Forbes: IP Is Now Job One For Every Senior Executive

Authors: Mark Blaxill and Ralph Eckardt, Forbes

Everybody talks about “intellectual property” all the time. It comes up in news about World Trade Organization piracy talks, in articles on cyberspying, in arguments over whether the Swiss can trademark the name of Swiss cheese the way the French control the name Champagne–and countless other places, every day.

Why is intellectual property such an important–indeed critical–business topic?

Because in a post-industrial world, IP is a, or even the, central pillar of business strategy. It must be job one for every senior executive charged with managing and growing a successful business. It cannot be left to the whims of bureaucrats–regulators, legislators, trade negotiators–and it can no longer be delegated to technology experts and lawyers.

Why? Because a fundamental shift has taken place over the past few decades, one that has drastically changed the source of sustainable competitive advantage.

Modern business strategy in its earliest incarnation focused on creating what we like to call the cheap company, which relied on low-cost production and dominance of mass markets for its success. This was the era of scale economics, when companies competed using huge fixed-asset investments and production capacity commitments. Hard-nosed industrial-style managers often rose up through operations to lead such companies. They were cost-cutters who drove large volumes and managed the utilization of large investments in fixed assets like big paper mills, steel smelters, large distribution centers and tightly managed sales forces.

After the cheap company, there followed what has famously been termed thefast company. The strategic foundation for that kind of business was process economics–quality processes, excellent service, customer loyalty, rapid delivery times. The archetypal leader was the corporate process engineer, who had mastered tools like process re-engineering, Six Sigma management practices and time-based competition. These executives tore down internal organizational walls, reduced head count and increased the speed of transactions. They focused on industry “best practices” and created new best practices for others to emulate. It was all about the temporary advantage of doing something a little better, more efficiently and faster than your competitors, at least until they caught up.

All that has now changed. Scale can be bought, or even rented. Best practices can be, and are, copied all the time. And so we arrive at the dawning of a global knowledge economy, which has brought with it the era of … the smart company.

Such companies know that the only source of sustainable competitive advantage today is ownership of the specific things that make them, and their products, truly unique–in other words, their intellectual property. Ownership of their differentiators is the only way they can fend off competitors, attract investment and monetize their ideas in the marketplace. So in smart companies, the chief duty of executive leadership is to drive an innovation process that moves from creating intellectual assets to converting them into intellectual property and then monetizing that stock of property as intellectual capital.

There are many ways to pursue an IP strategy, from collaboration to exclusive control, or adopting and licensing the IP of others. And there is an entirely new skill set required of executives. It ranges from product literacy (knowing what specific parts of a product’s design make it unique) to market literacy (knowing how your innovations stack up in the marketplace) and what is coming to be called “zooming” (the mental agility to quickly navigate and prioritize vast amounts of knowledge).

All of this is necessary because IP has become a primary source of competitive advantage–and not just for companies, but for nations as well.

The U.S. is currently the Saudi Arabia of IP reserves. American companies control 33% of the world’s triadic patents (patents that are enforced in Japan, Europe and the U.S.). By comparison, Saudi Arabia has only 20% of known oil reserves. And IP has an enormous beneficial impact on our balance and terms of trade.

But the rest of the world is nipping at our heels. China, for example, is not content to serve as the world’s low-cost manufacturing hub. It has set its sights on IP as its next chief driver of economic progress. In 2007 the chief scientist for China’s Academy of Sciences, Niu Wenyuan, called intellectual property rights “the No. 1 strategic reserve in the 21st century” and added that their “significance is not inferior to any other strategic reserve, be it food or energy.”

This is the new competitive reality facing American businesses. Executives who lack the vision and skill set to meet the demands of a knowledge economy will falter. Their companies will fall behind, as will nations that fail to cultivate and protect their strategic IP reserves.

The winners in this new world will be those who embrace its new competitive dynamic, master the intellectual imperatives that drive innovation and, in the process, turn their smart companies into great companies.

Mark Blaxill and Ralph Eckardt are managing partners of 3LP Advisors, an investment advisory firm focused on intellectual property transactions. Blaxill is a former senior vice president of the Boston Consulting Group and was head of its Strategy Practice Initiative. Eckardt is the former head of BCG’s intellectual property strategy practice. They are co-authors of The Invisible Edge: Taking Your Strategy to the Next Level Using Intellectual Property (Portfolio Press, 2009).

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