How IP savvy is your CEO?
CEOs need to embed IP into their company's cultural fabric if New Zealand is to compete on the world stage
Friday, November 25 2011 || Intellectual Property 101 || BY Simon Rowell
But what role should the CEO have in managing the company’s intellectual property? Great CEOs will be intimately involved in intellectual property strategy and management.
Intellectual property protects the competitive advantage of the company and managing it appropriately ensures long term sustainability. Mistakes in relation to IP can be costly. Kodak, for example, made a $1 billion mistake when it attempted to enter the instant camera market and was sued by Polaroid.
Comparing the market capitalisation of listed companies to the book value of their bricks and mortar assets shows intangible assets including intellectual property account for anywhere between 60% and 80% of a company’s value. If actively managing intellectual property is not a priority for the CEO, that’s a fundamental problem.
The CEO can delegate responsibility for day-to-day management of IP, but he or she must be involved in setting the IP direction for the company. It is not sufficient to address IP issues ad hoc. Smart companies treat intellectual property as a strategic issue that requires proactive management for optimal performance.
In their book Edison in the Boardroom Suzanne Harrison and Julie Davis categorise companies’ approaches to the IP management function according to five levels in a ‘value hierarchy’. Each level builds on the one before it.
Companies at level one view IP as a defensive legal asset, used to shield their patch from competitors, and leave management of IP to legal counsel.
Level two companies are most concerned about managing the costs of establishing and maintaining their IP portfolios. At this level the function is likely managed by a defense-minded attorney or financial controller and IP is still regarded as a legal asset.
Level three companies treat the IP function as a profit centre. At this level there’s a major change in attitude, where IP is viewed as a business asset — rather than a legal asset — that can contribute significant bottom line growth through proactive strategies, especially around licensing. Companies at this level actively manage returns from their IP portfolio, selling or licensing out redundant IP and possibly licensing core IP to competitors. Usually companies at this level have a dedicated IP function.
At level four, IP is integrated into departmental processes. It’s embedded into operations and strategies across the organisation in much the same way that quality control is integrated into a manufacturing organisation, rather than a standalone department.
Level five companies operate in a visionary manner, embedding IP into their cultural fabric. The few companies that operate at this level anticipate technological revolutions and acquire or develop the IP required to protect future margins and market share.
Which level is your company at? What capacity does your CEO have to take IP higher in the value hierarchy?
My view is the vast majority of New Zealand companies operate at level one or two, with little prospect of attaining higher levels due to a lack of IP knowledge among leaders. It is an institutional problem because there is virtually no education here about understanding intellectual property as a business tool. Having completed both legal and business degrees, I encountered one elective IP paper in fourth year law, and a brief mention of it in one post-graduate level entrepreneurship paper in business school. I would be pleasantly surprised if much had changed since.
We need to change our education system and there are various international conferences and organisations where CEOs can learn from their peers in other countries. There is a role for a formal mentoring for New Zealand CEOs by Kiwis leading large offshore corporations. This is one of the great developments Unlimited has brought to the Investment Challenge through its Kiwi Expatriate Association connections.
If New Zealand companies are to truly compete on the world stage and win, we need to bring more of our CEOs quickly up to speed with intellectual property and how it is managed as a business asset.
The writer has clearly spent too long immersed in management speak and lives in a bubble a considerable distance from reality.
"Companies at this level actively manage returns from their IP portfolio, selling or licensing out redundant IP and possibly licensing core IP to competitors."
I don't know many companies with an "IP portfolio".
"What capacity does your CEO have to take IP higher in the value hierarchy?"
Does anybody actually talk like this?
Was this article written by an IP lawyer?
Posted by Patently unreal at 12:28 on November 25, 2011
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