Can you explain how your Patents and IP support your Competitive Advantage?

At its core, strategy is all about competitive advantage. Strategy is fundamentally about how to gain and sustain an advantage over...
Posted on
April 3, 2020
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At its core, strategy is all about competitive advantage. Strategy is fundamentally about how to gain and sustain an advantage over direct and indirect competitors. Competitors, of course, include anyone seeking or drawing revenue (or attention) from the same market segments you are pursuing.

So then, why is your IP Strategy so disconnected from competitive advantage?

It’s easy to proclaim that IP is, inherently, all about competitive advantage. If you can stop your competitors from copying or infringing your patented technology, your registered trademarks, and your copyrighted materials, then you already have a competitive advantage intrinsic to your intellectual property.

That’s correct, but insufficient. Unless you can explain how the competitive advantage you obtain through IP directly correlates with the competitive advantage of your business, as a whole. For this reason, the immediate benefits of IP should not be confused as the competitive advantage of the business in which it is held or controlled.

The immediate benefits of IP should not be confused as the competitive advantage of the business in which it is held or controlled.

Let’s start with a foundation that relies on a business to make money, or revenue, in exchange for products and services. Money is the economic facilitator of this exchange and, consequently, often the most frequent indicator of the success of the business. For our purposes, it doesn’t really matter whether success is framed as how much money the business makes (the business benefit side of the exchange) or how much impact the business creates (the consumer benefit side of the exchange).

At a high level, it also doesn’t really matter whether IP is offensive or defensive. In general, offensive IP is the source of the exchange (the consumers are purchasing the IP rights directly, either through voluntary or imposed means). In contrast, defensive IP is protective of the exchange of money for products/services, but it is not part of the exchange itself. Both offensive and defensive uses of IP can be considered to directly support the exchange within a business model.

Also, IP can be viewed from different perspectives on timing. IP rights might relate to ongoing business interactions (including both present exchange transactions as well as passive continuation of past transactions). Separately, IP rights might be speculative regarding future exchange transactions. But the timing complexity of different initiatives and IP functions shouldn’t be the cause, or result, of incoherence with your business strategy.

This type of discussion is commonplace among patent experts and IP strategists, but by itself doesn’t reach the level of “competitive advantage” for the business enterprise. Business strategy and competitive advantage are more holistic and require a greater perspective than the confines of IP management and philosophies. IP strategy should be viewed at the crossroads of intellectual property, technology, and business. The emphasis of IP strategy should expand beyond the legal discussion and include an analysis of the application of technology and IP within the business strategy, more generally. And since business strategy hinges on the creation and continued propagation of competitive advantage, no discussion of IP strategy is complete without a structured application of the IP strategy to the competitive advantage of the business.

IP strategy should be viewed at the crossroads of intellectual property, technology, and business.

So, what is competitive advantage from a business perspective? And how is it different from competitive advantage in a limited IP context?

Business strategists often emphasize a limited group of overarching competitive advantages, including:

  • Cost leadership – offering products/services of sufficient quality for the lowest cost (allowing lower prices while maintaining an adequate profit margin)
  • Product differentiation – offering products/services of high quality that justify a price premium

It’s debatable whether these are competing strategies, because the target markets are actually different, in most cases. The emphasis, though, should be on the underlying way that a company obtains cost leadership or product differentiation within its industry for its target market. When the “underlying way” is proprietary and protectable, it becomes the “competitive advantage” of the company over within its industry and target market segment.

One framework for analyzing resources, such as assets (including IP) and behaviors, that might generate competitive advantage is VRIO. VRIO provides a framework for estimating the potential contribution of resources to competitive advantage.

  • Value – Can a company extract value from the resource?
  • Rarity – Is possession or control of the resource exclusive?
  • Inimitability – Is imitation or replication of the resource difficult, complex, or costly?
  • Organization – Is a company uniquely organized, positioned, and ready to exploit the resource?

Whether familiar or not with the VRIO framework, patent experts and IP strategists often default to the “R” and “I” factors, without much consideration for the importance of the “V” and “O” factors. It’s easy to see why. IP rights are, almost by definition, rare and inimitable. If the analysis stops there, then the conclusion is clear that intellectual property is a competitive advantage. This perspective is frequently claimed to be “IP Strategy” but would more accurately be call “IP Pseudo-Strategy” because it only poses as strategy in the absence of critical connections to value and organization required for comprehensive competitive advantage.

Regardless of the framework, rare and inimitable resources are not necessarily competitive advantages. For example, a company can occupy a rare and inimitable office space (because there is only one space exactly like it in that exact same location), but unless the company can extract value tied to that specific space, its office space is likely not a competitive advantage. Similarly, even if value might be drawn from that specific space, if the company is not organizationally ready and equipped to realize that value, then the office space is not a competitive advantage for that business.

Thus, the common trap of IP portfolios is to assume that rarity and inimitability of the assets in that portfolio automatically translate into value and ultimately support the competitive advantage of the business. However, that is not the case. And many businesses can quietly attest to having built IP portfolios that, in the end, do not provide competitive advantage because the companies are unable to derive value from the portfolios for one reason or another.

So, what can a company do to evaluate or align their IP strategy with the business strategy? We’ll explore some useful steps and information in a subsequent post.

Jeff Holman
Jeff Holman draws from a broad background that spans law, engineering, and business. He is driven to deploy strategic business initiatives that create enterprise value and establish operational efficiencies.

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