How Executives Can Enhance IP Strategy and Performance

At many companies, intellectual property has become an area of focus. Research shows that top-management involvement in IP strategy is associated with better IP performance.

Five to 10 years ago, the strategic management of codified intellectual property rights — that is, patents, trademarks, copyrights and designs — was still a relatively exotic topic. More recently, the subject has received considerable attention in the business literature. Empirically speaking, however, we still know very little about the importance companies place on IP as a component of business and corporate strategy. Although business-unit managers surely find frameworks that align business strategy with IP1 helpful, and though top corporate executives are inspired by anecdotal evidence of selected colleagues’ commitment to patents2, these executives also need more data on several important topics relating IP to company strategy.3 To properly assess their competitive situation, these decision makers must first know:

  • What does the competitive landscape with respect to IP rights look like? In addition to responsibly implementing IP strategy, managers should know:
  • What are proven, successful strategies for using intellectual property at the corporate and business-unit level? What is the role of the executive committee and the board in IP strategy?
  • What organizational structures support IP-related strategies the most? What pitfalls need to be avoided?
  • How do successful organizations manage the “dos and don’ts” of working with intellectual property, both at the business-unit and the corporate level?

To gain insights into these questions, my research team and I analyzed original questionnaire data from a comprehensive survey of senior IP executives at 34 major industrial corporations, among them industry leaders.

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References

1. M. Reitzig, “Strategic Management of Intellectual Property,” MIT Sloan Management Review 45, no. 3 (spring 2004): 35–40.

2. K. Rivette and D. Kline, “Rembrandts in the Attic” (Boston: Harvard Business School Press, 1999).

3. At this time, there is hardly any large-scale, empirical data on the strategic importance of creating, protecting and exploiting IP rights at the business and corporate level. Earlier contributions by W.M. Cohen, R. R. Nelson and J.P. Walsh, “Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or not),” Cambridge, NBER Working Paper 7552, Cambridge, Massachusetts, 2000 or R.H. Pitkethly, “Intellectual Property Strategy in Japanese and UK Companies: Patent Licensing Decisions and Learning Opportunities,” Research Policy 30, no. 3 (2001): 425–442, are important; however, they mainly address functional management issues.

4. See H. Nystrøm, “Product Development Strategy: An Integration of Technology and Marketing,” Journal of Product Innovation Management 2, no. 1 (1985): 25–33. This thought elaborates on Nystrøm’s rationale on the interlocking between technology and marketing strategy.

5. See M. Porter, “Competitive Advantage” (New York: Free Press, 1980) and R. Grant, “Contemporary Strategy Analysis” (Oxford: Blackwell Publishers, 2002) for fundamental thoughts on the layered structures of strategies. See P.R. Varadarajan and T. Clark, “Delineating the Scope of Corporate, Business, and Marketing Strategy,” Journal of Business Research 31, no. 2–3 (1994): 93–105, for a detailed discussion about the layered structure of the marketing-related aspects of strategy. See M. Reitzig, “A Comprehensive View on Corporations’ Intellectual Property: Towards a Specific Strategy-Structure Contingency Framework” (paper presented at the Strategic Management Society Conference, San Juan, Puerto Rico, November 1, 2004) for an extension of Varadarajan and Clark’s rationale to other areas of intangibles.

6. Reitzig, “Strategic Management of Intellectual Property.”

7. O. Granstrand, “The Economics and Management of Intellectual Property Towards Intellectual Capitalism” (Cheltenham: Edward Elgar, 1999).

8. These questions tried to discriminate between various IP-related strategic scopes reported in the literature: namely, to protect radical inventions from being copied using patents/trademarks/designs; to block entire product spaces by seeking patent and trademark protection for every possible marginal invention; and to generate intellectual property for in-/out- and cross-licensing purposes. For multibusiness corporations, we asked the respondents to focus on their corporation’s major business line. Given the relatively small ratio of cases per factor (and questionnaire items), we confirmed satisfactory sampling adequacy using Kaiser-Meyer-Olkin’s criterion.

9. Sample biases may arise due to the stratification criteria (company size >250 employees) and the possibly higher willingness of respondents to participate in the survey if intellectual property was already a focus area within their organizations. As this study does not aim at representativeness, however, these effects were not studied in further depth.

10. See, for example, J. Liebeskind, “Knowledge, Strategy, and the Theory of the Firm,” Strategic Management Journal 17 (winter special issue 1996): 93–107, for a perspective from the mid-1990s.

11. The senior IP executives were asked to assess their corporations’ IP-related performance along five dimensions: their companies’ choice of the correct R&D trajectories; the efficacy of their R&D and IP-protection mechanisms; the quality of their existing IP portfolio; the efficacy of their use of their IPRs at the corporate and business-unit level; and the efficacy of their IPR use at the functional level. Their ratings were factorized into a composite “IP performance” index. Using multivariate regression techniques, the IP performance index was explained through the strategy and organizational variables from the questionnaire. Both factorized items and individual items were tested as regressors. Standard robustness checks were carried out.

12. See Reitzig, “Strategic Management of Intellectual Property.”

13. See, for example, Cohen et al., ”Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or not).”

14. When relating the organizational data to patent-specific performance measures at the project level (rather than overall IP performance measures at the firm level), coordination between R&D and IP protection also emerges as an important performance driver. See M. Reitzig and P. Puranam, “Value Appropriation as an Organizational Capability — The Case of IP Protection Through Patents,” SSRN Working Paper 957335, 2007.

15. For a description of the “extreme misfit” test approach, see R. Burton, J. Lauridsen and B. Obel, “Return on Asset Loss from Situational and Contingency Misfits,” Management Science 48, no. 11 (2002): 1461–1485.

16. For a comprehensive description of the “contingency theory of organizations,” see L. Donaldson, “The Contingency Theory of Organizations” (London: Sage, 2001).

17. See Reitzig, “A Comprehensive View on Corporations’ Intellectual Property: Towards a Specific Strategy-Structure Contingency Framework.”

18. See Burton et al., “Return on Asset Loss from Situational and Contingency Misfits” for a description of the parameters describing competitive environments. The hypotheses that were tested on our survey data were derived from classic organizational design theory — for example, P. Lawrence and J. Lorsch, “Organization and Its Environment” (Cambridge, Massachusetts: Harvard University Press, 1967) and P. Kandwhalla, “The Design of Organizations” (New York: Harcourt Brace Jovanovic, 1977) and were adjusted to the specific context of this on IP-related activities within the company.