented Product Installation Packaging Brand Name Delivery & Credit Quality Level Core Benefit or Service Features Design Warranty Actual Product Core Product After. Sale Service

THE PRODUCT LIFE CYCLE • A reminder that most products do not live for ever • A conceptual framework only • Difficult to measure where a product is in its life cycle

Tangibility Spectrum Salt Soft Drinks Detergents Automobiles Cosmetics Fast-food Outlets Tangible Dominant Intangible Dominant Fast-food Outlets Advertising Agencies Airlines Investment Management Consulting Teaching

What is innovation? • Innovation is the process and outcome of creating something new, which is also of value. • Innovation involves the whole process from opportunity identification, ideation or invention to development, prototyping, production marketing and sales, while entrepreneurship only needs to involve commercialization (Schumpeter).

What is innovation? • Today it is said to involve the capacity to quickly adapt by adopting new innovations (products, processes, strategies, organization, etc) • Also, traditionally the focus has been on new products or processes, but recently new business models have come into focus, i. e. the way a firm delivers value and secures profits.

What is innovation? • Schumpeter argued that innovation comes about through new combinations made by an entrepreneur, resulting in – a new product, – a new process, – opening of new market, – new way of organizing the business – new sources of supply

Dimensions of innovation There are several types of innovation – Process, product/service, strategy, which can vary in degree of newness: – Incremental to radical, and impact: continuous to discontinuous

Drivers for innovation – Financial pressures to reduce costs, increase efficiency, do more with less, etc – Increased competition – Shorter product life cycles – Value migration – Stricter regulation – Industry and community needs for sustainable development – Increased demend for accountability – Demographic, social and maket changes – Rising customer expectations regarding service and quality – Changing economy – Greater availability of potentially useful technologies coupled with a need to exceed the competition in these technologies

What is innovation? • Gary Hamel argued that today’s market place is hostile to incumbents, who now needs to conduct radical business innovation: – Radically reconceiving products and services, not just developing new products and services – Redefining market space – Redrawing industry boundaries

New conditions for innovation • Small start-up entrepreneurs increasingly depend on large firms: – as suppliers or customers – for venture finance, – for exit opportunites, – for knowledge (production, markets and R&D) – and for opening new markets.

New conditions for innovation • Large firms increasingly depend on small start-ups – for NPD, – as suppliers of new knowledge (which they cannot develop themselves), – or organizational renewal, for experimentation with busienss models, – for opening new markets, etc

New developments in innovation raises 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.

Complementary Resources Manufacturing Distribution Finance Core technological know-how Marketing Other Service Complementary technologies Other Bargaining power of owners of complementary resources depends upon whether complementary resources are generic or specialized.

The eleven modes of cooperation agreements: illustration of their anchor points Common Research contract Ways of. . . Engineering contract Common purchase Subcontracting supplying designing Trademark licence Patent Consortium Distribution licence (common agreements marketing) Common production producing Source: S. Urban, S. Vendemini, CESAG, Strasbourg marketing delivering Know-how transfer contract

Cooperations modes and value chain Link of the chain R&D • Exchanges of existing knowledge Cooperation modes • Organisation of a common research • Setting up of a common project (design, engineering) Logistic supply • Common purchases Production Marketing Distribution • Subcontracting agreements • Trademark licence • Reciprocal distribution agreements (access to existing distribution networks) • Access to the • Common specific manufacturing resources of agreements the country (raw • Implementatio materials, n of subventions, engineering capital cost, contracts compared advantages) • Patent license • Production consortium Source: S. Urban, S. Vendemini, CESAG, Strasbourg • Consortium (common marketing) • Joint advertising Services • After sale • Lobbying • Relations

THE CHAIN MODEL VALUE CROSSES ONE SINGLE CHAIN : DESIGN INDUSTRY HOW TO TURN Ø TECHNOLOGY Ø INNOVATION INTO ART Ø QUALITY/PRICE RETAIL IN ORDER TO TRANSMIT TO CONSUMERS A UNIQUE IMAGE

New Business Models Emerge Then… Now… CRM’s CRO’s Product Development Cycle Tool Companies One Integrated Company 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

Commercialization Model • Strategic Investment is the Foundation of a Successful Commercialization Model

Strategic Entrepreneurship and Innovation • Entrepreneurship is concerned with: – The discovery of profitable opportunities – The exploitation of profitable opportunities • Firms that encourage entrepreneurship are: – Risk takers – Committed to innovation – Proactive in creating opportunities rather than waiting to respond to opportunities created by others

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 Start-Up • Experimental • 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 • Recruitment • Business • Corporate and Development Secretarial • A & P • Financial • Market Access • Training • PR and Marketing • Networking Expansion • Business Development • International support and $ • Business Plan • Prototype/ POC • Project Management • Business Premises • Project Management • Management Training Start-Up Seed Mkt. Access • Diversification strategies and support • Recruitment • Training and Incentives Idea / Concept Time IP Management Needed in all stages

The firm with a product meeting a market demand the firm product = demand the market

The firm with uncertain future market demand the firm time = the market drivers of change: population tastes and fashions economic conditions technology politics and regulations ?

The firm adapted to changes in market demand the firm = the market time = the market

The firm facing competitive activity competitors the firm = the market time = the market

MARKET ORIENTATION • a corporate philosophy • the implementation of the marketing concept • an ideal • a policy statement • a corporate state of mind

MARKET ORIENTATION • a faith • an organizational culture • a concept of stages of development and degree of maturity that parallels the economic development of the national market

MARKET ORIENTATION A form of organizational culture that: - • places the highest priority on the profitable creation and maintenance of superior customer value while considering the interests of other key stakeholders • provides norms for behaviour regarding the organizational development of and responsiveness to market information

Different orientations of business: • Product orientation • Cost orientation • Capacity orientation • No-commitment orientation • Competitor orientation • Market orientation

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)

What is a Franchisee? “Frantrepreneur” (fran*tre*pre*neur) n. One possessing the desire to be a business owner -- without the desire to recreate the wheel -- by following a proven system for the benefit of personal and professional goals.

The Frantrepreneur Mentality “I’m in business for myself, but not by myself”. “Why would I work for someone else when I can work for myself and reap the rewards of my efforts? " “I have the opportunity to learn from the success and failure of others. ” “I want a ‘bottled’ process for success that I can use in developing my own successful business. ” "Why would I spend years and the investment required to establish a successful brand when I could buy a franchise which provides immediate access to a successful business system and a brand name which others already have made successful? "

Entry Strategies • New Business – Develop a new product or service – Develop a similar product or service – Competitive approaches • Existing Business – Buying a business – Franchise – Joint venture – customer or supplier

“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

Definition • 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 -than-average 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

Relative costs and differentiation Relative costs High Niche Outstanding success Differentiation Disaster Lowest cost Low

PRICING OBJECTIVES CORPORATE OBJECTIVES ENVIRONMENTAL ANALYSIS PRICING OBJECTIVES PROFIT ORIENTATED VOLUME ORIENTATED COST ORIENTATED COMPETITION ORIENTATED

PRICING STRATEGIES • Segmented/Differential: • random/periodic/second market discounting • Exploiting Competitive Position: • price signalling/penetration/experience curve/geographic pricing

PRICING STRATEGIES • Product Line Pricing: • image pricing/price bundling/premium pricing/complementary pricing • Dynamic Pricing Strategies: • multi-tiered price or channel pricing

Low-Cost Provider Strategies Keys to Success • Make achievement of meaningful lower costs than rivals 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 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 -- Fed. Ex, Ritz-Carlton • Spare parts availability – Caterpillar • Engineering design and performance – Mercedes, BMW • Prestige – Rolex • Product reliability – Johnson & Johnson • Quality manufacture – Michelin, Toyota • Technological leadership – 3 M 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-toexcellent 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

An Aspect of Good Management • People Management – by people because IP is generated by people and used • Knowledge Management – because a lot of knowledge is informal and may or may not crystallise as recognisable category of IP • IT Strategic Planning – because a lot of IP is IT-related; some the more complex IP issues arise in IT context of • Contract Management – because IP is often created (or improved) in context of a contract (eg, supply contract or joint venture relationship) • Asset Management – because IP is an asset, albeit intangible; it has value a • Risk Management – because there are risks to an organisation flowing from its actions, or failure to act, in relation to IP (including risk of lost opportunity) with permission of P Crisp, AGS, 2003

Introduction to IP Management 1 • • • Legal Technical Business Export Financial Relationships • • • Accounting Tax Insurance Security Automation Personnel

Introduction to IP Management 2 • • Trademarks (Brands) Geographical Indications Industrial Designs Patents and Utility Models Copyright and Related Rights Trade Secrets New Varieties of Plants Unfair Competition

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 Industrial Designs/ Trademarks/GIs Invention Commercialization Marketing Financing Literary / artistic creation Copyright/Related Rights 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)