The Moneyball phenomenon – new metrics for R&D planning

Michael Lewis’s brilliant book Moneyball (also a 2011 film starring Brad Pitt) is an insightful analysis of how established industries can generate collective wisdom that, despite being ineffective or flawed, continues to be accepted as the status quo – until someone examines what is happening from a completely different perspective.

For those unfamiliar with baseball, for many decades team selection was carried out by scouts using a series of metrics which had remained largely unchanged since the middle of the last century. Oakland Athletics’ General Manager Billy Beane had 40% less cash to put towards player salaries. How do you remain competitive in your field when you have fewer resources? You play smarter. Beane used a different set of metrics to predict who the best players really were and in doing so ended up hiring better players than those using traditional selection methods. He also paid less for these players (as conventional scouts had not predicted their value). In essence, Beane was able to determine the metrics that really counted (not what most people thought counted), and thus was able to make better decisions about where to direct his resources.

Choosing a different set of metrics
How does baseball relate to intellectual property and R&D? The current approach to R&D among many organisations is reminiscent of the flaws in collective wisdom that Beane revealed when he propelled the Oakland Athletics to the playoffs. How do most businesses decide where to focus their R&D? In many cases, R&D – especially the 'R' – has a strong aspect of 'revelation' to it. Scientific advances are arrived at serendipitously, through divine inspiration or in eureka moments. Even the lexicon betrays this – we talk of 'discoveries', 'leaps' and 'breakthroughs', all suggesting that these are things that cannot be foreseen, much less planned for. In short, R&D outcomes are revealed reactively rather than pursued proactively – the R&D programme moves forward towards the future and major advancements occur in an almost random manner.

Directing R&D (and thus IP creation) need not be revelatory or reactionary. The secret is to look at the metrics of innovation in a different way, just as Beane did. Most readers will appreciate that patents are a social contract, rewarding an inventor with a time-limited monopoly in return for sharing its technology with the world and bettering society. A lesser appreciated but equally important reason for publicly searchable patents is to ensure the efficient allocation of society’s collective R&D resources – so instead of continually reinventing the wheel, we focus our resources on solving new problems.

This means that patents (and to a lesser extent, other publicly searchable technology rights, design patents and plant variety rights) can be an extraordinarily valuable tool to guide R&D and innovation decisions towards fundamentally innovative outcomes and, ultimately, commercial success. IP research provides business managers with a unique lens through which to view the future in two key ways:

• by seeing the spaces in the innovation/patent landscape which could provide opportunities; and
• by allowing them to see inside a competitor’s strategy, strength, focus and resources months and years before anything is visible in the market.

A careful consideration of publicly available IP information can reveal:

• what has been researched before;
• the densely populated areas of innovation within a technology field, as well as white spaces or opportunities;
• whether a competitor is investing heavily in R&D around a particular technology area or specific geography;
• the pace and direction of technology development in general, as well as the direction of technology development by a specific market player;
• the features, functions and benefits that other researchers or competitors consider to be important;
• how a competitor or the industry as a whole has solved certain problems; and
• a competitor’s marketing strategy.

Using this different set of metrics, instead of the revelatory approach described above, a company can understand the technology and IP landscape in which it finds itself and direct its R&D spend far more effectively. To an informed company this information is priceless, facilitating:

• targeted allocation of resources into less populatedareas of the innovation landscape;
• identification of previously unknown competitors, collaborators, customers and joint venture partners;
• avoidance of IP infringement issues (freedom to operate);
• leapfrogging of earlier innovations;
• creation of IP assets as blockages to competitors;
• formation of alliances through licensing or agreements;
• targeted litigation or issue of injunctions at critical moments or in critical areas;
• identification of competitors' focus and their latest patent acquisitions or filings;
• awareness of market shifts (which technology to direct your R&D budget towards); and
• an understanding of what and where your competitor may launch next (patents are often filed in the research phase and the corresponding product may still be pre-production).

Just as you can study the IP landscape, so too can competitors. Careful and considered IP strategies around when, where and how to file IP assets that require publication (eg, patents) are an essential aspect of R&D and innovation strategy.

As a simple example of how powerful IP research can be, consider a company developing a new product and facing two divergent technology paths, A and B. Both paths will take 100 engineers two years to complete. Without looking at intellectual property, management might choose the path based solely on functionality, perceived market acceptance and a host of other factors. Putting on the IP glasses, however, suddenly reveals very different terrain. Path A is heavily patented out: the chance of gaining strategic high ground (building its own strong IP position) is limited and there is a high probability of infringement (hitting mines or being ambushed). On path B, on the other hand, the terrain is wide open: the company can develop its own strong intellectual property, has no fear of IP ambushes or mines and can turn the tables and lay traps of its own. Consider the implications of taking path A:

• 200 years' engineering time may be lost ($50 million including overheads);
• a company's investments in its own patents and intellectual property are largely or completely lost ($2.5 million);
• the cost of launching a product that is quickly copied or, at worst, must be removed from the market (tens or hundreds of millions); and
• opportunities may be lost by going back to the beginning and missing the market as it moves (tens or hundreds of millions more).

The difference between the two paths is stark. This is how markets are won and lost, and how companies are destroyed and made.

Intellectual property is a crucial tool
With an ever-increasing focus on technology and innovation as key competitive advantages, it is clear that intellectual property (the output of much R&D) is now a crucial tool. It is axiomatic (though not always universally appreciated) that companies which understand intellectual property, correctly assess the strength of their intellectual property relative to competitors and know which areas to avoid, which to protect and which to invest in are manifestly better positioned than their competitors.

Returning to the Moneyball analogy, patent databases are a valuable pool of information on who, what, where and when – just as the alternative metrics were for Beane. With the help of a skilled IP strategist, myriad databases globally can be mined to reveal the innovation landscape. This provides organisations with an opportunity to look at their innovation plans in a totally different and far more targeted, sophisticated and efficient way. Better intelligence about your capability relative to a competitor’s capability, in combination with targeted innovation in ‘white space’ areas within the technology field, provides major advantages. Careful IP research can mean the difference between success and failure, victory and defeat. While there will always be a place in science for eureka moments, it must also be remembered that most scientific discoveries are made, as Newton observed, “by standing on the shoulders of giants”. It pays therefore to take a look around before we climb higher. In short, knowledge is power, even in the realm of innovation.