Introduction by Paul Germeraad
By way of introduction to this book I need to tell a few stories. The reason is that I hope that from the stories the reader will understand a bit about the importance of the above design principles and the theme of “integration” in running a successful innovation business.
The first story is one that starts when I joined Avery Dennison in the early 1990’s. At that time two large US corporations, Avery international and Dennison Corporation, both associated with office supplies, combined. The foremost objective on merging two large companies is to first remove the duplication and the excess costs that one always finds. Once that is done the next step is to rebuild and use the resources that were freed up in an ever more productive manner. This is extremely important when Avery Dennison came together because at that particular time the new company was going to compete head-on with two of some of the best corporations in the world. One was 3M Corporation the other was Hewlett-Packard. The innovation challenge was that those organizations were putting a lot more money into R&D and business development than Avery could. 3M was an investing between 5% and almost 10% of sales in R&D and business development. HP was spending between 4% and 7% in the same timeframe. Avery on the other hand spent between 1.2% and 1.5% of sales on R&D. This was a five to ten fold disadvantage. Clearly each of these corporations had the capability to attract world-class talent, to access some of the brightest academics in the world, and to form partnerships with appropriate companies whenever needed. In order to compete with a five to ten times disadvantage in money spent, one of things that Avery Dennison decided to do was to build within the R&D and business development communities a core competency of learning new innovation management methods faster than others, implementing what was learned quickest to see what really worked and what did not, and then discard or adopt the resulting processes depending upon if they were generating true business productivity. This was done not only from an innovation planning standpoint but it was done throughout the operational innovation processes, The elements were tried across all functions in a way that involved not only the working methodologies, but also how people were treated and rewarded. Innovation is a weak link phenomenon. A chain really is only as strong as its weakest link. To improve performance in one part of an organization really can’t generate full business value unless all ships rise at the same time. The real key with the Avery Dennison story was to understand that one had to adopt new processes associated with technology, business development, intellectual property, and human resources start to finish. It is because it was only done in an integrated way that we were able to improve innovation activities within Avery Dennison.
The second story that I need to tell deals with Kevin Rivette who was the CEO of Aurigin Systems, a silicon valley start-up company. Kevin Rivette and David Klein wrote the book Rembrandts in the attic. The book was about unlocking the hidden value of patents. The book documented some of the first practical and strategic guidance on appropriate business use of patents. It showed CEOs and other senior managers how to unlock the financial and competitive patent power hidden in their patent portfolios. The reason this book is important is because up until that time most of us managing R&D organizations were just finishing the hard work of true integration of business planning and business teams into the R&D environment. Historically in the 1960s R&D was often considered to be a white ivory tower working in isolation. R&D invented and then the results were thrown over-the-fence or over-the-wall to operations and marketing to deploy and use the best they could. By the late 1980’s early 1990’s, R&D organizations were being tightly coupled to business. To put this in perspective, I was working at James River Corporation at that time, and one of the key insights we had was that we could really improve our company’s performance if we would marry the top technical talent with the top marketing talent in two-person teams. Each team was assigned to one of our top customers to use as a resource in their development programs. Our technology / business paired-teams worked in close association with the technical and marketing teams at our customers. In so doing they were able to hone in on those products we could develop that were going to be most valuable to our customers’ customers. This really improved and sped new product development but in the 1990’s “Rembrandts in the Attic” took this concept one step further in arguing that intellectual property strategy should be done at the same time as such technology planning and that intellectual property personnel be coupled with technology and business development people in interactions with customers and customers’ customers. This was done at Avery Dennison where in the mid-1990’s the intellectual property team was integrated into the R&D strategic planning team. These teams jointly contributed to technology planning war rooms that contained technology, business and intellectual property in one place.
Such integration was argued for in Rembrandts in the Attic. The then “new competitive battlefield” of IP was outlined and how intellectual property integration would be an important component. Kevin argued convincingly that restoring the lost art of patents and patent strategy was critical to CEOs successful leading of a company. Building on case studies including the work at Avery Dennison, Kevin argued that R&D can be supercharged through patent planning. Then after the patent portfolio was built he showed how one can gain significant financial leverage from patent mining the estate. Putting these concepts down in one concise book that was compelling and readable allowed all in the licensing field an opportunity to share and articulate the concepts that are critical to business success today.
Since publication of “Rembrandts in the Attic” in the 1990’s, further work has been done. A group called the Gathering was formed under the leadership of Patrick Sullivan and on approximately a dozen companies in the US and Europe gathered and discussed how intellectual property intellectual assets and intellectual capital can all be used to increase corporate market value. An outgrowth of this work in the mid-to-late 1990’s was a study of the distribution of value within large patent portfolios. A number Gathering member companies looked into their portfolios and what was discovered was that the value of intellectual property did not follow a normal distribution of value as was originally presumed. Instead it was discovered that intellectual property value was log normally distributed. What this means is that a very few number of patents contain most if not all of the value of the corporation’s estate. In the studies it was found that something on the order of 1% of the patents contained over 90% of the value of the corporation. Fast forwarding out to 2005 to 2007, as more companies have studied their portfolios and now estimate that somewhere between 5- 7% of their portfolio’s patents are creating 80 to 90% of the value. Work done by OceanTomo used broad based algorithms, not detailed expert studies of portfolios, and has shown that it is on the order of 50% of the patents are contributing over 90% of the value. Translated, this means that the hypothesis of “Rembrandts in the Attic” that every attic contained a Rembrandt, or at least that was a popular connotation of the title of the book, was false. Because of this misunderstanding some of the shine of “Rembrandts in the Attic” has been tarnished, but that should not take away from the fact that it is in any case really worth putting in place solid patent strategies! It is worth the energy needed to well manage existing patent portfolios as the value in doing so is not just the immediate dollars and cents from potential licensing revenues, but in the portfolio management exercise that builds critical thinking skills and wisdom in business development, technical and IP teams. Unlocking the hidden value of patents is about the insight one obtains in looking at business through the licensing lens. That insight is worth far more than the actual value of the patent licensing or money saved by avoiding maintenance payments
The third story I would like to tell has to do with the book “Edison in the Board Room” that was written by Suzanne Harrison and Julie Davis. I mention this book because it represents important work that carried through the thoughts into practice that “Rembrandts in the Attic” introduced. Suzanne and Julie talked about how one really could manage intellectual assets and obtain value from them. They wrote a working person’s book. This book is another stage in that evolution as it is an even more detailed guide than “Edison in the Board Room”. The key finding reported in “Edison in the Board Room” was that when one goes about managing intellectual property one has to think of activities as if they’re part of a Maslow hierarchy. I was first exposed to the Maslow hierarchy in a business sense in working with the environmental health and safety efforts at Avery Dennison and the EH&S Directors’ Network of the Industrial Research Institute (IRI). The environmental health and safety director’s network discovered that the most important thing organizationally is the same kind of thing that’s important personally. You have to first “breath” from an organizational standpoint before you can do anything else. From an EH&S perspective this means that you have to be able to do business in as a legal entity first, before moving onto safety then health. You have to obey the laws, you have to make sure that people are not going to jail; you have to be working in a way that is allowed within your society. Corporations are legal fictions and to exist they need to abide by those rules. Intellectual property has many of the same elements as environmental health and safety and what was found is the first thing that you have to do with intellectual property is you have to first “breathe”. Julie Davis and Suzanne Harrison used this Maslow analogy in their pyramid. Creating IP is “breathing” and what an IP manager did thereafter was “eat”, that is control the costs of the IP portfolios that were created. If all you do is acquire, you gather way too much art and the costs of maintaining it will kill a corporation. Dow Corporation was one of the entities in the mid-19 90s that by adopting good cost control methods was able save tens of millions of dollars on their worldwide portfolio.
Once a company has the confidence to create art, and to manage a portfolio for cost, the next thing you can do with it is look for art in that portfolio that would be valuable to others, but that is not protecting one of the corporation’s core competencies. This is activity is at level 3 in the hierarchy provided in Edison the Board Room. Art should be licensed out to other organizations for which the licensed intellectual property protects their complementary business assets. From this level 3, companies can then build their confidence and competence in licensing-out. Upton mastery of this level a company can then think about how one uses intellectual property to actually control standards in industry and plan ahead for technology, business and intellectual property so that upcoming standards will be controlled by their IP holdings. If done well, Level 4, whole industries are controlled. However, by the late 1990’s and early 2000’s is this had become a known strategy and today standards committees are ever more watchful for companies who are going this direction.
At the very highest level 5 described in Edison’s in the Board Room visionary work has to do with the company using an integrated business, technical, intellectual property, intellectual assets, and intellectual capital (human capital) strategy in a way that can really provide benefit to whole regions of the world or whole societies. There were very few if any corporations in the world at the time the book was written and less than a dozen today that meet this criterion. The concepts that are described in this book are really designed and aimed at level 4 “integrated activities”. I mention Edison in the Boardroom” because before one can progress in innovation management one really has to put in place in the technical and business development teams the ability to create solid intellectual property. To have really good imagination and innovation taking place, licensing and intellectual asset management teams really do need to know how to contain costs and really do need to know how to seek and manage high-value intellectual property well. Licensing teams building a core competency in licensing-out can thereafter then turned inward and use in that same competency in today’s Open Innovation environment by acquiring technology outside for productive use inside. An organization’s business development, technology teams, general managers, and “C” level teams need to understand that such performance is build on a Maslow’s hierarchy and they must support putting everything into place that one needs for sophisticated innovation management and that they must go about it in a stepwise and methodical manner.
The fourth story I have to tell has to do with process not content. “Rembrandts in the Attic” and “Edison in the Board Room” both describe methodologies to use but not necessarily in what manner to do the work. Learning how to work effectively comes from the research done by Stephen Covey. He wrote and taught on the “seven basic habits of highly effective people”. Steven’s key ideas were that we are effective only when we balance both our “production” and “production capability”. He pointed out that most people, when they talk about being effective, mean getting results. Getting results is certainly a key part of being effective but that’s not all there is to it. He goes on to point out that effectiveness is has a second dimension as well. That second dimension of effectiveness is preserving and enhancing our assets (financial, facilities and equipment, and human). The point Mr. Covey made was effectiveness always comes from a balance between “getting results” and “the assets that produce them”. When we talk about integrating business, technical, and intellectual property, the physical assets are usually technical and intellectual property, financial is often connoted to be the same as business, and the third element, human capital is the broadest form of IP as we will address later in this book. I mention this to tie into the three kinds of assets Stephen Covey points out; I believe strongly that human assets are the most important and often the most neglected.
One might ask how the seven habits that Stephen described relate to innovation. Dr. Covey was talking about habits as personal habits. In this book they have a similar meaning and impact when applied to an organization. Applying the seven habits takes the same form as any organizational change process. The first stage in growth is dependence. From this perspective people look at the management of intellectual property as being dependent on R&D to develop it and be being dependent on legal to make good use of it. The next step towards maturity is independence. For intellectual property that milestone began in the 1990s where IP began to be valued in its own right by business leaders. The books mentioned beforehand “Rembrandts in the Attic” and “Edison in the Board Room” were published at that time. At this stage of independence, people understood the value of the IP asset and used it through licensing to generate benefit for the organization. The third stage of maturity is interdependence. That’s the subject matter of this book and where the world was in 2007. It’s the interdependence of intellectual property with the business and technology that allows for its highest use as a business asset.
Stephen Covey’s first habit was to be proactive. From an organizational standpoint this involves being interactive with what is going on with the customers’ customer. What are the real basic needs of customers? It is not until you really uncover customers hidden needs as the Japanese did during the 1990s with their one-way mirror observing rooms, that you really understand what value a company can bring to people. Stephen Covey’s principle of being proactive means our integrated business development has to get outside the organizations facilities and interact with clients and customers to understand their business, understand their preferences using desirability curves to understand when the interactions are logarithmic, exponential, or linear, and doing conjoint and other analyses to prioritize them appropriately. The proactive behavior is about making choices that are guided by values, and that’s why we’re going to see in the first chapter it’s important that values are well understood by the organization. Productivity is not the same as being aggressive. It’s driven to understand not just to be pushy.
Stephen Covey’s second habit is to begin with the end in mind. He points out that all things are created twice, first mentally and on afterwards, physically. When you start with the end in your mind, you then drive towards that end instinctively. You know what to look for. Your ears are listening and your eyes are subconsciously scanning and spotting things that otherwise might go by you as part of the scenery. You’re honed in and keying off of that which is important for success.
War rooms are an excellent means to allow a whole organization to see gaps, what needed, what’s happening by technology over time, what’s happening with customers over time, what’s happening with competitors over time, and what’s happening internally over time. Seeing these pictures on each one of four walls of a war room is a very vivid picture of what the end goal is. Displaying information in this manner allows people to bring forward new ideas and understand exactly how they will impact each of those four environments.
The third habit of highly effective people is to put first things first. Time management and high leverage activities have to dominate an organization’s behavior. You really do gain control of time and events by seeing how they relate to the organization’s mission. The structure of this book is intended to be a guide on what to do and in what order. If we’re not careful everything seems to be both urgent and important. If such is really the case we tackle these items first, but more often than not things are important but not really urgent and vice versa. On a bad day we also find ourselves occupied with activities that are neither urgent nor important. By knowing how activities fall under these four quadrants an organization can make extremely good use of its time and energy, but you can’t do it if you can’t as an organization see which is which. That is why war rooms are such an important part of success and will be covered in the competitive intelligence portion of this book.
The fourth habit of highly effective people is to think win-win. It’s a solid negotiating strategy. It’s a solid way to treat other individuals with respect. It’s an excellent way to enable very diverse populations to work together. There’s a group at Harvard associated with negotiating strategy that has a standing offer that for any agreement brought to them they can find an improved way to construct the agreement. The method they often use is to expand the bounds of the negotiation to make sure everybody ends up in a win-win situation. The story that’s often told relates to FedEx and a customer. They were really arguing initially over lowered delivery costs when FedEx broadened the scope to a client’s problem of really getting in its raw materials through to getting its products to customers. When looked at as the whole value chain, what they had was a logistics and distribution management system problem. This was FedEx’s specialty and the offered to track things from order through to delivery and by offering that whole package FedEx was able to negotiate a higher return for them and the customer was able to create higher internal productivity. It was really watching how you create a winning solution.
Now back to our topic, we’re looking at product development and we’re talking about intellectual property. One of the things it’s important for us to be doing is keeping the same win-win perspective how can we create value for our company and how at the same time we can create value for people who were bringing technology to us through open innovation and how can we be expansive in our approach. We need to be thoughtful as we prosecute intellectual property so in the end we can create value for our company through our direct products and services but also through licensing art to others which is tangential to our needs.
The fifth habit of highly effective people was to “seek first to understand and then be understood”. This habit is really about communication and organizational good sense. It also has to do with doing solid prior art research before projects are started. When you use a word like “prior art” most people think immediately of the legal function. In this book these words mean is doing your homework. As examples of questions such research should answer are: What companies are present, what are their marketing strengths, know what their brands are, know what businesses lines are growing or contracting, what companies are healthy enough to invest in R&D, do they have the capability to do open innovation. It’s also about doing to solid technical research ahead of time. Examples of this “understanding first” prior art work are: understanding what technical work has already been done, and which elements of this work could be appropriately applied to the project and the business development at hand. From intellectual-property standpoint “seeking first to understand” is understanding who is claimed what before us. We want to be fair in using other’s intellectual-property and we want to compensate them where it’s appropriate, or if it’s more appropriate for us to design around other work, we want to do that in a clean, open, and honest manner. Communication is also about really understanding the relationship of the parts to a whole. As an example, in this book you’re going to see a large number of graphic displays that allow a specific piece of intellectual property, or a specific piece of technical or business work, to be placed in the context of all other competitive works. It’s important to have the context understood and communicated before wise decisions can be made. Understanding the environment before communicating “to” a business team requesting approval of a project is important. You have to understand it fully yourself before asking permission from others for their money.
The sixth habit of highly effective individuals and again one that is applied directly to an organization is synergy. It’s a habit of effective cooperation. You really need to value the differences inside your company, your organization, and others entities. Technical teams really need to value marketing’s ability to bring in a solid prioritized list of what can be created for clients and customers that will be of real value to them. The marketing people have to understand and value the technology teams’ ability to do work themselves, or to gather available developments from others outside the company. This in particular is where intellectual property comes in because one wants to make sure that other people’s existing rights are respected and that new rights that the technology group and the marketing group come up are protected in a way that patents, copyrights, trade secrets, and trademarks are appropriately filed for and obtained to sustain business profitability.
The seventh habit of highly effective individuals or organizations is what Stephen Covey called “sharpen the saw”. It’s a habit of self-renewal. It is always about making sure that you are constantly investing in growth. I know no better way of doing it than to be looking at the literature. This applies equally to business, technical, or intellectual-property areas. Constantly searching for new ideas, constantly understanding new things that other people are doing, and then thinking and re-thinking about how can they be adapted to serve my company, my clients, my customers, and how can they create growth for everyone is a key element of sustained personal, professional and organizational growth.
The fifth story of the Introduction, and another driving force behind this book, comes from another author, Joe Coates. He wrote “2025 : Scenarios of US and Global Society Reshaped by Science and Technology.” In his book one of the things that Joe talks about is how the world has gone from an agrarian and farming society, through the industrial age, and how it is now embarking on an information age. In each of these ages different elements of human behavior, technology, and intellectual property dominated. Of importance in our current information age is the observation by Joe that really effective communication occurs when pictures are shared. The picture however has to be constructed in a specific manner. The picture or pattern is made up of individual data elements that are themselves smaller pictures that a person can see. Current pop art shows examples of this were we see a composite photograph of a person’s face or a lion’s face from a distance, and when you walk up close you see that each of individual picture pixel is composed of a snapshot from that persons or that Lions life or environment. We will see later in this book that such pictures have been used effectively to show an integrated view of business, technology, and intellectual property landscapes. This kind of picture is used to create a pattern that makes a compelling visual image of why a particular decision is most appropriate.
Of importance to understand now is the work that Joe based his research on. It was conducted at the Sandia national laboratory. The work at the national lab showed that when people could visualize how elements making up traffic flows, or nuclear explosions, or intellectual property were related to one another, they can make good decisions very quickly. The decision time compression was found to be up to five orders of magnitude. This is the equivalent of reducing a decision to one second that would normally take six months.
While this may be hard to visualize it first, think of some of the display patterns that the Sandia national laboratory created around traffic flows in large cities. They were able to show congestion at different times during a day, where the congestion patterns were, and if an off ramp was widened or a signal light’s of cycle times were slightly altered, they would be able to increase the traffic flow from stop-and-go to free-flow. People could see this literally in a few seconds. They knew what the right decision was, why they should do it, and what the impact would be. Without this information people would grapple with what would be the right course of action and oftentimes they were spending many, many months in study trying to understand what the right choice of what to do was.
The same is true for intellectual property. Avery Dennison’s Research Center created patent citation maps that showed three elements. The first element was who owned the intellectual property. The second element was who needed the prior art for freedom to practice. The third element was whether the prior art absolutely required for commercialization the following technology. There were cases where it was immediately obvious from the patent citation pictures that we would have to license earlier prior art. The tool allowed seeing the pattern at the start of a project so we could seek and obtain needed art before continuing on with the technical and business development. This insight and the patterns allowed us to know what the right course of action was, literally in seconds as opposed to thinking about it and studying it for many months. It was the pattern that provided the insight, no one single data element by itself.
Clearly the current visual display of information is critical to making integrated technical, business, and intellectual property decisions quickly, of high quality, and sticky. Note that the last term was coined by John Seely Brown at Xerox PARC in reference to how long a management team held the course before second guessing themselves and slowing a projects progress. The reason such integration of business, technical and IP information didn’t occur before the late 1990s was the fact that the visualization technology wasn’t available before that time to see this information in a way that true integration could be conducted with the timeframe of most business decision making. Now that the tools to exist, not to use them would be criminal. The cost to benefit ratio is many orders of magnitude.
The sixth story that provides a conceptual basis for this book comes from work done at the Center for creative leadership in Greensboro, North Carolina. The work was conducted by Charles Palus and David Horth who published their initial findings in a 1995 research summary draft (A new look at creative leadership – Charles Palus and David Horth, CCL draft, unpublished October 1995). At that time the forefront of creative leadership thinking was that it was important to intentionally mobilize an organization to face complex adaptive challenges. The competencies involved in so doing were the ability to “make meaning” or understand complex environments and decisions. This research conducted at the Center for Creative Leadership explored the use of art in decision-making quality, speed, and stickiness.
The key undertaking by David Horth involved using art, pictures and music, to find whitespace and improve decisions (Aesthetic Competencies). Using visual displays of information much like that used to display intellectual property and landscape maps described above, David was able to show that the human mind can conceive of options using such competencies that it otherwise would not have uncovered. David’s work also builds on the work of Joe Coates in showing that visual displays of information significantly improves the quality, decreases the time and improves the stickiness of decisions. The selective use of very specific music patterns during particular kinds of thought, expansive for brainstorming or focused for selection of options, was also found to speed decision time and improve decision quality.
The last story that provides a backdrop for this book is “The world is flat” by Thomas Friedman. In his book Tom eloquently points out the growing interdependence of people around the world. He highlights how technology has allowed people to interact, and how social networks around the world share creative ideas, business plans and new products. He also points out how a critical path to the future comes from innovation.
Innovation is both a curse and a blessing. It is a blessing because it allows one to develop new businesses with new technologies, business models and protect it with IP so that the profits can pay back the investment in time and money that individuals have made. Innovation is a curse because you aren’t the only person with good ideas. One must constantly strive to improve on the products and service one offers. There is no standing still. One of my favorite quotes is “in Africa every morning a gazelle awakens knowing that it must outrun the fastest lion if it wants to stay alive. Every morning a lion wakes up knowing it must run faster than the slowest gazelle or will starve to death. It makes no difference whether you are a lion or a gazelle; when the sun comes up you’d better be running.”
Tom makes the point that innovation is about who can learn the most the quickest. He shows that when products and services are outsourced two things happen. The immediate gains from a cost advantage or in a service advantage by outsourcing are offset by the loss in giving up a learning opportunity. Individuals who work in outsourced manufacturing sites see the problems that they have, learn how to solve them, and thus drive their costs lower and efficiencies higher. Individuals in customer service hear the problems consumers have, the features they wish were different, and so doing they are the ones with the insights to develop new business models and invest in new technologies to offer feature sets that are much improved over current offerings. Because the world has become increasingly flat these trends are inescapable and now the challenge for corporations is how to take advantage of them rather than be hurt by them.
To take advantage of the flattening world, integrated information offers companies and individuals the ability to capitalize on the transparency that the world is moving towards. One can spot in business literature, technical literature, and intellectual property literature new patterns. With powerful search engines the relationships between the patterns can be seen. On seeing the patterns, alternative ideas can be explored and business plans put together quickly. Showing investors how a business trend, technical capabilities and intellectual property availability can be used to build a business, allows them to make a funding decision quickly and wisely. It is this flattening of the world that makes integration of business technology and intellectual property not just nice to have, but a must to have for business success.