The organisational keys to unlocking your IP value potential
The operating model is the key factor that separates the best from the rest when it comes to using intellectual property to establish and leverage competitive advantages. Operating models have four pillars, which can prove key differentiators
What is the role of the IP function? Most IP professionals would agree that successful IP management requires two critical capabilities: to create the right IP portfolio and to implement business-driven use of that portfolio. Despite this, the majority of the world’s IP functions are tasked primarily with the former – to create intellectual property around a company’s most promising inventions. How to make sure that an IP portfolio is purposefully used in line with a company’s business priorities is often left vague, if it is addressed at all.
It is difficult. IP management is by its nature cross-functional and neither the ability to create nor use the intellectual property resides fully within the borders of the IP function. In addition, the IP function is traditionally organised as a support function, with the status of a cost centre. Despite being staffed by some of the most well-educated and highly specialised personnel in a company, IP functions often find themselves in an isolated, peripheral position with low executive management attention.
However, over the past several years, many CEOs, chief technology officers, chief digital officers, general counsels, business unit heads and other function leaders have been raising their expectations. The steady stream of high-profile patent cases makes it clear that the world’s leading innovators are increasingly using intellectual property as a means of building competitive advantages. Similarly, the success of some companies in generating substantial licensing revenues from intellectual property has attracted much interest.
However, it is the potential disruption caused by digitalisation – the explosion of new critical technology areas, the blurring of boundaries between industry verticals and the new competitive landscape – that is currently the strongest factor pushing business leaders to consider upgrading their company’s approach to intellectual property. This is true across most industries and even players who until recently were unknown names in the IP world are now quickly establishing themselves in order to reap the benefits offered by the new technology environment.
This article argues that the main factor distinguishing the world’s leading IP companies from the rest is their IP operating models – how they organise and manage their IP resources to achieve their strategic ambitions. It will describe how four pillars can transform the IP function from a support function to a strategic business partner, bridging the gap between IP strategy and execution.
The strategic business partner model
Companies which have succeeded in upgrading their IP function from a service agency operation to a critical enabler of IP-based competitive advantages have some things in common. In general, the world’s IP leaders have successfully implemented business-driven IP management in three layers:
- Strategy layer – they have put in place a business-driven IP strategy establishing priorities in line with the company’s overall strategic priorities.
- Organisational layer – they have realigned their IP operating model to effectively execute the IP strategy in order to deliver value in line with its critical priorities.
- Resource layer – they have allocated the capacity and resources needed for effective execution, both within the IP function and throughout the rest of the company.
Although many companies continue to wrestle with how to align their IP strategy with the priorities of the company’s core operations, the critical layer that really separates the best from the rest is the second – establishing an effective IP operating model. Gaps between what a company says that it intends to do and what it delivers are almost always the result of an operating model that is not set up to deliver on the strategy. On the flipside, the absence of an appropriate IP operating model also tends to be the main reason that a company lacks an IP strategy.
Designing an effective IP operating model is about much more than defining the lines and boxes of an organisation chart. An effective operating model defines accountabilities. It specifies how critical IP processes should be conducted, as well as the responsibilities and authorities for each organisational role in relation to each process.
Since an effective IP operating model must seamlessly link the IP function with several other adjacent corporate functions, it must also be agile and able to adapt along with changes in other parts of the company, as well as to changes to the market and the larger business ecosystem.
The operating model must define a governance structure so that leaders know how they will exercise operational governance and inspire employees, while holding themselves accountable for doing both. The operating model must also define ways of working and behaviours that bring the company’s IP strategy to life and which encompass attractive career paths for its staff.
Although no two IP operating models should look the same, many of the world’s IP leaders use some version of the so-called ‘strategic business partner model’. This has been developed from the insight that business-driven IP management requires engagement across the company coupled with advanced skills in business, technology, law and IP administration. It addresses this challenge by establishing balanced partnerships between a team-based IP function on the one hand, and decision makers and functional experts on the other hand. The strategic business partner model has four pillars critical for its successful operation:
- a joint backbone framework;
- an IP function mirroring the business;
- an IP function partaking in the strategic dialogue; and
- business-driven IP decision making.
A joint backbone framework
All companies use different frameworks to sub-divide the different parts of their business into smaller components. Marketing may have frameworks describing how products relate to different customer segments or geographical markets. Purchasing may have a framework describing procurement areas or supplier categories. R&D may have a framework for describing relevant technology or competence areas.
The IP function typically has its own framework for sub-dividing its IP portfolio into sub-portfolios or clusters, and distributing responsibility among team members. Often, this is not the result of a structured design effort but rather something that has developed organically over time, based on what has come out of R&D. The authority for making changes to the portfolio framework is often distributed and it may be up to whoever is managing the respective parts of the portfolio to make changes as he or she sees fit. This is often carried out without any general quality norms or harmonisation principles.
However, how the IP portfolio framework is designed has major implications for the portfolio’s manageability and usability, and thereby your company’s ability to achieve IP business objectives such as securing premium profits, generating licensing income, lowering product costs or lowering operating costs.
If your company is betting to gain market share by offering products with certain unique features, you will benefit from having an IP portfolio structure that is perfectly aligned with the product system and the associated development organisation. You want to be able to benchmark your IP portfolio for the relevant underlying technology areas against your competitors, agree on a portfolio development plan with the product development heads for these areas and be clear in your communication with all parties relevant for the portfolio’s use.
If your company is entering a new market and needs to in-source a heavily patented sub-system, there may be an opportunity to prepare for this by building a patent-based bargaining position to lower the costs for the sub-system and to create cost advantages in relation to your competitors. Having your portfolio structure and taxonomy aligned with the worldview of the people in strategic sourcing will be extremely helpful when it comes to planning, analysis and execution.
The basis for a strategic business partner model is to build an IP portfolio framework that is designed to be compatible with and plug into the principal framework or frameworks used in the company. Since there is seldom one common framework used by all other relevant functions, there will always be compromises. Leading IP companies have taken the time to optimise these in light of their IP strategy and pegged their IP portfolio structure to one or several frameworks used by their core functions, thereby ensuring compatibility and a future-proof structure.
“ThyssenKrupp’s strategic IP focus is set annually by assessing our relative IP strength on the technology level against the strategic priorities of our businesses,” explains Stephan Wolke, CEO of ThyssenKrupp Intellectual Property GmbH. “This annual innovation and IP dialogue with the business units as well as the following operational execution is built on a joint and structured view of ThyssenKrupp’s technology landscape.”
An IP function mirroring the business
IP professionals are highly specialised and educated people, whose work is influenced by strong norms and routines built up for most administrative and legal processes. A large professional services industry has developed round these processes, which is constantly exchanging professionals with operating companies. Combined with their support function design, this means that IP functions are often organised as functional siloes based on IP types and processes, which are strongly influenced by the procedures of the national patent and trademark offices.
These functions can provide excellent advice on incoming cases, ensure that legal and regulatory requirements are met and even douse the inevitable fires that erupt when there is a conflict or urgency. However, they are typically disconnected from the business and their staff act on a case-by-case basis as individuals, rather than systematically in teams. This makes them reactive players acting unidirectionally on prioritisations and decisions from other internal stakeholders, rather than strategically in partnerships.
Such functions can be strong pools of unique competence in certain areas, but their organisational design and competence mix make it hard or impossible to play a more strategic role and thus they often fail to deliver the business value they should for the company.
The role of organisational design in the strategic business partner model is to focus business accountability for IP creation, management and use in as few managers as possible, while ensuring that these managers have appropriate counterparts in the business, balanced authority and a cross-disciplinary team able to deliver on its responsibilities. To achieve this, the IP function must be aligned with the internal value chain and mirror the business.
In this way leading IP companies have developed IP functions with the mandate to operate in a broader context closer to the core. These IP functions focus on activities adding high value for the company, while carrying out fewer activities that add little value. They work closely with the company’s core operations in a proactive and strategic role, and their teams encompass a high level and diverse range of instrumental and soft skills, including leadership. They have also recognised that the types of people and professional development needed are different and more diverse than in a traditional IP function.
One technology-heavy consumer goods company had its IP function organised in one patent and design rights department, one trademark department and one IP legal department, spread across the globe with limited harmonisation across the different sites (Figures 1 and 2). The patent attorneys were acting as an internal IP law firm, mostly acting individually on case-by-case requests from R&D. It spent a disproportionate amount of time on freedom-to-operate searches requested by R&D and had limited interaction with the business, while the flow of inventions disclosures was driven by the inventors supported by part-time coordinators, which had been set up as an interface between the inventors and the patent attorneys. IP decision making was carried out by site-specific patent boards with a strong technology bias.
A new member of the board of management – whose responsibilities included product development, R&D and intellectual property – wanted more value from the company’s IP investments and initiated a change programme. The IP portfolio framework was harmonised with the business, with global IP directors installed with senior counterparts in each of the business units. Patent, design and trademark attorneys, along with legal counsels and intelligence staff, were organised into global teams based on the new portfolio framework and under the leadership of the IP directors. The resources were consolidated and working methods were harmonised across sites. Business accountability became clear and the organisation could take IP use and business pull as its starting point instead of inventor-driven IP creation.
IP function partaking in the strategic dialogue
Fundamental to IP management is that it entails both creating the right IP portfolio and ensuring that it is then used. The right IP portfolio is, strictly speaking, a derivative of what is needed to create as much business value as possible for the company. This may, for example, be to build up exclusivity around relevant product features but it may be equally important to create or acquire intellectual property that can help you offset a potential IP threat from an aggressive competitor. In addition, foresight on how others may use their intellectual property and opportunities to build stronger IP leverage may be critical input to your company’s business strategy. These things require that the IP function plays an active part in your company’s strategic dialogue.
Despite this, the expectation on many IP functions remains that it focus primarily on creating patents from inventions pushed by inventors. The underlying assumption is that R&D is conducting projects in line with the needs of the business, that inventions created in those projects therefore are relevant to the business and consequently that patents filed on those inventions are business relevant.
In reality, the result is often a scattered portfolio biased towards legacy technology areas and select top inventors, who have developed experience in patent creation. This makes it common that more than 50% of an IP portfolio will lack business value potential.
Even where a portfolio is more business relevant, if it is set up as a support function this still fails to directly address IP value models other than exclusivity for own products. It also fails to provide the crucial input that intellectual property can offer to the strategic choices made by a company’s core operations. Keeping the IP function separate from the strategic dialogue also typically has an adverse effect on IP creation speed, which risks making the company a laggard in the first-to-file game for critical technology.
To address these issues, leading IP companies employing the strategic business partner model are deliberately including intellectual property as part of the strategic dialogue and proactively involving the IP function in the business planning process, while providing IP-based foresight to all stakeholders. Even a business-mirrored organisation will fail to create significant business value if its involvement is limited to operative levels and strategic directions are one-way input received primarily or only from R&D.
IP leaders in such organisations have direct connections to decision makers and forums representing, for example, corporate strategy and brand interests, business unit and product line interests and R&D interests. Such dialogues contribute actively to the strategic dialogue, while representing and driving the IP agenda to maximise business value creation. On an operational level, IP teams are directly involved in two-way communication with development projects, line managers and inventors, and able to convey the strategic direction in which the creation and use of business-relevant intellectual property should be guided.
“We have an annual U-shaped process, where we on the one hand meet with the key stakeholders from the board of management and downwards regarding our strategy, and on the other hand our patent attorneys do the same work bottom-up to liaise with all relevant layers,” points out Jürgen Koch, senior vice president and head of corporate intellectual property at Robert Bosch GmbH. “The bi-directional dialogue with the businesses and core operations of the company is a critical component in our way of working.”
Business-driven IP decision making
Decisions determine performance. To outperform competitors a company must make better and faster decisions and ensure that these are executed more effectively. This is generally true for all parts of a company. However, effective decision making and execution are arguably a more challenging issue for IP functions than for other areas because of the cross-functional character of IP management and the generally low understanding of the subject outside the IP function.
It is difficult to create alignment when your organisation and your stakeholder interfaces are spread out over different regions, functions and business units. This creates unique challenges, which directly affects a company’s ability to run a business-driven IP operation. If decision-making roles and responsibilities are unclear, even a business-mirrored organisation with involvement in the strategic dialogue will fail to make a significant business impact.
Another issue is how you define your decisions. The support function legacy and its associated cost centre logic – along with the bias towards IP creation (rather than IP use) – make many decide on the wrong things. Decisions will be good decisions only if they enact actions and commitments towards value creation.
A vice president in charge of a product category generating an annual revenue of more than €2 billion oversaw the associated IP portfolio and was formally its decision maker. Every month he received several invention disclosures and would be asked whether to file a patent. “The lengthy technical documents took long to go through and were hard to understand,” he commented. “Most importantly they included no recommendation concerning how the new patents would help our business. My decisions also only answered: ‘should we start drafting and prosecution?’ rather than ‘should we invest in this asset to increase value contribution from our IP portfolio?’, which only committed the organisation to execution of the former, and not the latter.”
Leading IP companies that have embraced the strategic business partner model have taken the time to go over all its IP processes and identified the decisions that are most important for their operations to succeed and to ultimately generate the returns expected from their IP investments.
Based on this, they have been able to clarify what the decisions are, who – within the IP function and in concerned other functions – must be involved to make them, and how they should be executed. As part of this process they have assigned accountability and distributed it across the IP function, other key functions and hierarchical levels to ensure that the desired impact is achieved. To ensure effectiveness and efficiency they also follow up on metrics and key performance indicators within and outside of the IP function, and on both sides of business-driven IP management – IP creation and IP use.
“The core activities of Philips Intellectual Property & Standards are organised under a set of business processes geared towards value creation,” argues Maaike van Velzen, head of IP portfolio management at Philips. “To enable efficient execution of these processes our organisational model formalises interfaces between the IP and standards organisation and the core functions of the business across all roles ranging from the executive management level to operations, and clarifies responsibilities and authorities on each level.”
Putting all four together
By getting all four pillars in place, leading IP companies have fundamentally changed the role of their IP functions and how they view intellectual property in general. As strategic business partners, their IP functions are closer to the core and their agendas are in line with the agendas of their businesses.
This set-up gradually reinforces an ever-higher degree of alignment between corporate functions, business units and IP functions, and strengthens both responsibility and authority for business value creation. It allows the IP function to play a more strategic role and as such to undertake the difficult step of focusing its efforts on high-value activities and on building differentiating capabilities, while deprioritising less important requests. For those who have taken this all the way, it has allowed them to build IP operations which make significant contributions to the bottom line.
A company that wishes to transform its IP function from a support function to a strategic business partner and thereby build a strong bridge between IP strategy and execution should consider the following actions:
- Build an IP portfolio framework that is designed to be compatible with and plug into the principal framework or frameworks used by its core operations.
- Align the IP function with the internal value chain and mirror it to the business.
- Focus business accountability for IP creation, management and use to as few managers as possible, while ensuring that these all have appropriate counterparts in the business, balanced authority and a cross-disciplinary team able to deliver on its responsibilities.
- Make the IP function part of the strategic dialogue by formalising connections with decision makers and forums representing, for example, corporate strategy and brand interests, business unit and product line interests and R&D interests.
- Go over all IP processes and identify the decisions that are most important to generate the returns expected from IP investments. Define what the decisions are, who – within the IP function and in concerned other functions – must be involved to make them and how they should be executed.
- Install metrics and key performance indicators within and outside of the IP function, and on both sides of business-driven IP management (ie, IP creation and IP use), to ensure effectiveness and efficiency.